Most Economists Get Recessions Wrong feat. Tyler Goodspeed | Ideas Lab | Ep.51

Summary

Tyler Goodspeed, chief economist at Exxon Mobil and former chair of the Council of Economic Advisors, argues that recessions are rarely the result of internal economic excesses building up over time. Drawing on four centuries of US and UK data, he shows that expansions do not die of old age, recessions are triggered by unpredictable exogenous shocks, and they do not cleanse the economy. The conversation highlights the persistent role of energy supply shocks, the limited effectiveness of counter-cyclical policy, and why resilience through diversification matters for investors and policymakers.

• Economic expansions do not become more likely to end in recession simply because they are long in duration (Peter Pan view vs. boom-bust view).
• Credit booms and overinvestment in infrastructure or buildings do not reliably predict the depth or speed of the next recession.
• Recessions have maintained remarkably constant depth and duration across three centuries, despite changes in monetary and fiscal policy.
• Energy supply shocks (oil, coal, cotton, animal feed) have been a perennial and underappreciated driver of recessions on both sides of the Atlantic.
• The post-2008 UK growth shortfall is explained by a banking regulation shock that hit the credit-reliant UK economy harder than the US.
• Recessions impair, rather than enhance, the reallocation of labor and capital to more productive uses, disproving the 'cleansing recessions' narrative.
• Resilience to shocks has been improving over the long term due to diversification in banking and energy systems, making the economy better at absorbing adverse events.
• Investors and policymakers should focus on the types of shocks that have historically caused recessions, while accepting that recessions themselves are inherently unpredictable.