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Old 04 June 2014, 09:04 PM
Johnny Slick's Avatar
Johnny Slick Johnny Slick is offline
Join Date: 13 February 2003
Location: Phoenix, AZ
Posts: 11,628

I'm not entirely sure that's the case either, since we can't predict recessions very well at all. I think what we can do is predict situations that recessions occur in, determine if we're in one of those, and then react accordingly, but as this is a human thing, there's no telling that if those actions are taken and a recession doesn't occur that it was actually halted, and to make matters worse, people who insist that the actions had nothing to do with recessions will continue to say that.

A great example of this over the past 5 years has been how the US has managed to (narrowly) avoid double-dipping the way that much of Europe has. A lot of non-freshwater economists say this is because, unlike Europe, the US chose not to drastically cut spending to prioritize balancing a budget over economic growth. In fact, not only did we not cut spending, we put together a one-time spending package (which some saltwater guys - Paul Krugman in particular - say wasn't nearly large enough, but that's another story) to help spur the economy on and on top of that have pushed money into the market in an effort to get banks to spend it. People on the other side insist that either the recession is still coming (I know I've seen a lot of freak-out posts over QE, for instance, causing sudden hyper-inflation... some day) or else it wouldn't have happened anyway (and those especially firm believers in The Model say "well, yeah, but that's because there was no recession in the first place").

That situation aside, I think that overall I'm not sure that we're at a point where we can answer the question of how do we prevent recessions, or if when we do finally figure out what we can and can't predict in economics, if recessions will not be on that list. To a certain point I think that asking economists to predict and then prevent recessions may be as fantastical as asking those mapping the human genome to cure and/or prevent cancer.
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