I have an idea that spiraling depressions are impossible and that inevitably economies must grow for the pure fact that a spiraling downturn presents too many opportunities for arbitrage to ignore.
What are your thoughts? Has this been thought of by others?
I never thought of it that way, but that makes alot of sense.
To me, the idea of a viscious downward cycle flies in the face of equilibrium. If economies are so fragile, and of a structure that could turn against itself, few if any would last in a totally free state, let alone under the weight of government interference.
The Rev
Yeah. It all sounds like a great thesis starting paper to me.
It depends what you mean by spiraling depression. If you have a business cycle, then there are secondary effects to the corrections of the malinvestments.
What if the government is determined to continue distorting the economy. If bad enough, your economy gets worse – look around the world. I assume you have some notion of keeping government intervention constant, but that gets tricky. In the US, market forces tend to “work around” the distortions so we get economic growth over the long term.
Let’s assume all things remaining equal and if at all possible just set aside the malinvestment rhetoric. Looking at it from a non-factionalist point of view, what specifically should one expect if the economy dips down and the government does not intervene?
I’m thinking that as prices decline, it will present too much of an opportunity for arbitraters to buy and sell later. An objection to this might be that prices continually deflate, but what about in cyclical markets? Couldn’t arbitrators flock to these markets, buy at relatively lower prices, and sell at the higher prices thus starting a kind of wind storm towards boosting the economy back to health?
IFF governments stay out of the way. Otherwise: you can have spiraling depressions.