What is Recession and How are Politics Involved?

Photo by Kevin Young on Unsplash

The policymakers must sacrifice their petty desire of gaining short-run popularity through drastic economic measures and look forward to the national interest as a whole

ecession is one of the prime features of the modern capitalist economic system. Generally, an economic downturn/decline that continues for two consecutive quarters is labeled as a recession. Observed in regular intervals, this phenomenon is caused by quite a number of factors — i.e. increased interest rate, a higher level of inflation, reduced level of consumer confidence, reduced real wage rate etc.. Though the economic recession is usually considered as a normal part of the economic cycle and expected to be recovered within one year, the situation can be worsened by inappropriate government policies and political maneuvers which could linger the tenure of the stagnation, therefore lead to severe economic depression. So, it’s obvious that the existing political system and the degree of political stability play a vital role while confronting the recessional situations.

Let’s go forward with our quest for analyzing the political strings affecting economic recession. First of all, in a stable political system recession can be controlled more effectively. That’s because the stable government will look forward to economic stability — for its own sake. For instance, in a stable and efficient democracy, the democratic government will look forward to mitigating the negative exposures of recession because it has the people’s mandate for doing so. If the government fails to mitigate the severity of the situation, it’ll fail to stay in power as well. Such a situation is observed in the latest economic downturns that shocked the global economy — the Eurozone sovereign debt crisis. There it was observed that the failure in alleviating the crisis led to the political transition and widespread agitation in a couple of European countries (e.g. Greece, Italy). Also, such failures heavily boosted the political instability in the affected nations which further worsened the economic condition. So, it’s apparent that the unsteady political system and the economic downturn/recession are positively correlated. It should be noted here that the economic infrastructure of a country is largely created through political decisions. Regulatory bodies like Central Bank can only implement the policy measures taken by the political government while it’s the government (or the political entity/system) that creates such policies in the first place.

So, here comes the part of effective governmental policies which are very much important to resolve recessional situations. In general, governments/political parties are fond of policies that ensure short-run gains for boosting their popularity during their tenure. However, such short-run gains are quite harmful to the economy and lead to severe future drawbacks. The greatest example of such a situation is the global financial crisis that traumatized the world economy from 2008–2012. One of the key reasons behind that economic meltdown was the ‘one family, one house’ policy of the government. This particular policy, along with other strategic stances like the lower level of monitoring and regulatory measures for subprime mortgages and complex financial instruments (Collateralized Debt Obligations — CDOs) and relaxed risk management regulations quickly worsened the situation and triggered the burst of the real estate bubble that eventually caused the global economic meltdown through contagion effect. Thus, it’s the government’s policy that fueled the economic crisis. Even if we consider the great depression of the 1930s, we can observe the same inappropriate policy implication by the Fed (cutting money supply when the banks were in dire need of liquidity) which further worsened the situation.

As politics plays a vital role in creating and boosting recession, this economic phenomenon should be dealt through effective political measures. The policies should be implemented with a long-run focus rather than a shorter one and the policymakers (who are mostly politicians — the elected representatives of the Republic) should be concerned about the sustainable, stable growth of the economy. In this context, the policymakers must sacrifice their petty desire of gaining short-run popularity through drastic economic measures (e.g. allowing higher inflation for having a lower unemployment rate for the short-run) and look forward to the national interest as a whole. Also, the citizens of the country must go forward for a stable political system where the people’s mandate is ensured at any cost. Though it’s not possible to eradicate economic recession, it’s quite plausible to quickly recover from this inevitable economic phenomena through the effective implications of these political measures. So, for the sake of a better economy, let’s hope for a stable and accountable political system in the countries around the world.

“Dreamer-Thinker -Storyteller -Writer -Researcher -Economist” @treasury fund manager @fx trader ##Website: www.economaven.com

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