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OPINION: Robert J. Samuelson - The Upside of Recession? - washingtonpost.com

Hardly anyone likes what happens in a recession. Unemployment rises, production falls, profits weaken, stocks retreat. But the obvious drawbacks blind us to collateral benefits. Downturns check inflation -- it's harder to increase wages and prices -- and low inflation has proved crucial to long-term prosperity. Downturns also punish and deter wasteful speculation. When people begin to believe that an economic boom won't ever end, they start to take foolish risks. Partly, that explains the high-tech and stock bubbles of the late 1990s and, possibly, the recent housing bubble.

Some sort of a recession might also reduce the gargantuan U.S. trade deficit, $836 billion in 2006 (just counting goods). Almost everyone believes that the U.S. and world economies would be healthier if Americans consumed less, imported less, saved more and exported more. The corollary is that Europe, Japan, China and the rest of Asia would rely more on domestic spending -- their own citizens buying more -- and less on exports.

Ideally, this massive switch would occur silently and smoothly. Realistically, the transition might not be so placid. A slowdown in Americans' appetite for imports would involve weaker overall consumer spending, about 70 percent of the U.S. economy. Such a slowdown might also be needed to persuade other countries to stimulate their domestic spending.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt ät gmail dotcom) on Wed Apr 25th, 2007 at 03:07:45 AM EST
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