I am the first to admit that I am no financial expert, but it dose seem to me that recessions are an invertible and inescapable part of the way we currently run our financial systems.
What makes me think this?
Well as long as we hold on to the idea of taking risks to make gains they will happen again and again.
The problem is we human beings are very bad at assessing risks or at least we are bad at taking our own risk assessments seriously. We always seem to look at the risks and say ‘oh it will never happen to me’ but of course it can and does. In the financial markets recently the idea seems to have been, yes there is a high risk, but the rewards will be huge and it’s the promise of these huge rewards which has blinded most in these markets to the risks.
And since it’s been a while since the last big recession (and here I’m thinking the late 70’s was the last one, the 90’s I don’t think was on the same scale), these risks have had chance to build up. I’m not saying that just because it’s been a while since the last recession this one is going to be a big one (I think that it is going to be big, very big), no the reason this is going to be big and long, is that use past market data to predict the future markets. Now there is no other way to actually do this, so that is in it’s self not the problem. The problem is that we as people look at this data and think, oh this was safe last year, so it will be safe this year. That is not how chaotic systems work. And I’m sure the markets are chaotic systems.
So we look at these figures and in each year since the end of the last recession I’m sure the memories of the recession fade and so does the cautiousness in the markets, so more and more risks get taken. Now since some, maybe a lot or even most, of these risks are long term (mortgages which typically last 25 years), the gamble is that there will not be another recession in that time. As time goes on more and more money gets put on these longer term risks, so the length of time between recessions will effect the depth of the recession simply because more and more is risked in that time.
Also the risks that are taken will tend to be higher, because in these boom times, risk taking can generate huge returns. Getting a huge return from a risk only encourages more risk taking, this is the reason why Casinos work. Yes there are a few people, a very few, that know when to quit, take there gains and run, but not enough to keep the system stable (in the case of the markets) or shutdown Las Vagas (in the case of Casinos).
So we keep on put more and more money in to higher and higher risks, then something in the market breaks and recession hits. So can’t we just look for the things in the market that might break? Well yes we can and at the start of every recession we do this and say, oh that was what caused this to happen, well that was a special event and it’s not likely to happen again. But we still watch for that thing anyway. The problem is that while that one special thing might not happen again, because the markets are unstable chaotic systems there are so many special things that could happen to tip the markets in to recession, we just can’t track them all. In fact probably just about everything in the market could trip a new recession. If we monitored them all, apart from taking all of the computing power in the world, no risks would be taken at all.
Would this be such a bad thing to take no risks? Well it would probably mean that the markets just wouldn’t grow at all, but again would this be a bad thing? Probably. I think we depend the markets growth for just about all other forms of growth. If there was no economic reason, would we have crossed oceans and found new lands? Probably at some time yes, but it would have taken much, longer with out the drive of money and making profits.
So I think we have to put up with boom and bust type cycles as long as we use money. Not matter what damage it does to us, to our society and to our planet we have to suffer these recessions.
So what if we where to get rid of money all together? Would that solve the problem? No I don’t think so.
I’ve thought about the concept of a moneyless society and they just don’t work on a large scale. For small scales they can be made to work, and here I’m thinking in groups of less than 20 or 30. On the larger scales the individual characteristics of people start to get lost in the crowd and so the overall behavior of that crowd becomes the default, generic behavior of the race. And in the case of human beings (and I think most sentient races, if there are any others) is greed. It’s in our genes. Put this basic greed together with the fact that resources, all resources are finite and therefore in limited supply there will always be something that our greed can use gain an advantage over others, it’s basic economics. And as soon as this happens you will get trading in that resource and at that point you are back to markets and the boom bust cycle.
Depressing, isn’t it, but in my admittedly limited knowledge of the subject, I don’t see any other way. Maybe I’m wrong, I hope that I am.