The Boundless Fatuity Informing the Simple-Minded Word ‘Recession’

In his brilliant 2014 book Creativity, Inc., Pixar founder Ed Catmull observed that “people need to be wrong as fast as they can.” In ten words Catmull exposed the mind-numbing stupidity of “recession” and policy measures meant to “fight” recession.

Economies are individuals, and individuals are most advantaged when they realize their errors as quickly as possible. In Pixar’s case, what economists imagine to be “recessions” born of not enough government spending (Keynes) or a stage of the “business cycle” (Austrian School) are just day-to-day discoveries of mistakes that are best corrected right away. Catmull notes that all of Pixar’s movies “suck” at first. Yes, run to your mistakes. The recession is the recovery.

Still, economists imagine economies as blobs. As a weird consequence, they throw the money of others at recessions so that the recipients will spend more. The foolishness of such an approach staggers the mind. As even economists seem to kind of understand given their obsession with the Fed, a lack of capital informs what they refer to as “recessions.” In which case a lack of spending would logically be the recession’s cure. What’s not consumed exists as capital. And then imagine how quickly businesses and individuals could rebound if government were to shrink its stupendous waste amid slower economic periods….

It’s all a reminder that if we accept “recession” as something real, then do-nothing is the simple answer to what’s real. Government should shrink alongside the natural shrinkage of individual consumption on the way to a growing base of capital. Translated for those who need it, recessions untouched are the surest sign of growth ahead.

Still, what’s this “recession” word? Economies are once again not blobs. It’s all a hint of the meaninglessness of recessions in a broader sense. To see why consider endlessly prosperous Palo Alto versus perpetually downtrodden west Baltimore. What’s destitute exists as loud evidence that government and “policy” can’t fix “recession” or whatever you choose to call it. Figure that west Baltimore is always depressed. So is East St. Louis in Illinois, as is Cairo in Illinois. Government can’t improve the economic outlook in these locales. No doubt governments can profligately spend, which is the model employed by economists long on theory but short on common sense, but history is clear that spending doesn’t erase economic desperation.

What’s historically true also makes sense theoretically. To see why, imagine yet another federal stab at fixing west Baltimore. For fun, let’s say $10,000 is handed over to every resident to please Keynesians, after which Austrians buy into a strange narrative suggesting that central banks can boost economies in the near-term with “sugar highs” born of “easy money.” In that case, the Fed would aggressively buy bonds from west Baltimore banks in concert with the $10,000/head giveaway. What could go wrong?

Actually, nothing could go wrong. Markets would work. The gusher of cash into west Baltimore banks care of the Fed would flow well outside of west Baltimore near instantaneously. Figure that banks must lend to activity that will be repaid. And then assuming wild spending of the $10,000 “stimulus” checks by west Baltimore locals, no business is going to expand based on a helicopter drop. In other words, money actually spent in west Baltimore would be banked, only for it to exit to greener pastures. Stating what should be obvious, government can’t fix what’s broken.

Which is a hint that it also can’t fix what’s relatively subdued. Thinking of relatively, imagine Palo Alto. A bad economic day, week or year in Palo Alto is boom-time in west Baltimore. This truth raises more questions about the meaning of “recession.” What is one? By west Baltimore standards, Palo Alto is always soaring. Is this because the Fed is “easy” in Palo Alto? Obviously not. If we ignore that banks can’t touch the risky activity taking place around Stanford as is, we know from the west Baltimore example that money migrates via market forces to its highest use. Always. Resources flow to Palo Alto because there’s intriguing economic activity in Palo Alto. The Fed has nothing to do with it. Neither does government spending.

At the same time, mistakes are the name of the game in Palo Alto. Pixar makes movies, but it’s a Silicon Valley tech concept. Steve Jobs made one of his early fortunes with Pixar. Beyond Pixar, well before the Fed began tightening in northern California, venture capitalists with substantial wealth invested in Valley companies tightened on them on their own. People need to be wrong as fast as they can. The Valley’s “recession” began well before the Fed discovered whatever economists imagine it discovered.

Still, could the Fed “tighten” in the center of the technological universe? If it could, markets would work again. Ignoring yet again that banks don’t factor in such a risk-focused locale, what the Fed could theoretically “take” with higher interest rates would be made up within minutes by global and domestic sources of capital in search of returns.

It’s something to think about with “recession” on the lips of every economist, pundit, and politician. How terrifying. Governments most certainly can’t fix what’s wrong, nor would we want them to given the importance of capital to revival. In other words, recessions signal revival. The only problem with them is that governments think they should fight them.