Economic Cycles as a Form of Spiritual "Payback"

Governments strive to keep their economies as healthy as possible, usually paying special attention to maintaining the fullest level of employment possible. But full employment has its own costs:

- Government stimulus programs result in higher taxes, putting a drag on economic activity
- lack of austerity reduces the incentive to maintain high standards for return on invested capital
- decreased appetite risk necessary for new ventures, since maintaining the status quo is adequate; result is that fewer new ventures are created

Deep recessions can creates a groundswell of sharp, tough decision-making among consumers that raises the bar for marketplace products, which has the effect of requiring lower prices and higher quality among businesses competing for a share of scarcer dollars. On the consumption side, having fewer dollars to spend tends to automatically enforce a higher consumption productivity, in which the same utility is generated from fewer expended dollars.

The hazard is pernicious: If the recovery from recession is too easy, consumers forget their tough, high return-on-investment habits and begin to make sloppier decisions. The right way to recover from recession is to have the recovery driven by the higher productivity of consumption and investment decisions among consumers and businesses, respectively. That is, as frugality is practiced more and more it becomes a habit and more ingrained. This frugality causes a national natural productivity boost, which then shows up in an expanding marketplace as consumers then find new surpluses at their disposal.

The converse also occurs: In boom times consumers feel that money flows to them easily. They get careless, and don't police their expenditures as much, or fail to shun higher-priced, less efficient services and products. Marginally inefficient activity fails to be curtailed during the boom, but then this leads to small decreases in the capital stock as resources are squandered and wasted and consumers fail to reward the good businesses and punish the bad businesses.

In the global scheme of things, a recession is a school lesson. It occurs because the nation forgot that it was supposed to be on good behavior. Once in the recession, the nation learns the good way, the right way, and these practices then lead to the recovery.

So the business cycle is payback: It is carrot and stick, rewarding you (economic expansion) for good habits (frugality) and punishing you (economic contraction) for bad habits (overspending or buying badly). It is a natural cycle, supplying invaluable feedback.

Stimulus interferes with this learning process. Supply enough stimulus, and the nation will forget how to invest in itself appropriately, and the lessons of frugality will be lost.