The economic costs of recessions are significant: Many workers lose their jobs and not as much output is produced. The pain of recessions, though, can be accompanied by activity that helps prepare the economy for further expansion. During recessions, firms can eliminate low-productivity jobs, reorganize plants, and regroup their organization charts. In the words of economist Joseph Schumpeter, recessions can be times when “creative destruction” occurs. Consequently, what happens during recessions — and the response of policymakers to those events — can have implications for long-term economic growth.

This article appeared in the May/June 1998 edition of Business Review.

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