Balneus

Australian Lefty on Politics, Governance, Science and Info Management

Recession benefits: right-wing perspectives

Posted by Dave Bath on 2008-02-07


Continuing on the topic of why an Australian recession can be a good thing (starting with Starve those elephants), this post will look at justifications with a right-wing perspective (that this li’l-ol-lefty has some agreement with).

This series of posts (a lefty perspective will come soon) indicates that politicians and pundits should educate the public about these issues, and develop ways of maximizing benefits and decreasing the pain of recession.  It’s a challenge, but leaders should be able to do it.

My perspective on this is informed by my background in biology, considering the long-term harm to species from the burden of accumulated harmful mutations during times of decreased selection pressure.  Long booms allow inefficiencies to develop that decrease the long-term health of businesses and economies. See the VoXEU paper referenced in the notes for details of a study that blames the sub-prime crisis on the boom.

Consider the following things that happen in a long boom:

  • Companies get away with poor innovation practices, as consumers will "upgrade" things that merely have an extra button, have a few square centimetres more living space, or a new range of fashion colors, but provide no great advances in functionality or efficiency.
  • Capital resources become poorly allocated:
    • Many mug punters start playing the market, and with asymmetrical knowledge, become "investment fashion victims", with their funds not necessarily flowing where it will do the most good.
    • Speculation becomes rife, another form of the victory of fashion over practicality.
    • Sloppy management is not punished, decreasing business efficiency.

It’s worth thinking about how counter-productive are debt-laden mergers and acquisitions, with profits directed to paying off loans rather than investment in capital works or improving business processes.


Notes / See Also:


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