The Economist has an article on economic stability called " The Turning Point - Does the latest financial crisis signal the end of a golden age of stable growth?". The article discusses the long period of relative economic stability the US has experienced. Key quotes:
"Much of the focus—in good times past, as well as bad times present—has been on America, where fluctuations in economic growth have fallen by around half since the early 1980s. In upswings the economy's growth rate has varied by less from one quarter of the year to the next and from year to year. Recessions have been rarer, shorter and shallower."
The article states the main reason for this period of stability is the US and other economies are much more flexible than in the past. They point to three main reasons for this: improvements in managing stocks of goods; the financial innovation that expanded credit markets; and wiser monetary policy.
I would add the increasing role of small and personal businesses as a key driver of increased economic stability. My reasons are:
- Small businesses are very agile and flexible, and react quickly to changing economic conditions. This adds to economic stability.
- The growth and acceptance of small and personal businesses provides dislocated workers with alternatives. Consulting and temporary work are increasingly common, and starting a business is easier and cheaper than in the past. Many of the small business owners we've met started their business after losing a corporate job - and the vast majority of these people were never "unemployed" in the traditional sense.
- The growing number of small businesses provides economic stability through diversification and portfolio effects.
Several academic studies have pointed to the role small business play in decreasing economic volatility. Our posts Small Business Volatility Decreasing and Small Business Survival Rates discuss two related studies.
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