The value of recessions

Most fear recessions – and for good reasons. Employment and consumption fall and generally these bring disutility to most of the population. One cannot deny that but from a systemic perspective, recessions add significant value to the economy.

(a) Recessions are a bit like throwing-up after a meal that simply could not be digested. In this process, it affects (unless government intervention creates inefficient outcomes) those who ate too much in the first place. Thus it is a cleansing...