Blogs > HNN > This recession's purpose is ...

Jan 9, 2009 9:34 pm

This recession's purpose is ...

The last major recession, at the start of Reagan's term, had a purpose. It was contrived deliberately by Volcker and Reagan to wring inflation out of the economy. It may have been Reagan's single biggest domestic achievement.

What is this recession's purpose?

I don't yet have an answer.

It may be it has no purpose.

That makes enduring the hard times ... harder.

Anybody want to suggest a purpose?

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Jonathan Dresner - 1/24/2009

I've been mulling over this for a while, and I still can't make sense of the question. I don't see how a recession has any more meaning than a hurricane or a stock split. There's lots of them that have no legacy whatsoever, really.

The question is about whether this will be, in some way, a transformational event, or merely an event. A lot of the policy response so far has been oriented towards making this merely an event; we haven't seen much that would suggest a legacy one way or the other. Infrastructure is nice, but what we've allocated so far isnt even halfway to paying for the backlog of maintenance and replacement necessary for the infrastructure we already have.

The other likely point of tension which could be transformational would be our culture of consumption: I don't see a whole lot of leadership on that score, either.

HNN - 1/16/2009

Reagan chose not to beat up Volker, which most presidents would have done under the circumstances.

Standing there and letting Volker act--that was leadership of a high order.

Grant W Jones - 1/12/2009

The policy you are referring to was initiated by Volcker in October 1979.

"The incompatibility of the Fed's policy procedure with its stated intent of targeting on the monetary aggregates had to became very clear by October 1979, when the Fed's policy procedures underwent drastic revision ... Rather, he [Volcker] was far more concerned with using interest-rates movements to wring inflation out of the economy." The Economics of Money, Banking, and Financial Markets Sixth Edition, Frederic S. Mishkin, p. 469,471.

The recession was already in full swing when Reagan took office. His geniunely liberal policies may have helped the economy, but Volcker was already 1 1/2 years into his anti-inflation campaign.

Another question about this is how presidents gett credit or blame over monetary policy which they have little knowledge of, or control over.

Oscar Chamberlain - 1/12/2009

This is a good question for policy makers and politicians to ask themselves and each other. To the extent that we have the power to do so, what possible meaning or legacy do we want this recession to have?