Sometimes forest fires can be good…

Escrito el 18 octubre 2008 por Gayle Allard en Economía de EEUU, Economía Mundial

When I was a girl, I spent my summers in the beautiful redwood forests of the California coast. One lesson was always drilled into me: prevent forest fires. We learned to put out campfires correctly, be careful with matches and in general avoid anything that might damage those splendid forests.

What was my surprise when I heard a naturalist discussing how occasional forest fires could be acceptable and even healthy for the redwoods. The idea was shocking, but as time has gone on it has gained more and more acceptance among the expert community. A fire rushing through those majestic trees doesn´t kill most of them, and it does clear out the underbrush and even make the land more fertile so that seedlings can grow. Fires, if controlled, are often followed by a burst of new growth and health in the forest. In fact, there have been experiments with actually setting controlled fires when fire prevention had been so successful that there had been no forest fires for a long period.

I was reminded of this lesson last month, as we watched the financial world as we knew it melt down before our eyes. As banks crumbled and vanished, we bemoaned the loss of that impressive structure that had underpinned our prosperity, and we attempted to run for safety. And as the fire raged, we watched in panic and wondered what would be left when it finally went out.

But what if economies are like those redwood forests? For years I have shown slides of the continued growth, not punctuated by recessions, of the U.S. economy for almost two decades, and we have marveled at the successes of monetary policy in perpetuating constant growth. Maybe instead of marveling, we should worry for the health of an economy that goes without a contraction for so long. Maybe forest fires are also good for the economy.

What does an economic crisis like the one that awaits us bring that could be good, even healthy? A lot of things come to my mind. One could be more realistic expectations when the world is seen under a more sober lens. Would you invest in worthless assets even if they´re bundled up under a sophisticated name, if you had experienced some downturns in your recent past? Would you buy property or stocks that were overvalued by any objective measure, because you expected their prices to continue rising into the foreseeable future? Crises deflate bubbles. And more frequent crises mean there are smaller bubbles to deflate.

But there are more good things about an economic downturn. What about the shakedown that comes, and the “leaning” and streamlining process that occurs in the business world? What about the undermining of the old economic elites, as the plates underlying the economic landscape shift and resettle? How about the cooling of speculative fevers and the arrogant tempers of young (or old) people who thought they knew it all, and who earned their money and position too easily?

And there are many more items to add to the list. Crises weaken unions (which is good if you dislike them), deflate bloated executive salaries (which is also good if you dislike them), moderate price and wage inflation, soften commodity markets and teach people again how to save. Crises usually mean less pressure on the environment. They can serve as fertile ground for entrepreneurship. Above all, crises teach us all that we aren´t superhuman. They may even lead us to rethink and reprioritize our lives.

None of this is pleasant to endure (by the way, most really worthwhile things are not). We flee pain, which makes it easy to understand why governments are so eager to prevent occurrences like those we have witnessed in our financial markets. We like to feel good. We don´t like to suffer. We will not vote for a government that we consider to have been responsible for our suffering. So we, and our governments, worship at the altar of continual economic growth, and the years unpunctuated by sobering crises feed and feed the irrational exuberance – until it becomes too much for the economic superstructure to bear.

Maybe we need to approach the business cycle a different way. We may not like it, but the occasional, controlled forest fire can be healthy, and maybe if they are more frequent than they have been they would be smaller and easier to control. Rather than demanding that our governments and monetary authorities deliver perpetual growth, we should allow the economy to slide into mild recessions every so often; certainly more often than once every decade and a half. I´m not suggesting that we ask our policymakers to light fires. But when a crisis comes, let´s tighten our belts and allow the hard times to do their work. Crises might not be popular, but they could probably be good for the health of the economy over the long run – and probably also for the health of the human soul.


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