This is what really causes recessions, a former top Trump White House economist says

• Despite forecasting tools like the yield curve, historical testing shows 'a lot of false positives and false negatives' in recession predictions, making them unreliable.
• Energy price shocks have contributed to numerous recessions, with oil reaching its highest inflation-adjusted price in June 2008 ($150/barrel), when American households spent $2,000 more annually on energy.
• Government intervention has not reduced recession duration or depth over time, but contractionary fiscal and monetary policy during downturns can significantly worsen outcomes, as seen in the Great Depression.

Summary

Tyler Goodspeed, former acting chair of the White House Council of Economic Advisers under Trump and current ExxonMobil chief economist, argues in his new book "Recession: The Real Reasons Economies Shrink and What to Do About It" that recessions are "fundamentally unforecastable" because they result from unpredictable shocks.

Key Arguments:

Goodspeed identifies two shock categories: macro-level events affecting all sectors (like pandemics) and sector-specific disruptions with high economic linkages. Energy stands out as a critical shock generator across 350 years of economic history due to its role as an input across industries and difficulty finding short-term substitutes.

Notable Examples:

• The 2008 recession: Oil peaked at nearly $150/barrel in June 2008—the highest since 1945, exceeding 1973 Arab embargo, 1979 Iranian Revolution, and 1990 Gulf War levels. American households spent $2,000 more annually on energy, coinciding with $800 increases in mortgage payments.
• Historical precedents include the 1960 recession (steel strike), 1927 recession (Ford's Model T-to-A transition), and 1970s energy crises.

Policy Implications:

Despite expanded government involvement post-1945, recession duration and depth remain statistically unchanged, suggesting states cannot prevent downturns. However, contractionary policies during recessions worsen outcomes (Great Depression, 1840s UK). Goodspeed advocates for targeted relief and enhanced unemployment insurance while cautioning against over-optimism during expansions.

Market Context:

The U.S. economy has shown resilience nearly six years post-COVID. Long-term trends indicate longer expansion periods, though Goodspeed emphasizes no expansion is "immortal." His analysis gains relevance amid current Iran conflict developments, though he declined direct commentary due to his ExxonMobil position.