Economic downturns or recessions are widely perceived to be a bad thing: bad for the national economy, bad for business and households, bad for individuals. Average incomes fall, consumption falls, profits fall for firms and job losses outnumber job creation. This can seriously impact the well-being of the people affected. Losing a job can lead to depression or in extreme cases even suicide.
But recessions seem to be part of the laws of motion of capitalism. They can be put off or mitigated by intelligently designed monetary and fiscal policies, which aim to manage the overall level of spending and borrowing in the economy, but as was the case for the UK in the recent crisis, despite around 15 years of continuous growth, boasted about by the Chancellor and then Prime Minister Gordon Brown, recession eventually struck, as it did across the world, and was severe in terms of the shrinking of national output. More than six years later, we are still counting the cost. While unemployment rose less than in previous recessions in the 1980s and 1990s, wages stagnated instead. The pain was spread more evenly across those who kept their jobs, rather than being so concentrated among the unemployed, but the outcome seemed to be unpleasant.
But are there positives to be found in negative growth? Those environmentalists who see ever rising output and consumption as intrinsically damaging to nature and unsustainable in the long run would immediately say yes. After all, with lower industrial output and energy use, there is the potential for less pollution. A period of development going into reverse could put a temporary hold on rising environmental problems.
Aside from ecological concerns, a period of falling consumption might cause a rethink of material values, if these are seen to be ultimately unsatisfying emotionally. Forced retrenchment may be an opportunity to reconsider a materialist philosophy of life which may undermine and obscure other important values.
Ultimately, recession changes motivations and places restraints on human behaviour which are not present with the rising prosperity of an economic boom. At the firm level, weaker firms may be forced out of business or taken over by stronger firms. More generally, corporate restructuring is encouraged through job losses and the scrapping of part of the capital stock. This can potentially raise profits and lay the seeds for a new period of growth involving greater efficiency and possibly new products and services.
At the individual level, job loss can be devastating, but for some people represents the chance for a change of direction, involving the development of new skills.
Keynesians, who are particularly concerned with the achievement and maintenance of full employment and minimising fluctuations in GDP growth, may find these arguments disagreeable. But it seems to me important for firms and individuals to see opportunity in both the ups and the downs of the economic cycle, which for now at least, appear inevitable over the long run, despite the best intentions of policymakers.