I'm reading an economics textbook that claims that the business cycle consists of recession and expansion, and that "expansion is the normal state of the economy" while recession is abnormal. In other words, the economy normally grows strongly, except when it doesn't, but you can discount that. "It's the statue, man, The Statue."
I'm reading an economics textbook that claims that the business cycle consists of recession and expansion, and that "expansion is the normal state of the economy" while recession is abnormal.
I think I would enjoy having a drink with migeru, but I think as we toasted each other my glass might be half full, and his half empty. Which reminds me Migeru, you are obviously an economist at heart.
Regarding the "normal state of the economy" and cycles, we had a discussion here of cycles in the UK housing market, and made the point that measuring growth rates "peak-to-peak", "trough-to-trough" and "trough-to-peak" give so widely different results that one has to be very careful in reasoning about these things. But the point is that what's "normal" is the business cycle, not any part of it. And if the latest US recession was minor, the recovery has been slow and "jobless". So maybe the business cycle is getting less pronounced, but that also means slower growth on the expansion side. [By the way, my "prediction" in that thread has already failed, in that the price index we had been discussing is growing again after plateauing for about 2 years, breaking any possibility of extrapolating past behaviour beyond the plateau]
And that is assuming that, long-term, the 3% growth rate is not an expansion phase of a very long business cycle with a pronounced collapse at either end. When people say complete collapse of our economic system cannot happen, I cannot but think of the end of the Roman Empire, or the 14th century in Europe. It has happened before and it could happen again.
As for the bit I paraphrase from the economics text I'm reading, I was reminded of reading Goldstein's classic Mechanics book, where he discusses phase diagrams of the harmonic oscillator and bifurcations, and he has the howler that "fortunately, bifurcations are rare in practice". That was one of the biggest blind spots of classical mechanics, as was discovered in the 1960's and 70's, shortly after the book was published. "It's the statue, man, The Statue."
Well, if you're ever in London...
So maybe the business cycle is getting less pronounced, but that also means slower growth on the expansion side.
But that's not what has occurred, in truth. The Clinton expansion was the fastest (and longest) peacetime expansion in history. The Reagan expansion comes in at No. 2 or 3 -- its competitor being the Kennedy/Johnson one. Despite the moderation in business cycles that we've seen since the Depression, growth rates have generally been a bit faster, with the exception of (I can only assume) the '70s.
Even taking the Bush II expansion, growth has not been very weak. Job growth really blows compared with the Clinton years, but, to be fair, comparing those two expansions is a bit like comparing Mike Tyson with Muhammed Ali.
(Write your own Tyson-Bush joke.) Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
That's why you're not an academic economist any longer ;-) "It's the statue, man, The Statue."
One of the more amusing aspects of the Global Financial Market is the bewilderment of the participants when they discover markets go down as well as up.
I went on with economic points in a subsequent long post, below.
