A Healthy Economy Needs Risk, Loss, and Failure
Policy makers need to accept that some pain is normal and that trying to eliminate it is futile.
The US and Europe stand on the brink of possible recession that will bring job loss and misery. Even if a downturn is narrowly avoided, high inflation and falling asset values have already destroyed wealth and made everyone poorer.
Pandemics happen, and so do market downturns. But some of the pain the world faces today stems from policymakers’ attempts to avoid economic loss in the first place. For the past decade, central banks and governments pursued policies that aimed to eliminate downside risk and ensure stable, predictable growth. But that’s impossible. The next recession should remind us that better policies cultivate resilience to economic setbacks in institutions and individuals instead of trying to avoid loss entirely.