Are Depressions Necessary?

The current crisis has revived an old debate about the utility of economic downturns.

Christopher Hayes | July 10, 2009

Economists, particularly those of the ascendant Chicago school of free market enthusiasts, were in a triumphant mood at the beginning of this decade. Speaking at the annual meeting of the American Economic Association in 2003, Nobel Laureate Robert Lucas went so far as to say that macro-economics -- with its focus on the stable maintenance of national economies -- could safely be retired. "The central problem of depression prevention," he said, "has been solved for all practical purposes."

But if the technical challenge of depression prevention has rudely announced itself unsolved, the current crisis has also reawakened a long-obscured, but far more profound debate about the very nature of cyclical capitalism. That is: Are economic contractions, like the one we're currently experiencing, a good thing?