IL51: Why Most Recessions Are Completely Misunderstood ft. Tyler Goodspeed

**Tyler Goodspeed** (0:01)
That's the kind of shock that reminds me of some of the past energy supply shocks, or some steel shocks, or cotton. On these essential products, the supply disruption of which can really have spillover effects into other parts of the economy.

**Niels Kaastrup-Larsen** (0:20)
Welcome to Top Traders Unplugged. In markets, success doesn't come from predicting what happens next, it comes from being prepared for what you can't predict.
In each episode, we go deep with some of the world's most thoughtful minds in investing, economics and beyond, to understand how they think, how they prepare and how they decide, and the experiences that shaped how they see the world. No noise, no shortcuts, just real conversations to help you think better and invest with confidence.

**Kevin Coldiron** (0:53)
Welcome everyone to Top Traders Unplugged. My name is Kevin Coldiron, and I'm host of the Ideas Lab series, where we talk with authors of new books that help us understand the global economy. Okay, so think about these ideas.
Economic busts do not follow economic booms. Economic expansions do not simply die of old age. And recessions don't cleanse the system of previous excess.
If you find those ideas surprising, well, stay tuned, because our guest today is going to explain why, after studying four centuries of data, he believes all those conclusions are correct. Our guest is Tyler Goodspeed. Tyler is the chief economist of ExxonMobil, and previously he chaired the Council of Economic Advisors in the first Trump administration. And he's joining us today to talk about his fascinating new book, Recession, The Real Reasons Economies Shrink and What To Do About It. Tyler, thanks for joining us and welcome to the show.

**Tyler Goodspeed** (2:00)
Thanks. Great to be with you, Kevin.

**Kevin Coldiron** (2:02)
Okay. So I want to start off with a couple of background questions. I mean, in the book, you work through explanations for what causes recessions, you explain the logic, and then you provide evidence to show mostly that the explanations we've been given don't work. But I guess my question is, did you go into the project thinking, hey, I really would like to just kind of systematically go through and test all these ideas and see if they really hold? Or was it more I don't think these ideas are correct based on my own work and my own experience, and I want to provide a way to convince others that that's the case?

**Tyler Goodspeed** (2:47)
So part of me had a contrarian motivation, but to be honest, when I first started the project, it was in the aftermath of the 2020 pandemic recession that we'd all just experienced, which was one of the sharpest, deepest, albeit also shortest, recessions in US and indeed UK history, and I began the project thinking that that recession was unique. That unlike in, say, 2008, this was the narrative in my mind, unlike in 2008, there had been no great excess, no imbalance, no misallocation that needed to be remedied. This was a purely exogenous shock.
And as I got more further into the project, the more I realized that while the 2020 pandemic recession, like in fact every recession was unique, it actually wasn't as dissimilar as I thought. Because when I extended the sample, so to speak, from not just the United States to all, but also to the United Kingdom, and extended the sample back in time all the way to 1700, the more I realized that actually, typically there is no error or excess or misallocation at the end of an economic expansion to which recession is the inevitable or even necessary remedy.

**Kevin Coldiron** (4:14)
Okay.
So you were, I guess you kind of, did you start the project with an idea that you were going to do that level of historic research? Was it really more initially focused on what happened during the pandemic and then you kind of expanded it?

**Tyler Goodspeed** (4:32)
It started with a set of questions to which I realize the 12 US recessions since 1945 were inadequate to the task. Because most analysis of economic recessions is confined to the 12 US recessions since 1945 for the simple reason that it was only after about 1947 that the relevant data became readily available at quarterly or monthly frequency. But the reality is you think that with quarterly or monthly data, you have all these statistical degrees of freedom, but you really only have 12
Not to sound too much like an econometrician, but when it's open and then intercepts, you've already chewed through two of those degrees of freedom.

**Kevin Coldiron** (5:15)
Yeah. That was going to be my second question really, which is the research challenges seem pretty tricky to me, because as you say, the sample size is small. If we go back to 1970s, there's only been five recessions in the US in over half a century.