THE OBJECTIF

Even an ideal economic model can not avoid a recession. WHY can an ideal economic model not avoid a recession? This is the question this article will try to articulate. In a perfect economic model we assume every nation has attained a steady state meaning the economic growth rate is zero. Everything available in one nation is readily available in another nation at the same price. All industries have attained a growth rate of zero and production equals consumption. There is no inflation rate. The unemployment rate is zero, though we would typically presume that it is at a minimum and equal in every industry and country.  Tourism is everywhere the same. The birth rate equals the death rate and the growth in skill labor equals the death in skilled labor. To put is more solidly, everything everywhere is the same and at steady state. With no technological improvement in any sector, it is unlikely that any industry will have a positive growth.  Due to the limitation in technological innovation, no matter how good economic decisions are, there is going to be that ideal limit that we can not jump over.

With an ideal economic model, every industry grows on the backbone of another competing industry and any country only grows not necessarily to the detriment of another country, but its gains are made significantly possible by taking advantage of the lower improvement in development of other countries.  The good news is that irrespective of where growth occurs, there is going to be a raise in overall standard of living. The truth is you want to be the first industry or country to have the technological discovery and experience the first growth.

A positive growth in one industry will be accompanied by a negative growth in a substitute industry and likewise for countries. When an industry develops a better technology, the industry’s cost of production decreases. The industry is now capable of selling at a much lower price than its substitute or competing industry. The competing industry faced with higher costs and lower demand is forced to lay off workers. Since technology does not increase so quickly, the substitute industry with the right decisions can quickly invest in research and come up with an equivalent technology thus decreasing its costs. It can now employ more people to meet its demand. What happens to the rival industry now that this industry in now capable of producing at the same production costs? As a result of its initial great increase in demand, it had increased labor to meet demand. Now, it faces a higher production cost and is forced to cut production rate and labor. If labor was significantly higher initially, there will be an increase in overall unemployment as many skilled people having learnt that discipline are forced out of work and it is certain these laid off workers will not be all absorbed by the growing rival. As it takes time to learn a new trade to get employed, this unemployment is bound to last for a while. This is similarly applied to countries doing international trade. More succinctly, a recession develops when the rate of lay offs is greater than the absorption of skilled workers in a single country.  Poor economic decisions like easily controlled excesses and very inefficient means of production only make the sequence of events worse.  Technologically strong countries (with improved skills and services) are bound to go through a recession if other countries comparably improve their technological know how.

The only way to stay constantly out of a recession is to constantly come up with a cutting edge technology that keeps you ahead of other countries or competing industries in other countries. This gives you a bigger and steady international market to sell your goods. Bad news is not far off when that market begins to shrink. Once other countries begin to gain on you in technology, you lose your market size, plunge into job losses and then a recession. This recession is in turn transmitted across the globe as job losses increase.  Job losses in the leading country decrease consumption of both home and foreign goods. Since it takes a while to detect the loss in market size, more goods would have been produced that exceeded the once high demand. This results in losses and hence increases production costs. These foreign countries then cut on supply and equally labor thereby causing unemployment. High unemployment and rising cost could lead to a recession in the country trying to attain the maximum production rate. It is important to note that with strong economic policies, the rival faltering country (yet to attain the newly established maximum) could still continue to grow, but at a decreasing rate because it still faces a bigger market compared to its initial state as it is yet to attain the technological know how of its competitor.

This makes studying market trends, jobs available and perusing every available data important in avoiding a worst case scenario. Data predicting done efficiently greatly limits the losses as people could be quickly advised on the many available growing jobs and the skills they need to quickly learn to assuage the severity of the recession. It is implicit that the inability to quickly adapt and a poor mental attitude aggravate the recession.

The US recession has really not been caused by a credit crisis, not by the housing crisis and certainly not by the declining sales in the auto industry although these played a contributing factor. The recession has been caused by a rapid growth of other countries meeting up with the new technological challenges. To get off this recession the US has no choice, but to invest in technology. Unfortunately, technology itself has its limitations. Credit and housing crises erupt when people do not have money because of unemployment to pay their debts. Spending more money to defrost frozen credits is not going to give people the money to pay the debts. This certainly mitigates the harshness of the crisis, postpones it, but does not wipe it out. For social reasons, it may make sense to give the auto makers money to keep jobs. Is this economically sound? No. Reason being that, their only way to improve is to have a boost in technology. Will there be a leap in technology? I hope there is otherwise, it is sad to say the tax payer’s money has been dropped in an angry ocean and the auto industry is far from being saved as fewer and fewer people have the money to even buy their inefficient and expensive cars.

Oil prices might have had their toll on the US economy causing an initial freeze in some sectors like the food industries or played a contributing factor to the recession. The fact that the recent decline in oil prices does not seem to have made things better and certainly not worse either gives us good reason that oil prices could not have been the main cause for the current US and world economic crises.

It is equally implicit form this why developing countries should be least affected by the global recession. Whether they do well will depend on their economic plans and their execution of them. A recession in developed countries should be good news for developing countries that rely heavily on expatriates. Unfortunately, some of these countries may not have the flexible rules at play to profit from the recession. Poor decisions in the US financial (real estate and subprime loans) and auto industries might have hastened a recession, a recession was nonetheless inevitable because of rising economies like China, India and many more that produce and sell cheap.

The US can only successfully get out of a recession by heavily investing in new energy technology. A breakthrough energy technology will keep the economy booming again. Thereafter the government should focus on stabilizing that, but a sustainable growth is only possible with a continuous improvement in technology relative to other countries. The US could have a chance if fast growing economies falter in handling the global crises. Without a technological breakthrough, better policy decisions will have a cushioning effect by slowing down the rate and alleviate great losses, but not completely stop it.

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