Recessions have become more rare in recent decades, and you have to leave it to the Economist to suggest that this might be a bad thing. Well, the Economist and Joseph Schumpeter, who is my personal favorite economist.

Joseph Schumpeter, an Austrian economist, argued that they provoke “creative destruction”. Failing firms leave the market, capital decamps to more promising technologies and workers move to more productive jobs. The result is short-term pain and long-term gain. Schumpeter did not argue that politicians should deliberately engineer downturns. But nor did he think they should try to prevent them. “Depressions are not simply evils, which we might attempt to suppress,” he wrote. They represent “something which has to be done”.

In my many grade-school years of American history (which seemed to be the only kind of history I ever got, unless you count that one year of Virginia history I had to take), I remember my eyes glazing over when hearing about “the panic of 18XX”. Where “XX” represents pretty much any odd numbered year during that century. It just seemed to be a wild and woolly time with no central banks, regulation, or consumer protections. Lots of people got rich, and lots of people lived in what we used to call “third world” conditions.

It makes sense to me that businesses should not be overly insulated from the consequences of the risks they take, while ordinary people mostly should. So this points to not a lot of bailouts for inefficient industries, coupled with robust social insurance like unemployment and disability. In the U.S. though, what I see is big business capturing the government and successfully insulating itself from the consequences of risk taking, which suppresses competition and Schumpeter-esque innovation. We do sort of seem to get the unemployment thing right though, when push comes to shove, which worked out pretty well during the pandemic. People who were employed when the pandemic hit seemed to do okay. People who were not employed fell through the cracks of course, as they tend to do in our system. And if they turned to drug or alcohol abuse, they fell even further due to our lack of universal health care.

So my quasi-libertarian prescription here, which I think Schumpeter and even Hayek might approve of, is to let the companies compete and innovate, or die. Let them hire and fire at will. But workers need to be protected by robust unemployment, disability, health care and child care programs. The government needs to raise and then redistribute revenue to do this, but everybody comes out ahead in the aggregate except a few fat cats at the top who would rather use their wealth and power to rig the system in their favor than have to compete and innovate. Recessions are also the time to double down on infrastructure, research and development, education and training funding which underpin long-term productivity growth and innovation of an advanced economy. I think Schumpeter’s ghost would love that!