I’m not sure I agree with this by One Salient Oversight, but I’m not sure I completely disagree with it either:
I would argue, therefore, that the best conditions for creating steady employment over a long period is not to increase GDP growth, but to prevent economic contractions. The longer the period between contractions, the more stable the labour market is and the less unemployed people there will be.
Of course, this is not to say that GDP growth isn’t important – it is. Moreover, preventing an economic contraction logically assumes that GDP should grow.
What I am suggesting, though, is that GDP should never be allowed to grow too fast. Growth must be sacrificed in the short term in order to allow growth over the long term. Moreover, short term growth must be sacrificed in order to prevent a contraction later.
(Note… his post also has some material on price stability… which I don’t agree with at all, but am in too much of a hurry to get into.)
One Salient Oversight also weighs in with thoughts on the current mess.
All this means, of course, that the chances of a drop in the sharemarket on Wall Street are quite high. And if the shares fall far enough, a “bear market” may be declared – maybe not on Monday but probably some day this week.
A “bear market” is when a sharemarket index has dropped by 20% from its previous high.