My first course in economics was during my junior year of high school. It was the first time the course was offered at that school and should be required in all high schools. However, the teacher was often less-than-serious. He once joked that the reason you never see fortune-tellers and economists together is because they are the same people. Of course, he was the only one who laughed. Yet, it made the point that there is some perceived relationship between the two, i.e., fortune-telling and economic forecasting.
Then, he tried to teach economic cycles, explaining that it is easy to forecast if you know where you are in the economic cycle. I knew that was too simplistic and was determined to learn more. I learned there is no one agreed-upon economic cycle. There are short inventory-related cycles every 3-5 years called Kitchins. There are longer cycles of 7-10 years called Juglars, which reflected the level of fixed investment. There are even longer infrastructure-related cycles every 15-25 years called Kuznets. And, there are very long technology-related cycles of 45-60 years, called Kondratiev cycles. Maybe, forecasting based on economic cycles was more complicated than my high school economics teacher realized?
Eventually, all this led me into the world of Joseph Schumpeter, an Austrian-born professor at Harvard who died in 1950. Eleven years later, his classic The Theory of Economic Development was published posthumously. He argued that these cycles are not synchronized. When one is down, another will be up. This creates a stationary state in the economy. While he believed each of these cycles existed, the only one he felt worthy of concern was the super-long Kondratiev cycle of 45-60 years. Now, assuming the Great Depression began with the Crash of 1929, then we were due for another in 1989 . . . oh, well.
While the business cycle cannot be "repealed," cycles have become less obvious in recent years. Most economists would agree this is primarily due to improved economic information creating better economic forecasting. I would add that the world of Schumpeter was very different from the world of today. The government has a much larger role in the economy today, especially the Fed. It is clear to me that 2008 could have been the start of another depression, except for the ongoing transfer payments, which supported the level of consumer demand, and the Fed, which supported the level of liquidity. It was a different world.
Increased governmental involvement will not "repeal" the cycles, but it may have lengthened the cycles. However, it is unknown whether it increases the severity of the cycles.
Then, he tried to teach economic cycles, explaining that it is easy to forecast if you know where you are in the economic cycle. I knew that was too simplistic and was determined to learn more. I learned there is no one agreed-upon economic cycle. There are short inventory-related cycles every 3-5 years called Kitchins. There are longer cycles of 7-10 years called Juglars, which reflected the level of fixed investment. There are even longer infrastructure-related cycles every 15-25 years called Kuznets. And, there are very long technology-related cycles of 45-60 years, called Kondratiev cycles. Maybe, forecasting based on economic cycles was more complicated than my high school economics teacher realized?
Eventually, all this led me into the world of Joseph Schumpeter, an Austrian-born professor at Harvard who died in 1950. Eleven years later, his classic The Theory of Economic Development was published posthumously. He argued that these cycles are not synchronized. When one is down, another will be up. This creates a stationary state in the economy. While he believed each of these cycles existed, the only one he felt worthy of concern was the super-long Kondratiev cycle of 45-60 years. Now, assuming the Great Depression began with the Crash of 1929, then we were due for another in 1989 . . . oh, well.
While the business cycle cannot be "repealed," cycles have become less obvious in recent years. Most economists would agree this is primarily due to improved economic information creating better economic forecasting. I would add that the world of Schumpeter was very different from the world of today. The government has a much larger role in the economy today, especially the Fed. It is clear to me that 2008 could have been the start of another depression, except for the ongoing transfer payments, which supported the level of consumer demand, and the Fed, which supported the level of liquidity. It was a different world.
Increased governmental involvement will not "repeal" the cycles, but it may have lengthened the cycles. However, it is unknown whether it increases the severity of the cycles.
