Dear Reader,
It seems to me that recession sows the seeds of it’s own demise. Those seeds are “pent up demand.”
What I mean by pent up demand is that, when there is talk or actual recession, people naturally put off buying. When we do this we still want the item. We only put off, so to speak, the purchasing of the item. Thus demand is pent up it doesn’t go away.
As this pent up demand grows people are more willing to spend on the wanted goods and services and in some cases needed items. When this tension of pent up demand out powers the resistance of recession the economy comes out of recession. Springing into too fast growth.
This can be seen by the recession of 200-2001. The economy had largely replaced every computer with a new Y2K compliant computer. When the millennium came the market was saturated with computers and other digital equipment. Demand fell off the table. When that happened, the driver of the economy (the semi conductor industry), went south, causing the rest of the economy to go south as well. In doing so the semiconductor market dragged the rest of the economy into recession.
Business didn’t need to buy any new computers for several years. So business couldn’t be the driver of the economy. People put off purchasing goods because of the talk of recession. But when people didn’t see the dire predictions come true they began to buy the goods and services that they had put off. Springing the economy into too fast growth.
Some will argue that the Great Depression didn’t produce any pent up demand in ten years. The Great depression was an anomaly in many ways. It was the congruence of many factors…To name a very few; The dust bowl in the US bread basket, The nations of the world choked off international trade, the US government as well as most nations in Europe turned to socialistic overly powerful governments, taxes were raised and regulation was chaotic. These are some examples of why the world struggled to come out of the depression of the 1930’s. The people were newly out of the time when they had to live by their own wits. The peasant farm in Appalachia and the other rural areas of the US were well entrenched and easy to fall back into. Demand for new technology was suppressed by the 24-7 need to survive.
Too fast growth always outstrips the ability of the market to absorb the goods and services produced and quenches demand. Aggregate supply outstripping aggregate demand. Demand is elastic however. As is supply. This leads naturally to periods of too fast growth and too slow growth (recession). It is the natural frequency of the market economy as it is any organism.
