Saturday, June 28, 2008

A Good Recession

I think Ireland is going to have a good recession. I don't mean good as in 'severe/good', but rather as in 'beneficial/good'. It might seem perverse to say there are positive aspects to a recession, but there is no doubt from an economics perspective that recessions can be 'helpful'. The main benefit is that a downturn acts like detox therapy for the economy. Lots of bad habits - and their consequences that have accumulated during the boom - effectively get purged during a recession. Like absurdly expensive property in not very convenient locations.

Tim Harford - The Undercover Economist - wryly points out that young people may well be the main beneficiaries of 'stagflation', or a recession accompanied by rising prices:
Despite being too young to know what stagflation is, they have perfectly positioned themselves to take advantage of it. The rising cost of fuel, food and services does not bother them: they do not pay for domestic heating or school fees, and they always borrow the car and leave the tank empty.

On the other hand, clothes, trainers, computer games, iPods, DVDs and even illegal drugs are all falling in price. Living at home is the perfect way to ensure a negative inflation rate, and by the time the little blighters leave, people will be giving houses away. It’s an ill wind, as they say.

Looking around, there are other examples of how different groups might benefit from the consequences of an economic downturn, e.g.: charities. One of the biggest issue facing charities in recent years has been getting volunteers, not getting money. Consider this: a lot of businesses and organisations are going to be negotiating early retirement for their most experienced but also most expensive staff in the months ahead. These will be talented, well connected people with the right levels of energy and financial comfort to consider a 'second career' - perhaps as social entrepreneurs.

Indeed they might do a better job of solving many of the social ills affecting individuals and communities in Ireland than the Government did when times were good. No surprise there of course. But a surprising and beneficial consequence of our first real recession in 25 years.

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...