Fire Season and Recession

Here in NJ, we spent much of last week in an environment that looked vaguely Martian. The sky was sepia-toned, occasionally a dull red. And the air itself was unhealthy to breathe. All brought about by smoke from Canadian wildfires. This is the third recent year when this phenomenon has presented itself. What’s going on? For a century, Canada and the U.S. both fought forest fires the same way —land on every fire, big or small, with both feet. Zero tolerance. It’s not a bad instinct really … fire destroys things, so you put it out. Fast.

Except fire isn't really the enemy. It's part of how a healthy forest works. Periodic burns clear out undergrowth, kill off diseased and crowded trees, and open ground for new growth. A recent piece on Canada's wildfires makes the point plainly.

Jasper National Park burned about every fifty years or so for centuries — much of it "good fire" set deliberately by Indigenous communities — until fire suppression policy took over. The park went more than a hundred years without a real burn. Then 2024 happened. Overgrown vegetation had built "ladder fuels" stretching from forest floor to treetop, and when the fire finally came, neither air tankers nor ground crews could touch it. The 2024 Jasper wildfire ignited on July 22, grew rapidly into a 100,000-acre maelstrom, forced the evacuation of 25,000+ people, destroyed 358 structures and killed one firefighter. It wasn’t officially declared extinguished until April 1, 2025. A senior fire analyst put it well: these aren't the fires of a century ago burning through healthy landscapes. They're fires in unhealthy forests. We didn't prevent fire. We stockpiled kindling and called it prevention.

Recessions work the same way. I’ve made this point before, but it bears repeating.

A recession prunes bad ideas and badly run businesses. It's not fun, but it's function. Like fire in a healthy forest, it makes room for the next thing. There's a line, usually attributed to Nassim Taleb, about why New York has such good restaurants: It's all because the bad ones don't last long. That's the mechanism. Losers lose, so winners can find the space to exist.

But since the Federal Reserve was chartered in 1913, the policy has been the economic equivalent of landing on every fire with both feet. Every downturn, large or small, gets met with the same response: create more money. Cut rates, buy bonds, flood the system, whatever it takes to keep the recession from doing its job. The result of a century of that reflex is a currency that has lost something like 97 cents of every dollar it had in 1913. Since then, cumulative inflation has been north of 3,200%. Money supply, as measured by M2, which grew at a fairly steady clip for decades, went parabolic after the 2008 financial crisis and again after COVID, and none of those dollars have ever really been withdrawn from the system.

We've built a financial forest that hasn't had a real burn in a hundred years. Every small recession that should have cleared out the malinvestment, the zombie companies, the leveraged bets that shouldn't have paid off … all of it got hosed down with freshly printed money instead. The underbrush never clears. It just piles up, year after year, waiting. We are stockpiling kindling and calling it prevention.

Jasper National Park didn't burn because fire is dangerous. It burned because a hundred years of "protecting" the forest left it holding more fuel than it could survive. A small spark was all that was needed to light everything up at once. That's the trade the Fed has been making since Woodrow Wilson signed the Federal Reserve Act: smaller, more frequent corrections traded for one enormous one. That one is coming someday ... and nobody will be able to put it out with tankers filled with money or rate cuts.

The fix in forestry is prescribed burn — deliberately setting smaller fires so a catastrophic one has less to feed on. The economic equivalent is letting recessions run their course more often than we have. Let the bad restaurants close. Let the overleveraged firms fail. It won't feel like progress at the time. Neither does a controlled burn. But the alternative isn't "no fire." It's the one fire big enough to take out the whole forest.