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August 23, 2019, 02:53:05 pm
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  What causes recessions?
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Author Topic: What causes recessions?  (Read 507 times)
bronz4141
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« on: August 14, 2019, 02:54:55 pm »

I'm not an economist, what causes recessions? Politicians don't create jobs, but they lay out the economic landscape.
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Old School Republican
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« Reply #1 on: August 14, 2019, 05:22:05 pm »

Two Consecutive Quarters of Negative Growth
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Vittorio
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« Reply #2 on: August 14, 2019, 05:37:41 pm »


Question: "What causes night?"
Answer: "When it gets dark."
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Old School Republican
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« Reply #3 on: August 14, 2019, 05:45:03 pm »


Question: "What causes night?"
Answer: "When it gets dark."
In that case, there is literally only one way that happens: The Sun setting

There are literally so many different factors that can cause a recession on the other hand so the technical answer is the only proper answer you can give to such an open ended question.
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urutzizu
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« Reply #4 on: August 14, 2019, 05:55:48 pm »

Well to oversimplify if massively: The value of goods and services lessening, caused, among others by less economic activity. This once again may be caused by the bursting of a Bubble, say a property bubble, or demand for domestic products/services and consumer spending collapsing, or Business ability to buy and sell being hampered by excessive regulation, trade barriers and so on. These are just a few. There are always a ton of factors involved in a recession.
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136or142
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« Reply #5 on: August 15, 2019, 08:47:08 pm »
« Edited: August 15, 2019, 08:59:29 pm by 136or142 »


Technically not officially correct, though most people believe it is.

There are two primary causes of recessions.

1.The 'business cycle' recession.  Through business expansion the economy reaches a peak when there is greater demand for inputs (resources and labor) than any increase in supply can fill.  This causes a spike in input prices (resources) and a much slower increase in labor prices.  This puts an upward pressure on inflation which leads to higher interest rates which causes a slowdown in business activity.  

It's very difficult to completely smooth out business cycles to avoid booms and busts, however, central bankers have gotten much better at doing that and the time between recessions has tended to get longer.  

There were recessions in 1982 and 1990-1991 that were caused by interest rates sharply increasing to fight inflation.  Central bankers understand a lot better how an inflationary spiral can occur, and they've been able, whenever necessary, to stop them early without causing a recession.  The severe recession of 1982 was caused by the sharp raising of interest rates to deal with an inflation rate that started to increase in 1966.  This increase in inflation had multiple causes though, not just the 'business cycle' including excessive government spending and deficits.

I mentioned at the start that '2 quarters of negative economic growth' is not the actual official definition of a recession.  Officially, the National Board of Economic Research (NBER) in the United States decides when a recession occurred.  According to them, there was a recession over 2000-2001.  However, if you check the numbers, not only was there not 2 quarters of negative economic growth, there was not even a single quarter of negative economic growth.  The lowest it got was one quarter of 0.5% annualized growth (in real terms, i.e net of inflation.)

So, this means, according to what most people think is the definition of a recession: two quarters of negative economic growth, there was no recession from sometime in 1991-1992 to sometime in 2008, or approximately 16 years of continued expansion.

2.The 'credit freeze' recession.  This occurs when a large number of loans go bad via the bursting of an asset bubble.  This is essentially what happened in 1929 and 2008.  This causes credit markets to freeze up as banks aren't certain of their financial positions or even whether they'll face a run.  It tends to take a long period to overcome these recessions as market confidence needs to be regained before people are willing to get loans again.

There are two other theoretical possibilities
1.A recession caused by declining population (though that wouldn't necessarily be a GDP decline per capita)

2.A decline caused by a ceasing of innovation which would obviously lead to a lack of new investment.  Though this is hypothetical, many economists have argued that the increase in oligopoly in the United States combined with the seemingly increasing cost of innovation along with the worker skill mismatch is one of the main reasons, if not the main reason, why economic growth has slowed down for the last 20 years or so.  I would include tariff barriers and excessive government regulation as part of this theoretical possibility.
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Marxist-Gnosticist
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« Reply #6 on: August 16, 2019, 01:03:12 pm »

I'm not an economist, what causes recessions? Politicians don't create jobs, but they lay out the economic landscape.

Why is the second sentence immediately after the first? I feel like we're missing something here....
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#Kavanaugh For Prison
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« Reply #7 on: August 16, 2019, 01:47:21 pm »

Right-wing economic policy.
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Kingpoleon
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« Reply #8 on: August 18, 2019, 01:32:43 pm »

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Beet
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« Reply #9 on: August 18, 2019, 07:06:47 pm »

Traditionally, the main cause of an economic disturbance was an agricultural drought. Thus many peasants' revolts of the Middle Ages, and surely before. Even today this is a cause of food shortage in North Korea.

From the 19th century, the causes diversified to, including, currency shortages, shortages of gold bullion (that backed currency), banking panics, economic disturbances in other parts of the world, debt-deflation (as during the Great Depression), embargoes (such as the Arab Oil Embargo), monetary policy, and the industrial inventory cycle. The industrial inventory cycle was notable during the 20th century and is probably the model for what is traditionally thought of as a recession. This is thought to occur when businesses overestimate consumer demand and acquire too much inventory that they cannot sell. They then reduce orders from factories, when in turn lay off workers. This reduction in workers further reduces consumer demand, and the cycle continues until a drop in the price level restores it.

With the deindustrialization of the economy in the late 20th century, the business cycle became less pronounced. Beginning in the 1960s economic expansions began to get longer, although this trend was somewhat hidden by the oil crises. The 1991-2001 economic expansion was the longest in history, to be surpassed only now. The basic reason for this lengthening is (relative) deindustrialization, which has shifted output to the less volatile service sector, where demand is more stable. Of the last 5 recessions, fully 3 of them were caused by the Federal Reserve raising interest rates to get a handle on inflation.
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DINGO Joe stands on Sanchez
dingojoe
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« Reply #10 on: August 19, 2019, 11:55:48 pm »

TRUMP!
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Edgar Suit Larry
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« Reply #11 on: August 20, 2019, 11:21:18 am »

Traditionally, the main cause of an economic disturbance was an agricultural drought. Thus many peasants' revolts of the Middle Ages, and surely before. Even today this is a cause of food shortage in North Korea.

From the 19th century, the causes diversified to, including, currency shortages, shortages of gold bullion (that backed currency), banking panics, economic disturbances in other parts of the world, debt-deflation (as during the Great Depression), embargoes (such as the Arab Oil Embargo), monetary policy, and the industrial inventory cycle. The industrial inventory cycle was notable during the 20th century and is probably the model for what is traditionally thought of as a recession. This is thought to occur when businesses overestimate consumer demand and acquire too much inventory that they cannot sell. They then reduce orders from factories, when in turn lay off workers. This reduction in workers further reduces consumer demand, and the cycle continues until a drop in the price level restores it.

With the deindustrialization of the economy in the late 20th century, the business cycle became less pronounced. Beginning in the 1960s economic expansions began to get longer, although this trend was somewhat hidden by the oil crises. The 1991-2001 economic expansion was the longest in history, to be surpassed only now. The basic reason for this lengthening is (relative) deindustrialization, which has shifted output to the less volatile service sector, where demand is more stable. Of the last 5 recessions, fully 3 of them were caused by the Federal Reserve raising interest rates to get a handle on inflation.

So basically people spend money they don't have and then they don't have any money to buy more things. As a result, people have to try harder to sell things to people who don't have money any more. When people are finally able to sell enough things, people are then able to buy enough things until they buy too much again. The main economic debate between Labour/Democrats/Liberals/SocDems/"Socialists"(real socialists think this all can be avoided by telling everyone exactly how much they should buy and sell and when) and Republicans/Liberals/Conservatives/Tories/Christian Democrats is whether economic conditions are lead by people buying enough things or selling enough things with the respective former and latter believing them. This is based off of observation, the editorial section of newpapers, getting As in elective-level micro and macro econ classes, getting As in American and Modern World History (got a B in Western Civ I because I took it when I was 15) and a 4 year degree of Poly Sigh at a small public university. Probably wrong.
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Kingpoleon
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« Reply #12 on: August 22, 2019, 09:01:05 pm »

In all seriousness, a combination of factors, chiefly: unemployment rate(rising); labor participation rate(declining); consumption rate(bubble rising to pop or declining); inflation(spiking or crashing, sudden movement); widespread, exposed corporate malpractice; market uncertainty(growing/large); growth stalling(usually due to consumption/employment/inflation); and sudden economic changes that “shock” the system(especially in the savings/consumption balance, or in a large scale supply/demand ratio).
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Del Tachi
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« Reply #13 on: Today at 11:39:56 am »

Over-investment.  When a certain sector of the economy gets too hot (housing in the 2000s, tech right now) there's bound to be a correction.   
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