#1 Recessions occur when the people of an economy stop spending money. They usually do this for fear of not having enough during times of trouble. If enough people stop spending money, the economy begins to suffer. Ever wonder why President George W. Bush asked America to “Go Shopping” after the 9/11 terrorist attacks? He knew that fears of more attacks could cause people to hoard their money and the economy would suffer.
#2 If people don’t spend money, businesses make less money. When businesses have less money, they can’t afford to hire new workers and many companies find themselves laying off current employees to cut costs and survive these times of reduced profits. Young people enter the work force looking for a job only to find that companies aren’t hiring. These new workers can’t make money, so they begin to save what little money they have. Wait, they do what?! THEY STOP SPENDING MONEY and the problem worsens. If this happens long enough, the economy is said to be in a recession. But there’s a good side to this…
#3 When companies have to lay off employees and cut costs, they become more efficient and improve their business practices. When they survive the recession, they find themselves in a better position to succeed and grow. Companies that don’t make the proper adjustments during this time are said to have poor business practices and they tend to fail during the recession and go out of business. While it’s sad to see businesses go under and people lose their jobs, this is an important part of our free-market system. Why? Because a recession forces businesses to improve. If they don’t improve, they fail, and competing businesses, that do improve, often get their customers. This means good business does better. When good business does better, they grow and they need to hire new employees.
So eventually the lost jobs are recovered and the better companies thrive. As a result, the entire business industry improves. If this happens enough, fears about the economy will begin to vanish, people start to spend their money again, and the economy can recover. So are recessions truly bad? No! Our economy NEEDS recessions to remain healthy. Recessions help to improve our businesses!