Is the “Business Cycle” real?

For over a hundred years, economists of various schools have debated how to tame the “Business Cycle”; the periodic ups and downs of the economy which cause so much irrational exuberance when on the up-swing and so much misery when on the down swing.

The one thing missing from this debate is whether or not the economy actually follows a cycle in any meaningful sense of the words.  If the “Business Cycle” isn’t really cyclical, then do government interventions intended to tame the cycle have a chance of working?

No one denies that sometimes economies roar and sometimes they whimper.  That is obvious from just looking at history.  The important question is does this count as a cycle?

Compare the economy to the seasons. With the seasons, there is an undeniable cycle. Winter, Spring, Summer, Fall. One follows the other as regularly as night follows day. The cycle is set by real physical laws and is as undeniable as night following day.

As a contrast, look at personal health. Sometimes I am health. Other times I have a cold. The fact that health and sickness alternate does not mean that there is an underlying causal mechanism driving the two and it doesn’t mean that “counter-cyclical” interventions will help matters.

If Keynesians or some other interventionist argue that the “Business Cycle” requires a government response, it’s fair to ask them if the apparent cycle is real or if it is an illusion caused by switching between two incompatible states.

The “Business Cycle” view says we can steer our way out of the current mess. The illusionary view says collective action is doomed to fail.  We must trust individual people to find the path out of this mess.

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About fzinger

I read and I write. I read a lot and I write when I can.
This entry was posted in Economics and tagged , , . Bookmark the permalink.

One Response to Is the “Business Cycle” real?

  1. I really enjoy the blog. Great.

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