Economics Dictionary of ArgumentsHome
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| Recession: A recession is a significant decline in economic activity across the economy, lasting more than a few months. It is typically marked by falling GDP, rising unemployment, lower consumer spending, and reduced industrial production. Recessions reflect widespread drops in economic confidence and demand. See also Economic cycle, Business cycle, Boom, Depression, Demand, Demand for money, Supply, Money supply._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Milton Friedman on Recession - Dictionary of Arguments
Landsburg I 27 Recession/Friedman/Landsburg: (…) [one] might think that in recessionary times, it would be a good idea to create additional money and get the economy moving again. Time/Problem: Unfortunately, (…) long and variable lags make it essentially impossible to exploit this avenue. >Quantity theory/Friedman. By the time your monetary shock starts to bear fruit, the recession is likely to be over, in which case all you've accomplished is a spurt of inflation. >Inflation. Solution/Friedman: From this, Friedman argued that changing the money supply is largely ineffective (and even counter-productive) as a weapon against short-run problems like recessions, and therefore it's best for policymakers to focus on the long run. And in the long run (…) , the quantity theory of money argues for a Iow and steady rate of money supply growth. As many economists do, let's call that the "Friedman rule." >Money supply/Friedman, >Quantity theory/Friedman. Landsburg I 28 Great Depression/recession: [in the Great Depression] with unemployment rates ranging between 25 and 35 percent through much of the world, incomes [were] falling dramatically, and, in many places, entire industries (including mining, logging, and construction) [were] shutting down almost completely. Why? Friedman and Schwartz(1) laid the blame squarely at the feet of the monetary authorities who allowed the US money supply to fall by almost one third. This, they argued persuasively, turned a moderately severe recession into a tragedy. >Money supply/Friedman. Amazingly enough, nobody knew this before Friedman and Schwartz came along. Keynes/Keynesianism: The Keynesians (this time including Keynes) believed that the money supply had been largely stable throughout the 1930s, and offered this as evidence that a stable money supply is impotent against economic catastrophe. Money was being created, according to the Keynesians, and people were simply holding it. >Recession/Keynes/Keynesianism, >Money supply/Keynes, >Money supply/Keynesianism. FriedmanVsKeynes/Landsburg: That was simply false. What certainly happened was that the money supply was allowed to shrink dramatically, largely due to bank failures that the authorities did little to prevent or to counteract. ((…) "money" includes checking account balances, most of which are created by banks, as when your banker gives you a $ 10,000 Ioan (…) . When banks fail, those balances disappear.) >Near Money, >Banks, >Loans, >Cash balance, >Credit, >Money supply. Landsburg I 29 FriedmanVsKeynes/FriedmanVsKeynesianism/Landsburg: When money disappears, people try to acquire more of it (in the exact reverse of what happens when new money is created and people try to get rid of it). They do this by not buying things. In the long run, the only effect is a fall in prices. But in the short run, the effect is a reduction in economic activity. When that reduction in economic activity comes in the midst of an existing recession, and when it leads to additional bank failures and further reductions in the money supply, the disastrous short run can go on for many years. So for economic policy, the key takeaway is that this history should not be allowed to repeat itself. Academicians and policymakers have taken this very much to heart. Thanks largely to the policies that Friedman and Schwartz inspired, North America entered a 70-year period of unprecedented economic stability, with many believing that the frequent severe recessions of the past were never to repeat themselves. 1. Milton Friedman and Anna Schwartz. (1963). Monetary History of the United States: 1867-1960. Princeton University Press._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Econ Fried I Milton Friedman The role of monetary policy 1968 Landsburg I Steven E. Landsburg The Essential Milton Friedman Vancouver: Fraser Institute 2019 |
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