Economic Crises Foster the Next Breakthroughs

Harry S. Dent | Thursday, November 1, 2012 >>

Governrnments and central banks are pulling out all the stops in fiscal and monetary policy to avert a second Great Depression. They think the economy should run like a machine with 4% growth a year, 2% inflation and 5% unemployment.

They’re idiots.

As I explained last Tuesday (The Biggest Mistake Ever Made), our economy is dynamic, organic. It’s like our bodies. It needs cycles of growth and slowing.

New innovations develop out of times of challenge and recessions. And we rapidly adopt such innovations during the nurturing times of growth.

My wife is a psychologist and she says it best…

She tells those of her clients who are going through emotional crises that breakthroughs come from breakdowns. “So, don’t fight the breakdown or crisis,” she says. “See it instead as a gift in disguise!”

The same is true of our economy. We need economic crises and breakdowns to foster the next breakthroughs in technologies and business organizations. In turnrn, these breakthroughs create another wave of productivity that makes the next generation and economy richer than the last.

The greatest and most radical innovations do not come in boom periods they come in downturnrns. Think about it. The TV, the A-bomb, jet engines, the computer, radar, many new electrical appliances and so on came into existence during the Great Depression and World War II.

They came in times of crisis, breakdown and challenge… not in good times.


In the boom that followed, all of those new innovations moved mainstream and changed our standard of living massively.

The same occurred in the last economic crisis from 1969 through 1982. The microchip, personal computers, operating systems like Apple and Microsoft, cell phones, time-share computing (which evolved into the Internrnet), discount brokerage, cable TV, big box discount stores and so on.

Those things emerged in a challenging high inflation, recessionary economy. Then they spread rapidly into mainstream adoption in the boom from 1983 through 2007, again, changing our standard of living massively.

Individuals, companies, political institutions and all organisms get increasingly comfortable, less innovative and attached to the technologies and structures that emerged over their life cycle. So it is absolutely necessary that such technologies and institutions – and ways of living and doing business – start to break down when their markets and life cycles mature and when the economy naturally slows down.

This “disintegration” causes people to become increasingly dissatisfied with how things are working. And the more dissatisfied they are, the more willing they are to throw such past innovations out and to innovate new ones.

It’s the same reason that real leaders like Churchill or Lincoln emerge only in crises… when even everyday folks get focused and clear-sighted… Because the situation empowers them to act without hesitation or fear.

When the barnrn is burnrning down, people rush in and save the child or horse. They become heroes. They don’t form a supply chain and feed hay and kindling to the fire.

So listen up central bankers and politicians: fighting this debt crisis with endless “crack” (aka quantitative easing) is not just bad economic policy… it’s sheer lunacy. It could kill innovation here in the U.S., as it has already done in Japan and southernrn Europe.

We don’t need more stimulus in our economy. If we have any hope of enjoying greatness once more, we first have to breakdown.




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Harry Dent

Bestselling author and founder of Dent Research, an affiliate of Charles Street Research. Dent developed a radical new approach to forecasting the economy; one that revolved around demographics and innovation cycles.