From: allin
The economic outlook and recession predictions were discussed by Elon Musk, who shared his views on the current economic situation and potential future trends.
Predicting Recessions
Elon Musk noted that predicting economics is “always difficult” [01:04:50]. However, he stated that he had previously predicted a recession might occur in approximately Spring 2022 [01:05:04], which he felt was “nailed” [01:05:08].
The Nature of Recessions
Musk argued that recessions are “not necessarily a bad thing” [01:05:16]. He explained that prolonged economic booms can lead to a “misallocation of capital” [01:05:30], where “any dumb thing gets money” [01:05:34]. This also results in a misallocation of “human capital,” with people “doing things that are silly and not useful to their fellow human beings” [01:05:46].
He metaphorically referred to a recession as an “economic enema” [01:05:52] that “clears out the pipes” [01:06:24]. During this process, “silly companies” go bankrupt, and those producing “useful products” become prosperous [01:06:29].
Current Economic Status and Duration
Musk believes that “more likely than not it is a recession” [01:08:30] and that this recession “will get worse” [01:08:52]. However, he added that “these things pass and then there will be boom times again” [01:08:55]. He estimated that the “tough going” for the economy might last “a year, maybe 12 to 18 months” [01:09:04], which is typically the duration for a “correction to happen” [01:09:11].
The interviewer agreed, stating that what started as a slowdown earlier in the year now “feels like we’re in one” [01:09:31]. He noted that “growth stock and software businesses” are “the canaries in the coal mine and there’s a lot of a lot of dead canaries” [01:09:36].
Advice for Companies
Companies should ensure they have “some capital reserves to last through irrational times” [01:06:45], as recessions can “flip like a light switch” [01:06:54]. He cited PayPal’s experience in March 2000, when money was “fire hosing” [01:07:30], but by April 2000, the market was in “free fall” [01:07:35], and even good companies struggled to raise money [01:07:39].
If a recession is indeed happening, companies should focus on their “cash flow” and aim to achieve “positive cash flow soon as you can” [01:08:38].
Inflation and Government Spending
Regarding inflation, Musk stated that the “obvious reason for inflation is that the government printed a zillion amount more money than it had” [01:16:19]. He explained that if the government issues checks “far in excess of revenue” [01:16:31] without an increase in goods and services output, inflation will occur [01:16:46]. He cautioned that if deficits didn’t matter, they could be made “a hundred times bigger” [01:17:13], but this would “basically turn the dollar into something that is worthless” [01:17:20], citing Venezuela as an example [01:17:33].
He emphasized that the “true economy is the output of goods and services” [01:17:47], and money is merely an “information system for labor allocation and for exchange of goods and services” [01:18:16].