Recessions are rare. We still need to be ready for them

Recessions are becoming more and more rare, which might make them higher risk.

A century ago we lived in a world where a recession was a normal thing that occurred every 2 or 3 years, like clockwork.

Recessions are rare. We still need to be ready for them

But despite all kinds of chaos over the last quarter century, we’ve had 3 recessions, one of which (Covid, in 2020) was the shortest on record.

What happened?

Every smart person I know has a theory.

  • One is that policymakers are better at managing the economy than before.
  • Another is that manufacturing industries that dominated the old economy are more prone to boom-and-bust overproduction than the service industries that prevailed in the last 50 years.

Whatever the cause, here’s what we know: When recessions are rare, people aren’t good at handling them.

If Lake Tahoe gets 6 feet of snow…

… the plows clear it out in a few hours and everyone goes about their day because they’re used to it. If Seattle gets 6 inches of snow, the city is paralyzed for a week.

Same thing with recessions.

So, maybe we’re lucky to have fewer recessions than our ancestors.

But I think we’re actually at a higher risk, because the idea of a long recession or stock market slump is like a mystical theory to so many people. So if one happens, they’d be unprepared and bewildered.

“The only thing new in the world is the history you do not know,” Harry Truman said. Make yourself familiar with the history of how fragile things can be.

Topics: Economy

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