Until that process is complete, there isn’t much from which a legitimate expansion can arise.
Recessions put weak companies out of business. In so doing, resources (skilled workers, capital) are freed up to be deployed more efficiently elsewhere. For example, Wall Street analysts who touted bankrupt Internet stocks are redeployed at local fast food restaurants to serve people in a capacity for which they are much better suited.
Stronger businesses that have used the contraction to firm up their bottom lines and grow more efficient are able to take advantage of these resources during the ensuing expansion. The economy emerges from a recession leaner, more efficient and in good shape for the next wave of growth and progress.”
Yet recoveries require painful medicine to be taken in a timely fashion and in the proper doses. Those who remain in denial until the bitter end find the reckoning all the worse when it comes.
In bull markets, it is easy to get addicted to endless growth, share prices that always rise, and prospects that forever get better. It takes discipline to cut back, write things off and retrench. But companies that do are the better for it.
A bust clears away inefficient and unproductive companies and investments. During good times, all sorts of uneconomic propositions find funding: these wasteful excesses are shut down or recycled when things get tough. Non-jobs disappear; non-businesses go bankrupt and everyone concentrates on more worthwhile endeavours.”