Are Economic Recessions Inevitable?

Authors Avatar

Bang, Bang, Boom You’re Bust

Are Economic Recessions Inevitable?

It was in a recent economics lesson that my teacher gave us an article from the Guardian talking about Schumpeter and his theory of “creative destruction” – whereby it was the companies that managed to survive recessions and downturns were the ones which provided the platform for long term growth, and that essentially, the ones that failed; failed because they were neither efficient or innovative enough.

Researching it a bit further, I soon came to the conclusion that this theory really wasn’t unheard of, especially if you’ve heard of Darwin. It is, naturally not the same - as economies and businesses are hardly living things, but the belief that it was the weak that failed and the strong survived resounded clearly through my head – and entirely relevant to the current economic crisis taking place.

Practically every day when you turn on the news or open the paper, there’s a headline about how the economic crisis has forced another chain to go into administration, or that unemployment is rising across the world. And then every now and then, you get a headline where the Government has decided to offer financial support to failing industries.

A relevant case that heavily intrigued me was the car industry in America, where it was once a booming and heavily efficient industry, has now stagnated to the point that I thoroughly believe it should be dropped and left to crash. Their inability to improve their efficiency to match the Japanese and Germans in car manufacturing; means that that Government was forced into heavily subsidising them in order to keep them afloat - mainly because so many Americans had jobs with them.

Join now!

Even before the economic crisis, the “Big Three” (consisted of General Motors, Ford and Chrysler) were already in trouble. Falling sales and share prices led to production cuts, layoffs and plant closures. GM’s factories were operating at 85%, and a heavy reliance on incentives and subsidized leases to sell vehicles meant that their sales have increased, but cut into their profits. In the current crisis, General Motors has already received a $13.4 billion bailout, as well as requesting another $16.6 billion.

What are the reasons for subsidising them? Against all economic and financial sense, billions of dollars ...

This is a preview of the whole essay