# What exactly was destroyed in the Great Recession? **URL:** \ **Category:** Factual Questions\ **Created:** [October 28, 2015, 2:55am UTC](https://boards.straightdope.com/t/what-exactly-was-destroyed-in-the-great-recession/735928 "2015-10-28T02:55:12Z")\ **Posts on this page:** 4\ **Page:** 2
**Author:** ![theorange](https://avatars.discourse-cdn.com/v4/letter/t/dfb087/32.png) [@theorange](https://boards.straightdope.com/u/theorange)\ **Post date:** [October 28, 2015, 5:07pm UTC](https://boards.straightdope.com/t/what-exactly-was-destroyed-in-the-great-recession/735928/21 "2015-10-28T17:07:57Z")
Thanks for the interesting answers so far, especially Carl Pham’s thorough one. So I wonder if what is really going on is whether the recession was, at bottom, a miscalculation of the economy-wide stream of desires. Goods and services, presumably, don’t have intrinsic value outside of people’s desires, as represented by what they are willing to spend money on. But this willingness is based both on one’s own enjoyment of the goods and services purchased and the ability to resell those goods and services later. In the housing market, then, people thought that people would keep buying houses – and they had for quite a while, because of the general perception that other people would keep buying houses. But when subprime loans started defaulting at higher rates than normal, buyers at the margins weren’t willing to pay as much – desire dropped – and this cascaded backwards, prompting everyone else to recalculate what the market desired. When value was lost in the housing market, then, what that effectively meant was that people now knew the long-term stream-of-desire was not what they thought it was. All the transactions based on that shared understanding then ground to a halt, and it then became like a billion-legged centipede trying to turn itself around when the legs couldn’t know in advance which direction each of the other legs had decided. It became, in other words, a giant coordination problem. But it comes down, eventually, to people’s desire to exchange the real resources underlying the currency for other goods and services – a desire heavily influenced by a clear knowledge of everyone else’s collective desires. When that consensus falls apart, people cannot effectively plan for the future and all the production grinds to a halt. Is that about right? ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [October 28, 2015, 5:42pm UTC](https://boards.straightdope.com/t/what-exactly-was-destroyed-in-the-great-recession/735928/22 "2015-10-28T17:42:21Z")
> [@Hari\_Seldon](#): > > Let me just observe that the “Austrian school” has been predicting for the last 7 years that the US government credit would collapse, that interest rates and inflation would soar out of control. What has actually happened are very modest inflation and rock bottom, near zero, interest rates. Some prediction. > > What the Austrian school cannot even retrodict is why the economy continued its flight into terrain when Hoover followed their prescription for 3 1/2 years after the 1929 collapse. Then things very slowly improved under the Keynsian medicine until Roosevelt put the screws on after the 1936 election and there was a second wave. Things didn’t really get better until the full steam ahead government spending to finance the war. After the war, high income tax rates (up to 91%) brought the accumulated debt down to a safer range and the economy boomed. Pure Keynsianism. This is incorrect history. Hoover increased the federal budget by 50%, that is not what the Austrians would recommend. Furthermore after WW2 government spending dropped by 75% and there were only two years in the immediate aftermath that had a surplus. It was the booming economy that allowed the debt to go to a safe range and not vice versa. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [October 28, 2015, 5:50pm UTC](https://boards.straightdope.com/t/what-exactly-was-destroyed-in-the-great-recession/735928/23 "2015-10-28T17:50:51Z")
> [@theorange](#): > > But it comes down, eventually, to people’s desire to exchange the real resources underlying the currency for other goods and services – a desire heavily influenced by a clear knowledge of everyone else’s collective desires. When that consensus falls apart, people cannot effectively plan for the future and all the production grinds to a halt. > > Is that about right? In broad terms, that’s a good summary, as long as you take out “real.” “Acknowledged” might be a better term. Positive growth in productivity underlies this desire, so that’s an even more important factor. But it’s critical to remember how much of what we recognize as success occurs at the margins. Look at this [table of GDP](http://www.multpl.com/us-gdp-inflation-adjusted/table). Production did not grind to a halt in 2008 and 2009. It went down by about two percent and then recovered that in 2010. Nothing ever changes in this formula. Dickens said it memorably: “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” ---
**Author:** ![even\_sven](https://avatars.discourse-cdn.com/v4/letter/e/dfb087/32.png) [@even\_sven](https://boards.straightdope.com/u/even_sven)\ **Post date:** [October 28, 2015, 6:04pm UTC](https://boards.straightdope.com/t/what-exactly-was-destroyed-in-the-great-recession/735928/24 "2015-10-28T18:04:38Z")
Money, and even ownership, is just a story. It’s a story that convinces people to work together in a certain way, much like the stories of religion or myth binds communities. Over time, we’ve created nifty little plot devices, like credit or banking, that allow us to do cool stuff with out storytelling power. We can create stories, underpinned by these plot devices, that allow us to work collectively to finance huge buildings or create security in our old age. Over time, however, these plot devices have become much, much more complex, with sub-plots upon sub-plots, to the point that you really can’t follow them all. And at times, you end up with places where the plot begins to fray-- there are contradictions, dropped storylines, and places where the plot has just wandered so far from the main storyline where people stop believing. With a lot of clever storyteller, all trying to come up with a believable story that benefits them, it’s bound to happen. We had a story that mortgage securities were safe investments. The subplots there got so complex that it took a while to realize the plot had stopped making sense long ago. Then we had a story that houses would grow in value indefinitely. This plot got so out of control that people just lost their suspension of disbelief. It got to the point in the novel where it’s so unbelievable that people say “now wait a minute, that can’t be what happens next!” And so people stopped doing whatever it was that the story had them doing, much like you might stop going to church if you realize your holy book makes no sense to you. And when that happens, there is a bit of panic and confusion as people don’t know what to do. Eventually a new believable narrative emerges, and people move on to that storyline. [Previous page](https://boards.straightdope.com/t/what-exactly-was-destroyed-in-the-great-recession/735928.md?page=1)