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Question Of The Day

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by Ryan Avent
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Apr 22 2009 11:19am EDT

Question of the Day

Via TIm Harford:

The Royal Economic Society has announced the essay title for the 2009 Young Economist of the Year essay competition. It is:

"Are economic recessions inevitable?"

Yes.

Humans have a limited ability to commit themselves to a policy rule. We can't make our future selves do something. If we devised the perfect regulatory system and counter-cyclical policy, such that no recession occurred for years or decades, pressure would build within the system to take more risks and adjust the rules to allow for greater returns. And that assumes that we could devise a perfect system for short-term recession avoidance in the first place.

So long as we are human, the answer is yes. Robot recessions, on the other hand, may be avoidable.

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