There’s some concern about an upcoming recession caused by economic shocks, including tariffs, reduced tourism to the U.S., reduced hiring because of economic uncertainty, etc.
There’s always a silver lining. Some things we might expect to follow from an economic downturn:
– Less energy consumption. Fewer tourists means a decrease in airline flights, car rentals, etc. And if China is selling us less stuff, they may be using burning less coal there. All in all, this is good for the environment. A global recession could lead to people eating less meat, or at least slowing the rate of increase in meat consumption. And if people are pessimistic about the future, they might have fewer kids, which would save lots of energy use.
– Lower gas prices. I don’t really care so much about this because my bike doesn’t use gasoline, but gas prices are famously influential in people’s perceptions of inflation. Less travel would imply lower demand for oil, and the price should go down. Indeed, if there’s enough of a depression, just about all prices could drop.
– Some improvement in quality of life. Maybe if your kids have fewer plastic toys, they’ll play more creatively with the toys they already have. Less travel = more quality time on the couch. Etc. The standard economic theory would suggest that taking things away from people would decrease their utility, but we know that the standard theory isn’t always correct.
OK, that’s just three things. But I’m no economist. I assume the experts in the audience could add a few more.
P.S. It seems that some people didn’t fully get the point of this post. I thought the reference to fewer toys and the reference to standard economic theory would clue you in to the fact that I wasn’t entirely serious in all the above details. That said, it’s not at all controversial that an economic downturn would be expected to slow the rate of recourse consumption, at least in the short term. That doesn’t mean that a recession is a good thing, it just is what it is.
Energy consumption and demand for gas could have been reduced by following the environmental polices that Trump is ripping up. Quality time with one’s family is easier to achieve if you’re not in a position of economic precarity, forced to work long hours to avoid getting laid off, commute to an office, and otherwise exploited; all things that Trump is pushing. Trump is spitting on everybody’s cupcakes (well, everybody who isn’t a billionaire). Let’s not call it frosting.
Actually, we don’t even need to sit here and brainstorm. You can go read some history books about the 30s and look for sections on “Upsides of the Great Depression”. Or find someone who was on the job market in 2008 and ask them how things improved for them that year. Let us know what you find!
Is this some kind of Trumpian joke?
If you buy Roger Pielke Jr.’s “iron law” of energy consumption, lower energy prices at best lead to a balance in *more* energy consumption.
You have to take everything Roger says with a grain of salt (his opinion of his work exceeds its value, imo), but there is a logic to it.
“Some improvement in quality of life” for those who are lucky enough to keep their jobs, that is.
Not even that. High unemployment hurts the employed, too. “I’m cutting your pay–and if you don’t like it, there are 10 people out there who’d be happy to take your job.”
Yes, I think it’s generally understood that a change in unemployment rate affects the balance of power between workers and employers.
To all:
I’m not saying that an economic recession is a good thing on net. I’m just saying that one consequence of a recession will be some good news. This is not a pro-recession argument. I’m inclined to go with the economists on this one and say that the negative impacts of a recession outweigh the positive impacts.
It just seems so unnecessary to try to find good things about someone gratuitously tanking the economy.
From the news, I hear your university is having some trouble with the administration, so if this is some sort of mandated thing to avoid getting shut down, well, you gotta do what you gotta do. But I can’t really support it.
Adede:
I guess that most of this blog is unnecessary. I think it can be useful to anticipate consequences of policy. Not every signal will go in the same direction. Maybe the recession will send gas prices down. Lower gas prices are often considered to be good news. That doesn’t mean that a recession is a good thing; it just means that economic statistics can deliver mixed messages. I have a similar feeling when reading papers by researchers such as Dan Ariely or Brian Wansink: somehow all the results end up in the direction favoring their stories. In real life, not everything points the same way. I fit my models in Stan but Stan isn’t perfect. Bayesian inference doesn’t always work. It’s good to remember that even a disastrous economic policy will have some upsides, or at least some perceived upsides.
My upside is thinking that you are being ironic in the post and that your real point is to highlight how many Americans appear to be sleep-walking while Trump destroys everything around them.
so if this is some sort of mandated thing to avoid getting shut down, well
Yikes. That’s absurd.
I have sympathy for your search for a silver lining. However, I would be more than a little surprised ‘if there [was] enough of a depression [leading to] about all prices [to] drop.’ The economic uncertainty is largely due to tariffs. Tariffs are a tax levied on foreign producers and borne by both the exporter and the importer. The side that is more flexible in substituting to another seller/buyer will bear a smaller share of the brunt.
The only way that prices could fall would be if there were a massive reduction in demand. This reduction in demand would start with luxury goods and then spread to less luxurious goods. However, the prices of some goods would barely move and people would basically pay whatever they could to get them, especially food and rent*. I see no reason why demand for either should fall. I can see luxurious products from an all-American supply chain becoming cheaper due to reduced demand, but overall I find it hard to imagine any prices falling.
*I have heard anecdotal evidence that many rich people, when they have a sudden loss of income to the point where they could actually be considered poor in terms of income, try to save money by buying less and cheaper food. This is a way of saving face, but it comes at the cost of one’s own health, because our human bodies need nourishment no matter what our income is.
Raphael:
It’s not that I was thinking that tariffs would lead directly to lower prices. Here’s what I was thinking: even before Trump got elected and started with the tariffs and other uncertainty-inducing policies, some economists were arguing that the economy had fundamental problems and that a recession was coming. Suppose they were right. In that case, the tariffs, the tourism-deterring policies, etc., could be what it takes to send the economy over the edge into a deep recession, leading to lower demand overall. I don’t know that this will happen; it just seems like a possibility.
Andrew, you’re right: “some economists were arguing that the economy had fundamental problems and that a recession was coming” in your May 2024 post There ARE serious structural problems in our economy that will eventually lead to a deep recession or worse.
Onset of a recession is defined as 2 consecutive decreases of quarterly real GDP. That’s not too disruptive, occurring at least once during the Biden admin. According to this short IMF (Int’l Monetary Fund) post, which I recommend, Recession: When Bad Times Prevail (2012), there is no formal definition for a depression. The 2007 to 2009 deep recession was 3.7% GDP decline over 18 months. During the Great Depression, GDP declined by 30% over 4 years. The problem is timing. When will such a deep recession or depression occur, along with a lessening in demand for goods and services as your post described? That’s the difficult part.
Examples of problems in the economy that must be fixed or improved soon, to stave off a deep recession or worse (and sustained decreased demand) are:
— the rate of structural unemployment (when people have given up hope of finding jobs after trying unsuccessfully for over 18 months) hasn’t decreased for decades. It isn’t included in monthly unemployment rates but the Bureau of Labor Statistics tracks it;
— disconnect between stock prices and the real economy;
— the unsustainable amount of money needed to service US government debt;
— unaffordable housing: average national home price is $450,000 whereas average annual household income is less than 20% of that. From 1945 to 2000, average annual household income was greater than or equal to 60% of average national home prices.
Tariffs effect foreign exporters of goods to the United States, and the recipients (importers) who then sell those goods to American buyers. The importers will raise prices to compensate for the additional cost due to tariffs. So in the case of foreign made goods, Americans will pay more.
@Raphael K, American made goods will not be affected by tariffs. Prices will stay the same. Certainly rental costs in the United States would not be impacted by tariffs! I’m not sure how you inferred that. Similarly, food grown domestically won’t become more expensive either. As for luxury goods made domestically, those prices will not change.
The entire point of tariffs is to encourage more domestic production. If one is concerned about climate change and depletion of finite supplies of fossil fuels, it is better to make more things domestically (and locally if possible) than import from overseas. We should have learned that lesson during COVID19 when personal protective items could not be found because we didn’t make them here (and many other things as well).
https://pbs.twimg.com/tweet_video_thumb/FsUcqwCXgAIFo63.jpg
With friends I have been playing the game of trying to figure out silver linings from what Trump is doing. I am personally center-center/left, and usually find that Republican administrations do at least one thing I find useful. This time… not so much.
There is a danger in viewing silver linings of a recession along the lines of less energy consumption, less useless toys, etc. The danger is viewing a cost as a benefit. I’ve seen studies showing how much money people save when water consumption or energy consumption policies are put into place. The truth is that you can always choose to consume less water or energy – if a policy “forces” you to, that is a cost to you, not a benefit. Silver linings like that are illusions. At least that is the case according to economic theory (although you can always appeal to externalities to find social benefits that justify the costs – but they are not private benefits as these studies portray such “savings”).
There is one clear silver lining if we have a recession: the Republicans would likely lose the next election.
Andrew:
Bad science helps research careers. Disingenuous arguments stimulate discussion. Cancer tends to bring families closer together.
If not parody, what’s your point?
John
John:
I don’t think “bad science helps research careers” is a good example, because I think this kind of research career is bad, also it can crowd out someone else’s more valuable potential research career. But, “disingenuous arguments stimulate discussion”–sure, I’ll buy that. I don’t do the disingenuous thing myself, but I guess that a certain amount of trolling in moderation can be part of a balanced information diet. And an argument can be made that bad science, if not taken too seriously, can be useful in providing directions for further research. Even if the bad science is essentially pure noise, it can be useful to send researchers in random directions from time to time. I wrote a post a few years ago making this argument, I think in the context of Brian Wansink, but I can’t find it now. In any case, I think that bad science is a bad thing. Despite being a net negative, it could have some positive effects along the way, and I think it’s ok to point this out. Which is similar to what I was doing in the above post regarding bad news on the economy. My post also addressed issues of measurement. It’s not clear that lower gas prices should be taken as a good thing, but usually they are, and they’re relevant politically in part because they are posted on big billboards all over, so when the price of gas goes up, people notice.
When you find yourself in a runaway train, the first thing you might want to consider is to stop shoveling fuel. That’s the metaphor used by Brian Czech in his excellent book, “Shoveling Fuel for a Runaway Train.”
Czech points out that there are no economic models that support human well-being without endless economic growth. He also points out that endless growth is not possible.
And Edward Abbey wants you to know that endless growth is the ideology of the cancer cell.
But in the end, Czech does not really have any answers either. : (
Matt:
The book by Danko Antolovic discussed here seems relevant to this discussion.
Yes! Antolovic makes many of the same points that Czech made. Antolovic’s words here are a remarkably accurate and succinct way of describing one of the most influential (and damaging) human quirks:
“We allow the fruits of technological progress to be used for vertiginous enrichment of individuals who are devoid of all but a boundless drive for acquisition, and we do not see this drive as a pathology, a personality disorder: rather, we see it as a trait to be envied and lived out vicariously through admiration.”
Czech wondered at the end of his book whether society could be transformed by a sort of resetting of what it means to be competitive. What if middle-class folks in the wealthy nations competed with each other not for the biggest truck on the block, but for conspicuously making more out of less? But again, that would lead to a zero-growth economy, which is, to borrow a phrase from Lord Dunsany, “beyond the fields we know.”
We need to get used to the idea of zero growth economy. As pointed out here: https://dothemath.ucsd.edu/2012/04/economist-meets-physicist/
Growth in economic output is strongly associated with growth in energy consumption, which makes sense, because it takes energy to do stuff (that’s basically what energy IS, the “ability to do work”, ie. move things around, melt them, fuse them, change their shape, cause chemical reactions etc).
We’ve had 300,000 years for humans to build our economy. But at our current growth rate of energy consumption averaged over the last say 20 years, another 1400 years from now and we’ll be using as much energy as the entire output of the sun by those calcs.
So, since we’re never going to get anything close to the output of the sun, growth in energy consumption **will go to zero** or most likely negative (ie. decreased energy consumption rate) probably in a few decades. GDP growth is already quite close to zero and has been for a while. Probably with better measures of “real growth” it already is zero or negative for the median US citizen. Well, given the tariff bullshit, it’s almost certainly negative at the moment or in the next few months.
The single most important thing facing humanity at the moment imho is reorganizing society so the bulk of humans can still improve their quality of life, while halting or decreasing energy usage as a whole. This basically requires us to think about *utility* and the fact that you can raise utility a LOT for people near starvation using relatively little energy. And with declining marginal utility, you can cut a lot of energy without reducing the utility of the highest consumers very much (ie. cut off the AI hype or bitcoin or private jets or coal / oil burning heat ).
Anyway, this is the territory we need to be thinking about.
Daniel, this is very easy to do.
Get rid of inflating the money supply, and punishing people who accumulate/save wealth.
That’s main driving forces behind the wasteful activities of the last century. If people are rewarded for saving/conserving they will do so.
But not if they get punished for it like currently. Imagine if saving one dollar today could buy $10 of stuff in 10 years, instead of cents worth like in the current system.
Problem is any government who does that loses the rat race.
Anon:
Taxation is not punishment. We discussed this a few years ago.
We absolutely don’t need “to get used to the idea of zero growth economy”. The exponential growth in energy usage pointed out by that physicist for the US matches the exponential population growth. Now exponential population growth can’t continue forever, but once it stabilizes, we can still experience per capita economic growth for a very long time.
Setting that aside, I’m curious how your communist anarchist utopia is going to use oppression-less force to get people to do what you want energy wise?
I don’t think fewer kids plausibly means less energy use, in the long run.
I expect facts about energy use over the next century to mostly depend on technological progress (or lack thereof), which largely depends on a growing economy.
Fewer kids means fewer workers per retiree, and so higher taxes on each of those fewer workers to support programs like social security and medicare. None of that is good for the growth and tech progress needed to complete the green transition.
“Fewer tourists means a decrease in airline flights, car rentals, etc.”
We [the USA] are not the only option for international tourists. Most tourists will simply book trips to other destinations. In fact, some Canadians may book flights to Europe or the Caribbean instead of taking a bus to NYC or driving to the Jersey shore, resulting in more fuel consumption compared to what they would have consumed had the USA gov not implemented tariffs.
A counter-argument may be that if the USA goes into recession, the rest of the world will too, resulting in decreased fuel consumption. But I’m not sure if this would be the case here given how unprecedented these tariffs are. Perhaps an economist could weigh in?
Recovering:
I’m making the usual assumption that elasticities are between 0 and 1, so that there could be some substitution from travel to the U.S. to travel to other countries but with total travel decreasing. But, sure, this is all speculation on my part.
What exactly is a recession?
https://www.nber.org/research/business-cycle-dating
We all know roughly what it means (like the great depression except not so bad), but it is pretty much a meaningless term.
Anon:
It’s like the paradox of the heap. The threshold might be arbitrary, but decisions to not hire people are real.
That definition is unclear too. Eg, if I got paid $100 for shovelling the neighbors driveway last week, that is “employed”, but if I get a face tattoo and go live under the bridge I’m neither employed nor unemployed. Further, I likely won’t be answering BLS surveys. It is a very biased sample.
And then there are all the games with “revisions”.
This reminds me of the kind of memoir writing where it’s an account of someone getting a horrible disease and enduring immense amounts of suffering, misery, and indignity in course of the treatment. But towards the end, they have an uplifing section in their story, along the lines of “But the silver lining is that it brought me and my family closer together” or “It taught me not to take health and life for granted”, or some such. I always wanted to read one of those which ended on a note like “Nothing good came of it whatsoever, and it was an utter disaster in every way, and sometimes something is just life dumping on you without any redeeming aspect”. But I suppose that would severely limit the market for it.
I thought you’d point out that tough times can spur great literature. What would “The Grapes of Wrath” be without the Great Depression?
I’m surprised, or perhaps baffled is a better word, to see so much pushback on what seemed to me to be an anodyne observation.
After the 9/11 attacks, there was no commercial air travel in the US for a while. Some atmospheric researchers took advantage of this fact to make observations of high-altitude water content and its effect on day-night temperature differences; these experiments that were extremely important and useful for climate models but there’s no way they could have been done any other way: there’s no chance the government was going to shut down commercial air traffic just to make these measurements.
I suppose Adede and Dale and others will say I’m a friend of terrorists if I say it’s good to have these observational data? We are supposed to say if an event is net negative, -every- individual consequence of the event must be negative?
Ok, I’m on board! Isn’t it terrible that we have those observational data about atmospheric moisture content? So awful. Those researchers should be ashamed of themselves.
Phil
Don’t overstate my position. Sure, there are always positive and negative effects associated with virtually anything that happens, including recessions. I am only pointing out a common danger to interpret “savings” that are actually “costs.” A recession will involve less consumption (and presumably less waste), but we could achieve that today without a recession. So, the actual effects of recession is negative – the fact that people consume so much energy is that they value it higher than the cost to themselves. I do make an exception for social benefits/costs rather than private ones: less energy use can simultaneously be a social benefit and and private cost. And, there is one clear benefit I acknowledge with recession: changing political power. I have no idea why you think I would say you are “a friend of terrorists” – I don’t say or believe anything like that, unless you mean “methodological terrorists.”
” A recession will involve less consumption (and presumably less waste), but we could achieve that today without a recession.”
Is that true? I’m not an economist, but wouldn’t a moderately large downward shock to consumption itself precipitate a recession?
It could, depending on whether it is simply a cut in consumer spending or a shift. For example, if people decided to spend a bit more to get products with recyclable packaging, or spend their money on services such as theater productions (not devoid of waste products, but presumably less intensive), or save more (depending on what happens to those savings – do they turn into loans and investments by others?), then no recession need occur but the environmental/energy impacts would be reduced.
That’s all correct. But if we were still watching the towers come down and you mentioned “well, at least there will be less air pollution for a while” I would give you some side eye.
+1 on this one, Phil. I am glad that the Federal Reserve was created as a result of a banking panic, etc.
Silver lining? Blue wave in the midterm elections.
Maybe for those who are well off (and callous toward “lessers” and humans in general) or who maintain employment at their same income.
Not those who lose their employment and get a new job at 75% previous pay after burning through savings but – look at the great new experiences and opportunities the new employment will bring! (until the next recession negates the built toward “opportunities” as this one did). It’s great when people have to pawn possessions and lose homes and prices are driven down IF you still have the income to buy the devalued goods and are perhaps devoid of compassion for others. One man’s loss is another man’s gain. Or is it “victory” ‘cause we only want the “strong” to survive.
This is perseverance porn – isn’t it great how the community came together to buy a 4-year old a wheelchair because basic healthcare is unavailable for that family.
This smells of coddling-up. First they came for Columbia, and we/I got in line – now it’s just everyone else’s turn. If anything good does come from this maybe it will be people questioning if Ivy League and “elite” universities are ultimately bad for the human soul in particular if not humanity as a whole.
Jay:
I never said anything about “lessers,” nor did I say anything about “look at the great new experiences and opportunities the new employment will bring!”, nor did I say, “It’s great when people have to pawn possessions and lose homes and prices are driven down,” nor did I say anything about “victory” or “we only want the strong to survive.”
Whoever you’re arguing against here, it’s not me.
I found the specific story this post recalled to me. It was about a guy who spent eight months in a Chinese prison over a trivial incident. But recounting it all ends on the “silver lining” of the camaraderie he shared with fellow prisoners, and all the interesting people he got to know, who he would otherwise never have encountered.
https://www.thisamericanlife.org/448/transcript
“Alex Blumberg: Do you ever find yourself missing it?
Luke: Gosh, that’s a tough question. You know, the camaraderie that you get to have with those people, you know, the stories, the opening up. Like, I don’t think I’m ever going to get to know another Muslim– I mean, I hope I do, but– as much as I did with Chacha. I mean, you spend every single hour with this guy for four or five months, you really get to know this person as a person.”