Recessions appear as economic disasters—huge crashes, bursting bubbles, or sudden slowdowns.

However, recessions are an unavoidable part of the economic cycle: baked into how the capitalistic system works. They are inevitable because economies experience 'cycles' of growth, and slowing down.

Recessions are often caused by issues like too much borrowing, high inflation, or overproduction. They’re necessary to fix these problems and help the economy become more balanced for future growth.

What Even Is A Recession?

Think of the economy like a giant neighborhood, full of people buying and selling, working and investing.

A recession is what happens when that activity slows down... on all fronts.

People spend less.
Businesses make less.
Workers lose jobs.

All of that gets tracked using GDP—a giant number that sums up everything the economy produces in a year.

tripfest_Subject_Five_minimal_icons--wheat_sheaf_mixing_bowl__f31e6655-ec55-40e8-9d32-69ce6195372d_3.png

Why The Line MUST Go Up

If you chart the economy on a graph, the line going up means more stuff is being made and sold—the economy is growing.

That’s the goal of capitalism: growth, profits, better jobs, and non-stop innovation.

But:

🔺 When that GDP line stops climbing, or worse, starts falling = a slowdown.
❗ And in capitalism, a flat or falling line = trouble.

That dip on the graph is a recession.

The Domino Effect of Micro-Decisions

Recessions often don’t start with something big—they start with small, everyday choices.

This is determined by a consumers' feelings; especially confidence.

When people feel good about the economy and start spending more, it helps businesses grow, create jobs, and keeps the economy strong.
But if people lose confidence, they might stop spending, which hurts businesses. This can lead to job cuts and fewer opportunities, making people even more worried about money and causing them to spend even less.

So,

If confidence drops, spending drops.
If spending drops, businesses slow down.

Other Culprints:

Prices rise too fast (inflation).
Interest rates go up (people save more, spend less).
Shocks like war, disease, or supply chain disasters.

Can We Predict Recessions?

Sometimes! Economists track signals that suggest the economy might be slowing down:

Two quarters of shrinking GDP
Rising unemployment
Falling consumer confidence

These are tracked over time using charts and graphs to help spot patterns and compare with past recessions.

Another tool are economic indicators—numbers that reveal how people spend, save, and earn. The Consumer Confidence Index is one of them, measuring how confident buyers are!

Others are surprising—like the Lipstick Index or the Underwear Index.

However, while data helps—but predicting human behavior is messy business.

Fun Fact: Some of the biggest companies like Disney and Burger King started during or right after recessions!