Should we call any economic downturn a recession? Mikhail Khazin, a prominent mathematician, economist, and the author of
Recollections of the Future: Modern Economic Ideas, argues that we should not. Together with a group of like-minded experts, Khazin conducted extensive research on capitalism as a system and identified a distinct type of economic contraction — a
crisis of capital effectiveness (CCE). The term arises from its typical manifestations: negative returns on investments when the natural regeneration of capital (through the market) ceases.
Crises of this type are characterized by a
profound (double-digit) drop in GDP followed by extended periods of economic depression. Most importantly, unlike a recession, a CCE does not automatically end when a new cycle of growth starts. Instead, a crisis of capital effectiveness can be addressed only through market expansion — the sole mechanism that significantly lowers manufacturing risks. At its core, Khazin's concept of crisis is based on the writings of Adam Smith, who recognized that in closed economic systems, labor division eventually stalls.
According to the author,
humanity has gone through three CCEs: the 1900s crisis of banking liquidity, the Great Depression of the 1930s, and the stagflation of the 1970s. Each time, the crisis ended only when access to new markets was achieved. On the first two occasions, it was accomplished through major wars. The 1970s crisis was eased by Reaganomics, yet its ultimate resolution came from the 1991 defeat of the USSR in the Cold War; this enabled the West to dismantle and integrate the Soviet economic zone, expanding the markets one final time — this time to encompass the entire world.
Comment: It's worse than even than this:
The brilliant X poster DataRepublican weighs in: