Tyler Goodspeed: Why "Pattern-Seeking Mammals" Blame Bankers Instead of Locusts
The Gist Podcast Recap
Published:
Duration: 43 min
Guests: Tyler Goodspeed
Summary
Tyler Goodspeed discusses the misinterpretation of economic recessions, emphasizing that they are often caused by random shocks rather than economic excess. His insights challenge conventional wisdom, suggesting that policy interventions should focus on relief rather than prevention.
What Happened
A federal judge found Donald Trump's executive order to eliminate NPR and PBS funding unconstitutional, citing violations of First Amendment rights. Despite this ruling, NPR's funding was reduced through other means beyond the executive order.
Tyler Goodspeed, former Chair of the President's Economic Council under Donald Trump and now Chief Economist at ExxonMobil, argues that recessions are unpredictable and not mere corrections to economic booms. He suggests that they result from adverse shocks like pandemics or sector-specific issues rather than previous economic excesses.
Goodspeed introduces the concept of 'apophony,' which involves assigning false patterns to data, contrasting it with 'epiphany,' which refers to identifying genuine patterns. He highlights that many historical recessions have been inaccurately attributed to narratives like overbuilding or excess investment.
The 1931 locust plague in the U.S. impacted farm and banking distress but was not the sole cause of the Great Depression. Similarly, the 2001 recession, known as the dot-com recession, was influenced by multiple factors, including the decline in tech stocks and the 9/11 attacks.
Goodspeed argues that policymakers should not assume they can prevent recessions since they often stem from random shocks. He cautions that while expansionary policy might not end a recession, contractionary policy can exacerbate the situation.
Today, households and businesses are better at absorbing shocks, making recessions less frequent and economic expansions longer. He emphasizes that recessions are often misattributed to moral failings or excesses instead of the actual adverse shocks that cause them.
Energy crises have historically been significant contributors to economic recessions. Goodspeed notes that the U.S. economy is now less dependent on core OPEC compared to the 1970s, largely due to more elastic non-OPEC supply and unconventional production.
Advanced economies maintain strategic petroleum reserves to buffer against energy shocks. Goodspeed explains that diversification in energy sources, much like a diversified investment portfolio, helps absorb such shocks and mitigate their economic impact.
Key Insights
- Tyler Goodspeed argues that recessions are not predictable events but rather result from unforeseen adverse shocks such as pandemics or sector-specific disruptions. He challenges the common narrative that recessions are corrections to prior economic booms.
- The concept of 'apophony' is introduced by Tyler Goodspeed to describe the human tendency to assign false patterns to data. This contrasts with 'epiphany,' which involves discerning genuine patterns, and is crucial in understanding economic events like recessions.
- Energy crises have been significant contributors to economic recessions historically. The U.S. economy is now less reliant on core OPEC due to more elastic non-OPEC supply and unconventional production, which helps mitigate the impact of energy shocks.
- Advanced economies, including the U.S., use strategic petroleum reserves as a buffer against energy shocks. Tyler Goodspeed highlights that diversification in energy sources is similar to a diversified investment portfolio, helping to absorb shocks and reduce their economic impact.