[exelius]

My personal theory is that recessions are dependent on wealth inequality. It makes sense if you think about it on the personal level -- if there is high wealth inequality, a greater percentage of the country suffers during an economic downturn. That suffering puts a pinch on all non-essential spending for a larger percentage of the population than it would if there were a larger middle class.

A wealthy and prosperous middle class is thus essential to a stable economy. Without it, you get these boom-bust cycles and you condition people to "spend it while you got it" (aka the poverty mindset). This creates a feedback loop that the US had to work really hard to break out of in the early 20th century (the time between the Civil War and the first World War was extremely tumultuous economically because we were learning a lot of hard lessons about monetary policy).

We had some pretty bad economic downturns in the 50s, 60s and 70s as well. But they didn't reach recession level because the wealth gap wasn't as vast. My grandfather was a factory owner in the rust belt during that period and the richest man in his small town. He was wealthier than his employees, but not by a lot. But eventually he had to sell out to a large multinational because he simply couldn't match their prices in the market.

[codelitt]

I see your point. Though, I'm not terribly convinced about wealth inequality being a major driver in this. I know it is a hot political topic, however, I don't think it is nearly as extreme (except for the very edges of the spectrum) nor as problematic as it is being portrayed. I read this paper recently that I thought was an interesting perspective: https://cei.org/sites/default/files/Ryan%20Young%20and%20Iai...

[exelius]

On a global level, you may be right -- but recessions and market forces strike nationally, and it's hard to tell an out-of-work coal miner that "Sorry, there are no factory jobs to fall back on because we gave them to some really poor people in Honduras and now they're doing great!"

A middle class that is relatively less wealthy than the upper class has less ability to soak up down markets. And down markets will always happen (I mean, it's cyclical) -- but the middle class in the US is leveraged up to its eyeballs just from trying to get to a middle-class lifestyle (college loans, medical bills, etc.) That means the slightest perturbation in the status quo sets off a chain reaction of default and money supply pinch.

I expect the next recession will trigger the student loan avalanche. There are students graduating with over $100k in debt -- and many like me who are well into lucrative careers without a ton in savings because so much of their income goes to servicing their student loans.