The business cycle has both periods of economic expansion and periods of economic recession. Strictly speaking, it is unclear whether the United States has entered into a recession or not because that requires two consecutive quarters of negative economic growth measured using GDP. One quarter of negative economic growth has happened. However, it is possible that a one-quarter dip will remain just a one-quarter dip. In any case, it isn’t hard to see why so many are so concerned about a recession coming up. After all, bad economic times mean a lot of hardships for a lot of people. On top of that, there are other reasons to be pessimistic about the economy at the moment, which make the chances of a recession coming up seem that much likelier.
1. Recessions Existed in Ancient Times
A recession is just a general decline in economic activity. As a result, it should come as no surprise to learn that recessions existed in ancient times. Yes, ancient economies could be quite primitive when compared with their modern counterparts. Even so, it was very much possible for them to experience bad economic times for one reason or another.
2. The Crisis of the Third Century Had an Economic Component
To name an example, the Crisis of the Third Century had an economic component to it. However, this is one of those cases in which recession isn’t quite enough to describe what happened. After all, a recession tends to refer to a general decline in economic activity that lasts for several quarters while a depression tends to refer to a general decline in economic activity that lasts for several years. The Crisis of the Third Century was so bad that the Roman Empire never returned to its previous state even though the Western Roman Empire lasted until 476 and the Eastern Roman Empire lasted until 1453.
3. Political Instability Contributed to the Crisis of the Third Century
Political instability can do terrible things to the economy as well as other major aspects of a society. The early Roman Empire had no rules for the imperial succession. Instead, it was based on a mix of elite approval, military approval, and popular approval. As a result, when the system broke down, it was very easy for people to either set themselves up as a claimant or be set up as a claimant. One particularly bad year towards the start of the period is called the Year of the Six Emperors because five emperors were killed within a matter of months of one another. Later, the Roman Empire broke up into three portions, which worsened the situation.
4. Donatives Contributed to the Crisis of the Third Century
Coinage debasement isn’t a huge issue in modern times. This is because the melt value of a modern coin isn’t very relevant for the nominal value of a modern coin. Coinage debasement was a much more serious issue in pre-modern times because melt value was much more connected to nominal value. By the Crisis of the Third Century, it was normal for new Roman emperors to give donatives to the soldiers as a way of buying loyalty. The sheer number of new Roman emperors meant that this practice caused hyperinflation. On top of that, they engaged in coinage debasement because they wouldn’t have been able to afford those donatives without it.
5. The Crisis of the Third Century Changed the Roman Economy
The Crisis of the Third Century brought about permanent changes to the Roman economy. Previously, there had been thriving trade within the Roman Empire, which included both luxuries and staples. The Crisis of the Third Century made things so unstable that this trade broke down. Thanks to this, the Roman elite started focusing on self-sufficiency rather than export over great geographical distances, thus moving towards the manorialism of the medieval period. The loss of trade meant that the Roman Empire moved from a higher equilibrium to a lower equilibrium, which is a very nice way of saying that a lot of people died because it was no longer capable of supporting a population of the previous size.
6. The 1920s Aren’t the First Time that Germany Experienced Hyperinflation
Germany had a very infamous bout of hyperinflation in the early 1920s. After all, the image of people bringing entire wheelbarrows of money with them is a very memorable one. However, that wasn’t the first time that Germany had experienced hyperinflation. Granted, Kipper und Wipper happened towards the start of the Thirty Years’ War in the first half of the 17th century, so it might be more accurate to say that it was experienced by the Germans rather than Germany.
7. Kipper und Winder Refers to the Use of Tipping Scales
Kipper und Winder means “tipper and seesaw.” It is a reference to the use of tipping scales in those times. Essentially, people would use them to find un-debased coins. After which, they would melt them, mix their metal with baser metals, and then use the resulting metal to issue debased coins.
8. There Was an Element of Hostility to Kipper und Winder
The coinage debasement was motivated by the need to find the money with which to pay for a war that would go on to kill about 20 percent of the German population. However, there was an element of hostility to Kipper und Winder as well. After all, people were well-aware that coinage debasement would bring about a whole host of economic woes. As a result, some of them chose to make low-value imitations of their rivals’ coins before spending them elsewhere, which was meant to direct that damage towards their rivals from themselves. Unsurprisingly, people caught on to these schemes, which convinced them to retaliate in kind. This contributed a great deal to the search for good coin that could be converted into bad coin.
9. Kipper und Winder Became So Bad That the Coins Became Children’s Toys
Supposedly, the situation became so bad that children played with the debased coins in the streets because they were just that worthless. On the whole, Kipper und Winder did considerable damage to the Germans, which was on top of the physical devastation brought about by the war. Moreover, its consequences were felt beyond the Germans. Something that is perhaps unsurprising when other European polities were very much involved in the Thirty Years’ War. To name an example, France supported the Protestants even though it was a Catholic power as well.
10. Some People Benefited From Kipper und Winder
Bad economic times tend to hurt most people. However, they can bring opportunities as well, meaning that some people can benefit from them. To name an example, Albrecht von Wallenstein was one of the numerous parties involved in the coinage debasement. This is notable because said individual rose to become the supreme commander of Ferdinand II’s Imperial Army, though he died before the resolution of the conflict because he was assassinated with the emperor’s approval.
11. The Existence of Recessions Received a Boost in 1825
Nowadays, recessions are accepted as something that happen from time to time. However, that wasn’t always the case. In fact, belief in the existence of recessions received a boost in 1825, which was when the Panic of 1825 happened. This was notable because it was a clear example of an economic crisis that wasn’t brought about by either war or some other external cause.
12. The Panic of 1825 Was Connected to Speculative Investment in Poyais
Speculative investment in Latin America played a role in causing the Panic of 1825. Having said that, the single most outrageous example would be Poyais. In short, a man named Gregor MacGregor convinced the King of the Mosquito Coast to sign a document granting him 8 million acres of land, which was worthless for a couple of reasons. One, the land was beautiful but not very fertile. Two, said monarch was a monarch in name but not much more than that, meaning that he didn’t have much control of the country that he supposedly ruled. Still, that was enough for MacGregor to return to Great Britain claiming to be the Cazique of Poyais, which was supposed to be a wonderful land of opportunity that had already undergone a fair amount of development. Suffice to say that more than a 100 people died because of his scheme.
13. The Panic of 1825 Came Close to Bringing Down the Bank of England
The Panic of 1825 hit Great Britain the hardest. This can be seen in how it brought about the closure of 12 banks. Moreover, the Panic of 1825 came very close to bringing down the Bank of England itself, though in the end, said institution was saved by an infusion of gold from the Banque de France. Other countries were hit as well. However, they took less damage, particularly since they weren’t acting the same way as the Bank of England.
14. The Panic of 1825 Was Worsened By the Bank of England
Speaking of which, the Panic of 1825 was worsened by the Bank of England. To an extent, this was because said institution wasn’t a true central bank in the way that we think of it. Instead, it was a for-profit bank that had loyalties to not just Great Britain but also its shareholders. As a result, it took actions that were in the interests of its shareholders but not in the interests of Great Britain as a whole. To name an example, it refused to serve as a lender of last resort until it was too late for that to help.
15. Recessions Can Have Shapes
It is interesting to note that recessions can have shapes. Essentially, this refers to what a recession looks like when it is plotted upon a Cartesian coordinate system. A V-shape means a short recession while a U-shape means a long recession. However, there are other shapes that can happen as well. For example, a W-shape means a recession, a short-lived recovery, and then a second recession. Similarly, a K-shape means that a part of society experiences a short recession while a part of society experiences a long recession.
16. Some Recession Shapes Are Nastier Than Others
Having said that, the nastiest recession shape might be L-shapes. After all, this is the recession shape for a long-term economic slump, which can be very unpleasant to say the least. Some people might think that L-shapes don’t happen anymore. Unfortunately, that isn’t the case. In fact, L-shapes aren’t even limited to the developing world. For proof, look no further than Japan, which isn’t in a Lost Decade so much as Lost Decades. This has been the case even since the asset price bubble collapsed in 1991.
17. Most Economists Now Believe that Governments Need to Intervene During Recessions
Economists can believe some very different things from one another. Still, there are some positions that are mainstream. For instance, most economists now believe that governments need to intervene during recessions. Something that wasn’t always the case. This can be seen in how governmental response to the Great Depression was a hotly-debated issue in a number of countries, though in the end, those advocating for intervention won out for the most part. Of course, there remains plenty of debate over what that intervention should look like.
18. Keynesian Economics Got a Boost in Recent Times
Keynesian economics are named for John Maynard Keynes, who played a key role in said period. For a time, Keynesian economics was the orthodoxy of economics. This remained the case until the 1970s, which was when it lost ground because of the stagflation caused by the oil shock. Still, its competitors had plenty of their own faults, with the result that Keynesian economics would eventually make a comeback as the New Keynesian economics that forms a part of the modern orthodoxy of economics. In particular, the school got quite a boost from the Great Recession of the late 2000s, which brought about a renewal of interest in Keynesian policies.
19. Conventional Monetary Policies Lose Power When Interest Rates Are Zero
Often-times, people will hear talk of fiscal policy and monetary policy in response to recessions. Fiscal policy refers to government spending and government taxation. Meanwhile, monetary policy refers to changes in the supply of money, which is supposed to be handled by a central bank. Both have their particular quirks. To name an example, conventional monetary policies lose power when nominal interest rates are either zero or near zero. Something that hinders a central bank’s power to stimulate the economy unless it resorts to more unorthodox measures.
20. Central Banks Are Supposed to Be Independent
Unsurprisingly, economics have a huge impact on a government’s popularity. Due to this, there is a fear that governments will use monetary policy to secure short-term gains in exchange for long-term losses, thus securing their position while hurting the interests of society as a whole. This is the reason that central banks are supposed to be independent. When they aren’t independent, well, suffice to say that there is plenty of evidence that enough short-term pressure can override the long-term objectives of such institutions.