What Comes After a Recession in a Business Cycle?

While still volatile, recessions today are more stable than past recessions.

A definition of a recession during a business cycle is when output of good and services are declining. Employment is also declining while unemployment is rising. During World War II, prices were staying low during recessions. But, in the 21st century, prices are rising with recessions. Consider the possibility of an uncomfortable and guarded economy in a 21st century post-recessionary period.

People Spending Less

Time magazine reporter Justin Fox says look out for a trend of frugality after a doubled debt-to-income ratio in the late 2000s. An example of this is the increasing American debt load percentage from the Federal Reserve. In 2009, it was 128 percent. Marilyn Geewax of National Public Radio says it’s increasing each month through 2011. Expect people spending less than their allowable income, even with a lowering debt load.

Continuous Downturns

Prepare for the possibility of multiple downturns between modest recovery periods. This is based on the history of multiple economic downturns occurring in the 1970s and 1980s. Don't expect mild downturns as in the 1980s and before the robust economy of the 1990s. Expectations for the 21st century by Time Magazine are for severe and numerous downturns.

Higher Taxes for All

With national debt increasing during a recession, little alternative is left other than raising U.S. taxes. As of 2011, President Obama is pushing the raising of taxes on the wealthy through his American Jobs Act (see Resources). Expect increasing taxes after a recession for all economic brackets. The most likely is through an inflation tax, which essentially means letting prices rise in order to reduce the relative size of the country's debts.

Comparison to Recessions Past

On the positive side, America has gotten better at coping with recessions. The Library of Economics and Liberty reminds that welfare and unemployment benefits today are helping stabilize individuals. This is in comparison to no unemployment benefits during The Great Depression of the 1930s. Also, sustaining necessary services and avoiding sudden swells in oil or consumer prices are bringing a general stabilization during 21st century recessionary times.

References

• Time Magazine: What to Expect When the Recession Ends--Frugality
• Time Magazine: What to Expect When the Recession Ends--Volatility
• Time Magazine: What to Expect When the Recession Ends--Higher Taxes
• The Library of Economics and Liberty: The Concise Encyclopedia of Economics--Business Cycles
• National Public Radio: Consumers' Personal Debt Ceilings On The Rise Again

Resources

• White House: American Jobs Act