Russ Roberts approvingly links to this diatribe from John Papola that is either very confused, attacking straw men, deliberately mendacious, or all of the above. Rather than engage it point-by-point, because I am tired and have better things to do, I will instead just start with the conclusion then go read a good book.

Of course economic growth is driven by production. Non-satiation is a key understanding of economics – that no matter how much people have, they will always want more (in some sense). Therefore, since the desire to consume is a constant the level of growth is almost definitionally a question of supply (though on a truly philosophical level, if humans did not experience want there would be no incentive to produce, but presumably that random mutation would be selected out). As long as we can continue to figure out how to make more, make better, and make more efficiently, consumers will demand the same.

But this is not the same question as what causes recessions. The reason that macro befuddles and confounds is that recessions are weirdOn the one hand, we have all these people who (as we just said, by definition) want more stuff; on the other hand, we have all these people who were making stuff yesterday and weren’t making stuff today. Here are some theories for what cause recessions:

1. A sudden and contagious plague of laziness.

2. A sudden and contagious plague of contentedness.

3. A sudden and contagious plague of confusion and stupidity.

These are idiot theories. None of them are remotely true. Yet recessions still happen. Which means that even though everyone who is consuming less would like to resume consuming what they were consuming and everyone who is producing less would like to resume producing what they were producing they can’t. For some reason.

That reason is, in a word, money. Why and how it’s money are complex and tricky questions, but there should be zero doubt that that is, in fact, the answer. And that means that recessions are about demand.

India is a really good example about how poor public policy and social organization can lead to unnecessary supply-side constraints that impoverish everyone. America is not India. We usually grow. When we don’t, it’s weird. It’s a malfunction.