In the 1920s and 1930s, economists grappled with a pressing issue: dramatic economic fluctuations that plagued much of Western Europe following World War I’s devastation. The origins of business cycle theory trace back to the late 1810s, when scholars sought to understand periodic crises in emerging industrial capitalism across Europe. By the post-World War I era, this research gained urgency due to political instability and radical movements fueled by severe economic downturns.
Business cycles typically begin with an expansion phase that peaks, triggering a contraction period eventually reaching a trough before recovery restarts growth. During the 1930s, economists aimed to moderate these fluctuations through state intervention—John Maynard Keynes became emblematic of this approach, while F.A. Hayek argued such measures often failed to ease contractions and could distort recovery.
Since World War II, economists have developed theories explaining business cycle variations and indicators for gauging economic phases. Yet Tyler Goodspeed’s new book, Recession: The Real Reasons Economies Shrink and What to Do About It, challenges this framework with a radical thesis. A former chair of the Council of Economic Advisers and currently chief economist at ExxonMobil, Goodspeed contends recessions are typically sparked by unforeseen external shocks—such as natural disasters, wars, plagues, or pandemics. He also asserts many such events stem from misguided government interventions that prolong economic contractions.
Analyzing major U.S. and British recessions dating to the 18th century, Goodspeed argues historical data reveals no consistent cyclical patterns in economic growth and contraction. He further criticizes the National Bureau of Economic Research’s business cycle indicators from the late 1950s as having an unimpressive forecasting record. According to Goodspeed, recessions are better understood as idiosyncratic events rather than recurring cycles.
The author emphasizes a psychological factor: society often interprets recessions through “fall and redemption” narratives found in literature and religious texts, leading to the misconception that downturns purify economies of past mistakes. This mindset, he warns, can result in policy errors—such as avoiding innocuous behaviors or implementing counterproductive measures. Government interventions during recessions may thus become another type of external shock.
While Goodspeed’s work faces criticism for oversimplifying recession causes—which economists generally view as hybrid internal and external phenomena—the book provides strong reasons to question the cyclical model of economic fluctuations. He argues that focusing on property rights, legal systems, and avoiding panic during crises could enhance long-term economic stability. Published by Basic Venture with 310 pages at $30, Recession redefines how we understand economic downturns in an era of unprecedented uncertainty.