business cycle

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
by Jeremy J. Siegel
Published 18 Dec 2007

Switching returns are defined as the returns to an investor who switches from stocks to bills a given number of months before (or after, if his or her predictions are not accurate) a business cycle peak and switches back to stocks a given num- CHAPTER 12 Stocks and the Business Cycle 215 ber of months before (or after) a business cycle trough. Buy-and-hold returns are defined as the returns from holding the market through the entire business cycle. Excess returns are defined as switching returns minus the returns from the buy-and-hold strategy.7 Over the entire period from 1802 through 2006, the excess returns are minimal over a buy-and-hold strategy if investors switch into bills exactly at the business cycle peak and into stocks exactly at the business cycle trough.

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In fact, investors switching into bills just one month after the business cycle peak and back into stocks just one month after the business cycle trough would have lost 0.6 percent per year compared to the benchmark buy-and-hold strategy. Interestingly, it is more important to be able to forecast troughs of the business cycle than it is peaks. An investor who buys stocks before the trough of the business cycle gains more than an investor who sells stocks an equal number of months before the business cycle peak. The maximum excess return of 4.8 percent per year is obtained by investing in bills four months before the business cycle peaks and in stocks four months before the business cycle troughs.

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-Based Companies 182 PART 3 HOW THE ECONOMIC ENVIRONMENT IMPACTS STOCKS Chapter 11 Gold, Monetary Policy, and Inflation 187 Money and Prices 189 The Gold Standard 191 The Establishment of the Federal Reserve 191 The Fall of the Gold Standard 192 Postdevaluation Monetary Policy 193 Postgold Monetary Policy 194 The Federal Reserve and Money Creation 195 How the Fed’s Actions Affect Interest Rates 196 Stocks as Hedges against Inflation 199 Why Stocks Fail as a Short-Term Inflation Hedge 201 Higher Interest Rates 201 Nonneutral Inflation: Supply-Side Effects 202 Taxes on Corporate Earnings 202 Inflationary Biases in Interest Costs 203 Capital Gains Taxes 204 Conclusion 205 Chapter 12 Stocks and the Business Cycle 207 Who Calls the Business Cycle? 208 Stock Returns around Business Cycle Turning Points 211 Gains through Timing the Business Cycle 214 How Hard Is It to Predict the Business Cycle? 216 Conclusion 219 CONTENTS CONTENTS xi Chapter 13 When World Events Impact Financial Markets 221 What Moves the Market? 223 Uncertainty and the Market 226 Democrats and Republicans 227 Stocks and War 231 The World Wars 231 Post-1945 Conflicts 233 Conclusion 235 Chapter 14 Stocks, Bonds, and the Flow of Economic Data 237 Economic Data and the Market 238 Principles of Market Reaction 238 Information Content of Data Releases 239 Economic Growth and Stock Prices 240 The Employment Report 241 The Cycle of Announcements 243 Inflation Reports 244 Core Inflation 245 Employment Costs 246 Impact on Financial Markets 246 Central Bank Policy 247 Conclusion 247 PART 4 STOCK FLUCTUATIONS IN THE SHORT RUN Chapter 15 The Rise of Exchange-Traded Funds, Stock Index Futures, and Options 251 Exchange-Traded Funds 252 Stock Index Futures 253 Basics of the Futures Markets 255 xii Index Arbitrage 257 Predicting the New York Open with Globex Trading 258 Double and Triple Witching 260 Margin and Leverage 261 Using ETFs or Futures 261 Where to Put Your Indexed Investments: ETFs, Futures, or Index Mutual Funds?

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

Sector Allocation Around the World Private and Public Capital Conclusion PART III HOW THE ECONOMIC ENVIRONMENT IMPACTS STOCKS Chapter 14 Gold, Monetary Policy, and Inflation Money and Prices The Gold Standard The Establishment of the Federal Reserve The Fall of the Gold Standard Postdevaluation Monetary Policy Postgold Monetary Policy The Federal Reserve and Money Creation How the Fed’s Actions Affect Interest Rates Stock Prices and Central Bank Policy Stocks as Hedges Against Inflation Why Stocks Fail as a Short-Term Inflation Hedge Higher Interest Rates Nonneutral Inflation: Supply-Side Effects Taxes on Corporate Earnings Inflationary Biases in Interest Costs Capital Gains Taxes Conclusion Chapter 15 Stocks and the Business Cycle Who Calls the Business Cycle? Stock Returns Around Business Cycle Turning Points Gains Through Timing the Business Cycle How Hard Is It to Predict the Business Cycle? Conclusion Chapter 16 When World Events Impact Financial Markets What Moves the Market? Uncertainty and the Market Democrats and Republicans Stocks and War Markets During the World Wars Post-1945 Conflicts Conclusion Chapter 17 Stocks, Bonds, and the Flow of Economic Data Economic Data and the Market Principles of Market Reaction Information Content of Data Releases Economic Growth and Stock Prices The Employment Report The Cycle of Announcements Inflation Reports Core Inflation Employment Costs Impact on Financial Markets Central Bank Policy Conclusion PART IV STOCK FLUCTUATIONS IN THE SHORT RUN Chapter 18 Exchange-Traded Funds, Stock Index Futures, and Options Exchange-Traded Funds Stock Index Futures Basics of the Futures Markets Index Arbitrage Predicting the New York Open with Globex Trading Double and Triple Witching Margin and Leverage Tax Advantages of ETFS and Futures Where to Put Your Indexed Investments: ETFS, Futures, or Index Mutual Funds?

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FIGURE 15-1 Stock Prices, Earnings, Dividends, and Recessions 1871-2012 But this is no easy task. To make money by predicting the business cycle, one must be able to identify peaks and troughs of economic activity before they actually occur, a skill very few if any economists possess. Yet business cycle forecasting is a popular Wall Street endeavor not because it is successful—most of the time it is not—but because the rewards are so large if you can identify the turning point of the business cycle. WHO CALLS THE BUSINESS CYCLE? It is surprising to many that the dating of business cycles is not determined by any of the myriad government agencies that collect data on the economy.

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HOW HARD IS IT TO PREDICT THE BUSINESS CYCLE? If one could predict in advance when recessions will occur, the gains would be substantial. That is perhaps why billions of dollars of resources are spent trying to forecast the business cycle. But the record of predicting business cycle turning points is extremely poor. Stephen McNees, vice president of the Federal Reserve Bank of Boston, has done extensive research into the accuracy of economic forecasters’ predictions. He claims that a major factor in forecast accuracy is the time period over which the forecast was made, and it is precisely at business cycle turning points that the errors were “enormous.”9 Yet, as noted above, it is precisely these business cycle turning points that enable a forecaster to become a successful market timer.

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas
by Janek Wasserman
Published 23 Sep 2019

Kaufmann and Voegelin saw great promise in the subjectivist approach for social theory, with Voegelin especially appreciative of the Austrian focus on the dynamism of human communities and the role of time in human affairs.44 Austrian School scholars revealed their intellectual breadth, especially in their embrace of international developments in economic thought. After a fifteen-month stint in the United States, Hayek published on US banking policy, as he began to make a name for himself in business cycle theory. In particular, he challenged the advisability of the US Federal Reserve’s discretionary banking policy, which was based on maintaining a stable price level to counteract the fluctuations of the business cycle. Hayek thought these policies were often mistimed and disruptive. Martha Stephanie Braun and Fritz Machlup wrote about British banking history and Knut Wicksell’s theories of neutral money, following in Mises’s footsteps.45 The new cohort of Austrians helped reawaken economic discussions in German-speaking lands after a fallow period occasioned by the Great War.

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In a scathing critique of economic forecasting, he rejected the possibility of prediction in macroeconomics and business cycle theory. He was the first of the younger Austrians to evince the skepticism about forecasting that became one of the school’s calling cards.54 Likely encouraged by Hayek and Morgenstern, the complete Geist-Kreis began attending Mises’s seminar, constituting half of the seminar’s number. The lines between the two gatherings blurred. Haberler and Machlup, who both entered Mises’s orbit at this time, displayed the elder’s influence in their earliest efforts. They also showed their growing knowledge of international economic trends regarding statistics, business cycles, and monetary theory.

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Mises and Hayek rejected the work outright, the latter finding it incoherent at best and rude at worst.21 Joseph Schumpeter also fought unsuccessfully against prevailing trends in economics in the name of a more precise science. His 1939 attempt, Business Cycles, met with shrugs. He intended to integrate economic theory, statistical analysis, and historical investigation into a comprehensive study of economic fluctuations during the age of capitalism, from 1789 to 1938. Business events could not be explained solely by economic laws, he argued. Statistical methods also could not yield a better understanding of business cycles without theory. To answer economic questions, Schumpeter turned to history and analysis. While this may sound like a far cry from the deductive approach of his fellow Austrians, it was not.

Globalists: The End of Empire and the Birth of Neoliberalism
by Quinn Slobodian
Published 16 Mar 2018

By finding the right aspects of economic life to capture and compile in numbers, would it be pos­si­ble not only to comprehend but also to forecast what Columbia University economist Wesley Clair Mitchell called in his foundational work from 1913 “the complicated pro­cesses by which seasons of business prosperity, crisis, depression, and revival come about in the modern world”?17 Although research into the business cycle began before the First World War, it boomed afterward. The U.S. government funded its study, and business 60 GLOBALISTS The spiral of decline in world trade. Monthly Report of the Austrian Business Cycle Research Institute, November 1933. cycle research institutes ­were established throughout Eu­rope and in the Soviet Union.18 One of the preoccupations of researchers was how to express the business cycle visually—­how to make the invisible market vis­i­ble. Techniques of illustrating the business cycle had originated with private ser­ vices for investors.

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As one historian has observed, the 1920s ­were a time when economics became understood as a domain of technical expertise beyond politics.28 The chart was an accessory in this shift. The suffering and thriving national economy was made vis­i­ble in the line of the chart, and the root ­causes of individuals’ pain or prosperity could be seen too. BUSINESS CYCLE RESEARCH AND THE MODERN STATE Institutes responsible for studying the business cycle became standard features of the modern state between the two world wars. Most Eu­ro­pean 64 GLOBALISTS states had their own business cycle institute by the time of the ­Great Depression, and scholars have shown how the League began to export this model of research into Asia by the 1930s.29 One of the most impor­ tant centers worldwide was the National Bureau of Economic Research (NBER) in the United States, which took up a special role of providing economic advice during Herbert Hoover’s administration.

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He also met Charles Bullock, the director of the Harvard Economic Ser­v ice, who recalled being favorably impressed by the young Hayek.31 Hayek brought the idea of business cycle research back to Austria with him.32 In his words, he imported “from Amer­i­ca a new idea of ­great predictions.”33 He wrote to Mitchell in 1926 that his efforts then embodied “some of the slowly ripening fruits of my sojourn in the United States.”34 Mises and Hayek led the campaign to establish a permanent home for business cycle research in Vienna. “In a time when the entire civilized world makes decisions and arrangements on the basis of the knowledge of economic and business cycle institutes,” they wrote, Austria “would demonstrate to the world e­ ither a shameful, indolent backwardness to its own disadvantage or a mistrust-­producing insincerity and secretiveness that would surely place its creditworthiness in question.”35 To be against the institute, they wrote, would be to be “against pro­gress.” ­

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

Cyclical factors Yield curve shape is closely related to (interrelated) business cycles, credit cycles, and monetary policy cycles. YC inversions predict recessions as defined by the National Bureau of Economic Research, but the YC tends to steepen fast during recessions and peak near business cycle troughs. A steep YC coincides with a high unemployment rate (correlation +0.45) and predicts fast economic growth. YC countercyclicality may explain its ability to predict near-term bond and stock returns: high required premia near business cycle troughs result in a steep YC, while low required premia near business cycle peaks result in an inverted YC (see Figure 9.11).

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The evidence in this chapter may also help in understanding rational risk premia or procyclical sentiment, and it may give some clues for market timing, style timing, or factor timing—suggesting good and bad environments for various asset classes and dynamic strategies. 26.1 TYPICAL BEHAVIOR OF REALIZED RETURNS AND EX ANTE INDICATORS THROUGH THE BUSINESS CYCLE Business cycles describe broad fluctuations in aggregate economic activity. The U.S. government considers the National Bureau of Economic Research (NBER) to be the final arbiter of the U.S. business cycle. Evaluating a variety of economic series, the NBER’s Business Cycle Committee officially dates—often after a significant delay—the peaks and troughs of economic activity. (I assume that the last recession ended in July 2009.)

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Among more journalistic definitions, the most popular is to call two consecutive quarters of negative real GDP growth a recession. Business cycles in other countries are even more loosely defined. Business cycles are not regular (e.g., recessions became shorter and shallower after World War II). Yet they share common features (e.g., expansions almost always last longer than contractions). Why do business cycles exist at all? We know that they have existed for millennia—recall the seven fat years and seven lean years in the Old Testament. In an agricultural society, such cycles may have reflected weather and harvest fortunes; in an industrial society, business cycles may be caused by technology shocks or by demand fluctuations, which are often related to changes in credit conditions.

Keynes Hayek: The Clash That Defined Modern Economics
by Nicholas Wapshott
Published 10 Oct 2011

For members of the Austrian School, the business cycle was thought to be set in motion by the difference between the natural and the market rate of interest. The problem for central bankers was that it was impossible to determine exactly what the natural interest rate was, so they inevitably set the market rate of interest at an inappropriate level, thereby setting off the booms and busts of the business cycle. Hayek believed that by staying true to the natural interest rate, money in an economy could be made “neutral” and that fluctuations of the business cycle in those circumstances would be caused by changes in other factors, such as the development of new products and new discoveries.

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While Mises tried to find Hayek a government-funded research post, Hayek began writing an account of what he had learned in America, reporting that cheap credit there was leading to a boom in capital goods industries that he believed would prove unsustainable. He extrapolated on the nature of the business cycle, what he called “industrial fluctuations,” which would become essential to his contribution to economic theory and the battleground on which he would skirmish with Keynes. To become a paid university lecturer, Hayek had to publish a piece of original work. To this end he began assembling facts and arguments for what he hoped would be an important contribution to the theory of money. This, too, would bring him into conflict with Keynes. While in America, Hayek concluded that the business cycle—in which an economy regularly switches between a period of high activity and prosperity to a period of business bankruptcies and unemployment—was a worthy subject for study.

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Having become familiar with the tools of empirical research that were in widespread use in America, though not yet taken up by European economists, such as time and motion studies of workers’ behavior and recording the output of factories and machines, he hoped to establish an institute in which he could study the business cycle in detail. Hayek put the idea to Mises, who was skeptical to the point of being dismissive. Mises did not believe economics could be treated as a natural science, and he thought that attempts to record the elements of a business cycle would be misleading and pointless. Meanwhile, in Britain, Keynes’s mind was moving fast. He was preparing his Guardian pieces for publication as a book, and in the months before publication in December 1923 he began work on a new book about the role of money in society, A Treatise on Money.

Economics Rules: The Rights and Wrongs of the Dismal Science
by Dani Rodrik
Published 12 Oct 2015

As I’ve highlighted, they are best thought of as a scaffolding. The Theory of Business Cycles and Unemployment Ever since Paul Samuelson’s doctoral dissertation, published in 1947 as Foundations of Economic Analysis, economics has been split between microeconomics and macroeconomics. The domain of microeconomics is price theory, the ideas covered in the previous section. Macroeconomics deals with the behavior of economic aggregates—inflation, total output, and employment, in particular. Macroeconomics takes as its central questions the up-and-down fluctuations in economic activity that economists call the “business cycle.” Here, too, there has been no shortage of grand theorizing.

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The classical economists’ approach to the business cycle was typified by their view that the macroeconomy, to use the term anachronistically, was self-stabilizing. Unemployment would eventually be eliminated as the shortage of jobs brought wages down. A burst of inflation similarly would be cured on its own: the resultant loss in international competitiveness would produce a trade deficit, financed by the outflow of gold abroad, which in turn would lead to a corrective reduction in the domestic money supply. These supposedly automatic adjustment mechanisms ensured that the business cycle, inflation, and unemployment would all take care of themselves.

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Acemoglu, Daron, 206 advertising, prisoners’ dilemma and, 14–15 Africa, Washington Consensus and, 162 agriculture: subsidies in, 149, 194 subsistence vs. modern, 75, 88 Airbus, 15 airline industry, deregulation of, 168 Akerlof, George, 68, 69n Algan, Yann, 79n, 200n Allen, Danielle, xiv American Economic Review (AER), 30–31 American Political Science Review (APSR), 30–31 Angrist, Joshua, 108 antelopes, 35n antipoverty programs, 3–4 cash grants vs. subsidies in, 4 antitrust law, 161 Argentina, 166 arguments, mathematics and, 35n Arrow, Kenneth, 31, 49–51 Ash, Michael, 77 Asia, economic growth and, 163–64, 166 asset bubbles, 152–58 asymmetric information, 68–69, 70, 71 Auctions: Theory and Practice (Klemperer), 36n “Auctions and Bidding: A Primer” (Milgrom), 36n auction theory, 36, 168 automobiles, effect of sales tax and demand on, 180–81 balanced budgets, 171 Bangladesh, 57–58, 123 Bank of England, 197 banks, banking, 1n, 2 computational models and, 38 credit rationing in, 64–65 globalization and, 165–66 Great Recession and, 152–59 insurance in, 155 regulation of, 155, 158–59 shadow sector in, 153 bargaining, 124–25, 143 Battle of Bretton Woods, The: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Steil), 1n–2n bed nets, randomized testing and, 106, 204 behavioral economics, 69–71, 104–7, 202–4 Berlin, Isaiah, 175 Bernanke, Ben, 134–35 Bertrand competition, 68 Bhagwati, Jagdish, 182n–83n big data, 38–39, 40 Bloomberg, Michael, 4 Boeing, 15 Böhm-Bawerk, Eugen von, 119 Bordo, Michael D., 127n Borges, Jorge Luis, 43–44, 86 Boston University, 3 Boughton, James M., 1n Boulding, Kenneth, 11 bounded rationality, 203 Bowles, Samuel, 71n Brazil: antipoverty programs of, 4 globalization and, 166 Bretton Woods Conference (1944), 1–2 Britain, Great, property rights and, 98 bubbles, 152–58 business cycles, 125–37 balanced budgets and, 171 capital flow in, 127 classical economics and, 126–27, 129, 137 inflation in, 126–27, 133, 135, 137 new classical models and, 130–34, 136–37 butterfly effect, 39 California, University of: at Berkeley, 107, 136, 147 at Los Angeles, 139 Cameron, David, 109 capacity utilization rates, 130 capital, neoclassical distribution theory and, 122, 124 capital flow: in business cycles, 127 economic growth and, 17–18, 114, 164–67 globalization and, 164–67 growth diagnostics and, 90 speculation and, 2 capitalism, 118–24, 127, 144, 205, 207 carbon, emissions quotas vs. taxes in reduction of, 188–90, 191–92 Card, David, 57 Carlyle, Thomas, 118 carpooling, 192, 193–94 cartels, 95 Cartwright, Nancy, 20, 22n, 29 cash grants, 4, 55, 105–6 Cassidy, John, 157n Central Bank of India, 154 Chang, Ha-Joon, 11 chaos theory, butterfly effect and, 39 Chicago, University of, 131, 152 Chicago Board of Trade, 55 Chile, antipoverty programs and, 4 China, People’s Republic of, 156, 163, 164 cigarette industry, taxation and, 27–28 Clark, John Bates, 119 “Classical Gold Standard, The: Some Lessons for Today” (Bordo), 127n classical unemployment, 126 climate change, 188–90, 191–92 climate modeling, 38, 40 Cochrane, John, 131 coffee, 179, 185 Colander, David, 85 collective bargaining, 124–25, 143 Colombia, educational vouchers in, 24 colonialism, developmental economics and, 206–7 “Colonial Origins of Comparative Development, The” (Acemoglu, Robinson, and Johnson), 206–7 Columbia University, 2, 108 commitment, in game theory, 33 comparative advantage, 52–55, 58n, 59–60, 139, 170 compensation for risk models, 110 competition, critical assumptions in, 28–29 complementarities, 42 computable general equilibrium (CGE) models, 41 computational models, 38, 41 computers, model complexity and, 38 Comte, Auguste, 81 conditional cash transfer (CCT) programs, 4, 105–6 congestion pricing, 2–3 Constitution, U.S., 187 construction industry, Great Recession and, 156 consumers, consumption, 119, 129, 130, 132, 136, 167 cross-price elasticity in, 180–81 consumer’s utility, 119 contextual truths, 20, 174 contingency, 25, 145, 173–74, 185 contracts, 88, 98, 161, 205 coordination models, 16–17, 42, 200 corn futures, 55 corruption, 87, 89, 91 costs, behavioral economics and, 70 Cotterman, Nancy, xiv Cournot, Antoine-Augustin, 13n Cournot competition, 68 credibility, in game theory, 33 “Credible Worlds, Capacities and Mechanisms” (Sugden), 172n credit rating agencies, 155 credit rationing, 64–65 critical assumptions, 18, 26–29, 94–98, 150–51, 180, 183–84, 202 cross-price elasticity, 180–81 Cuba, 57 currency: appreciation of, 60, 167 depreciation of, 153 economic growth and, 163–64, 167 current account deficits, 153 Curry, Brendan, xv Dahl, Gordon B., 151n Darwin, Charles, 113 Davis, Donald, 108 day care, 71, 190–91 Debreu, Gerard, 49–51 debt, national, 153 decision trees, 89–90, 90 DeLong, Brad, 136 democracy, social sciences and, 205 deposit insurance, 155 depreciation, currency, 153 Depression, Great, 2, 128, 153 deregulation, 143, 155, 158–59, 162, 168 derivatives, 153, 155 deterrence, in game theory, 33 development economics, 75–76, 86–93, 90, 159–67, 169, 201, 202 colonial settlement and, 206–7 institutions and, 98, 161, 202, 205–7 reform fatigue and, 88 diagnostic analysis, 86–93, 90, 97, 110–11 Dijkgraaf, Robbert, xiv “Dirtying White: Why Does Benn Steil’s History of Bretton Woods Distort the Ideas of Harry Dexter White?”

The New Depression: The Breakdown of the Paper Money Economy
by Richard Duncan
Published 2 Apr 2012

Balance of payments: asset prices and currencies and foreign central banks’ creation of fiat money and foreign exchange reserves global imbalances government finance and quantitative easing and U.S. and foreign exchange reserves Banking sector: commercial banks, credit creation, and decline in liquidity reserves commercial banks’ credit structure current financial health of in Mitchell’s theory of business cycles New Great Depression scenarios and Bank of America Baruch, Bernard Bear Stearns Bernanke, Ben: global savings glut theory of on Milton Friedman policy responses to credit expansion and New Depression Bodin, Jean Bonds: in diversified portfolio effect of stimulus on quantitative easing and Bush, George W. Business cycles, theories of Business Cycles: The Problem and Its Setting (Mitchell) Capital adequacy ratio (CAR) Capitalism, evolution to credit-based, government-directed economic system China: fiat money creation and foreign exchange reserves New Great Depression scenarios and possibility of end to buying of U.S. debt Citibank Commercial banks.

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See also Inflation and deflation consequences of policy options to prevent scenarios leading to Nixon, Richard Obama, Barack Oil prices. See Energy and energy prices Overproduction, in Mitchell’s theory of business cycles Paul, Ron People’s Bank of china (PBOC) Perot, Ross Primary dealer credit facility (PDCF) Private sector debt: contraction of effect of stimulus on Production incomes, in Mitchell’s theory of business cycles Profits: credit expansion’s effect on in Mitchell’s theory of business cycles Property rights, debt-deflation and Protectionism: inflation and New Great Depression scenarios and Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Crises, The (Fisher) Quantitative easing: asset prices and balance of payments and beginning of QE1 QE2 QE3 Quantity theory of credit banking sector crisis and monetarism and principles of quantity theory of money contrasted uses of Quantity theory of money Rational investment option, for U.S.

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Consequently, businesses stop borrowing and investing, so the volume of trade (T) contracts again. This is essentially a clear and simple explanation of the business cycle, or the credit cycle, as it is sometimes called. While the transition period lasts, the increase in the volume of trade (T) produces a temporary increase in PT (real GDP), followed by a bust in which both the volume of trade (T) and real GDP contract again. At the end of the process, GDP is only higher in nominal terms because of the increase in the price level (P ). Fisher was convinced that the duration of the transition period (or business cycle) would always be short-lived because there would always be a limit as to how much the quantity of money (M) could expand.

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems
by Linda Yueh
Published 4 Jun 2018

Ibid. 19.  Ibid., p. 271. 20.  Nicolò De Vecchi, 2006, ‘Hayek and the General Theory ’, European Journal of the History of Economic Thought, 13(2), pp. 233–58. 21.  Schumpeter, Business Cycles, vol. I, p. vi. 22.  Schumpeter, Capitalism, p. 83. 23.  Schumpeter, Business Cycles, vol. I, pp. 104–7. 24.  Schumpeter, Capitalism, pp. 93, 99–100. 25.  Ibid., pp. 99–100. 26.  Schumpeter, Business Cycles, vol. I, pp. 243–4. 27.  Ibid., pp. 100–102. 28.  Schumpeter, Capitalism, pp. 167, 170, 190–91. 29.  Ibid., p. xiv. 30.  Joseph Schumpeter, 1955, ‘Social Classes in an Ethnically Homogeneous Environment’, trans.

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Joseph Schumpeter, 1928, ‘The Instability of Capitalism’, Economic Journal, 38, pp. 361–86. 32.  Schumpeter, Business Cycles, vol. I, pp. 103–4. 33.  World Bank, 1993, The East Asian Miracle: Economic Growth and Public Policy, Washington, DC: World Bank. 34.  Schumpeter, ‘The Instability of Capitalism’, pp. 364–6. 35.  Joseph Schumpeter, 1934, The Theory of Economic Development, Cambridge, MA: Harvard University Press, pp. 75–8. 36.  Schumpeter, Business Cycles, vol. I, pp. 102–3. 37.  Schumpeter, Business Cycles, vol. II, pp. 907–1033. 38.  Schumpeter, Economic Development, pp. 75–8. 39.  Ibid., p. 66. 40.  

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This was the book that made his name and it was to become one of the classics in economics. An English edition was later published by Harvard University Press in 1934 with the subtitle: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle. The ideas in this very early work formed the core of Schumpeterian economics, which were later developed in Business Cycles (1939) and the most popular of his books, Capitalism, Socialism and Democracy (1942). Schumpeter spent five months lecturing in America, which raised his profile, but soon after his return home the First World War broke out. Gladys had returned to England so was cut off from her husband.

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
by Tim Lee , Jamie Lee and Kevin Coldiron
Published 13 Dec 2019

Once market participants believe that it is more likely that the returns from carry will accrue to them, while losses will be protected or spread around the economy as a result of central bank and government action, then they will resume carry trade activity. A new carry bubble can begin. 8 Carry, Financial Bubbles, and the Business Cycle The Business Cycle in the Carry Regime There have always been different theories about the business cycle, the cycle of recovery, boom, and recession that economies typically experience. A conventional perspective would be that as an economic expansion matures, the economy’s unused capacity is gradually diminished and the “output gap” narrows. Wage growth tends to pick up as unemployment falls.

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The growth in the economy—which is ultimately mostly reversible—is also the result of carry, which produces high profit share and tends to bring GDP from the future, as described in the previous chapter. Carry, Financial Bubbles, and the Business Cycle 127 In the world of extreme carry, high financial asset prices do not guarantee that the economy is “good for now.” The carry crash can occur suddenly—at the point when leverage has reached too great an extreme to be sustainable— and the carry crash means an economic crash and almost certainly a financial and economic crisis. The concept of the business cycle no longer describes a somewhat smooth pattern of oscillations in the economy over time; rather it is a progression of steady but unspectacular growth interrupted by violent shocks—exactly like the pattern of carry trade returns described in this book.

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See Bank of Japan Brazil, 19, 39, 55n6, 65–66 current account, 31 Brazilian real, 11, 30, 66 Bretton Woods system, 218 Brownian noise, 97, 97f Bruno, Valentina, 80–81 bubble-boom economies, carry bubble conditions and, 39 business cycle carry and global, 2 carry bubbles and, 127–134 carry crashes and, 127–134 carry influence on, 57, 69 carry regime and, 125–127 money supply and, 125–126 Caballero, Ricardo, 59 call options, 146–147 Cambridge Associates, 79 capital asset pricing model, 99 Capital in the Twenty-First Century (Piketty), 219 221 222 capital inflows, Australia, 40, 40f, 42 capitalism, 195, 219, 220 carry central banks’ role in, 5–8 compensation incentives for, 70–72 corporate use of, 80–83 as cumulative advantage, 181–184 defining, 2 as flow from weak to strong, 179–181 global business cycle and, 2 hedge funds as agents of, 72–73 insidious structural aspects of, 200–205 leverage importance to, 70–72 lost opportunity to lean against, 220 as luck compounded, 184–186 monetary policy and, 3 as naturally occurring phenomenon, 88 necessary amounts of, 174 omnipresence of, 190–191 as power, 191–192 as rent-seeking, 175–177 rise of, 1 volatility, 86 carry bubbles, 6, 7 business cycle and, 127–134 credit bubbles and, 37–38, 41 credit demand and, 114 disguised, 134–140 economic indicators distorted by, 44–45 economic problems obscured by, 44 inflation and, 39 monetary conditions and, 39 nonmonetary assets and, 169 Ponzi schemes and, 140–143 as risk mispricing, 142 Turkey, 42–46 carry crashes, 6 Asian financial crisis and, 23–25 bailouts limiting losses from, 203 business cycle and, 127–134 carry trade returns and, 36 deflation and, 7, 170 deflation shock and, 121–124 in emerging economies, 201 incentive changes and, 84 inevitability of, 34–35, 108 leverage and, 96–98 liquidity and, 128 money supply and, 122–123 INDEX of 1998, 25–26 Turkey, 42–46 Turkish lira, of 2018, 45 of 2008, 30, 31 Volmageddon, 98, 161 yen melt-up and, 23–24 carry portfolios backtesting, 65–67 BIS data comparison with, 63, 63t constructing, 49–50 lessons from historical study of, 64–65 losses in, 51–56, 54f carry regime, 2 anti-carry regime similarity to, 173–175 asset prices and, 204 business cycle and, 125–127 central bank policies and, 86–89, 107, 208, 210 central bank power and, 123 central banks and collapses of, 215–216 central banks weakened by, 7 debt levels and, 168 defining, 107–108 deflation and, 113–121, 203, 210, 213 development of, 127, 134 economic growth and, 209 economic imbalances from, 201 financial market structure and, 7 fragility of, 201 monetary equilibrium and, 169 monetary growth and, 169 monetary perspective on, 168–170 money in, 108–113 nonmonetary assets and, 112, 114, 122 resource allocation and, 114–115 risk mispricing and, 134–140 S&P 500 importance to, 86–87, 87f theoretical alternative to, 166–168 vanishing point and, 116, 195, 209–210 volatility signs of ending, 214–218 carry trade.

The Accidental Theorist: And Other Dispatches From the Dismal Science
by Paul Krugman
Published 18 Feb 2010

Part 4 Delusions of Growth Few subjects in economics are as contentious as the business cycle—those fluctuations of output and unemployment around the long-run upward trend. A generation ago economists were all pretty much agreed on what caused business cycles. Then, partly as a result of “stagflation”—the unexpected and unpleasant combination of inflation and unemployment that emerged in the 1970s—but mainly as a result of differences in methodological tastes, economists studying the business cycle divided into rival factions. Some argued for an updated version of the old, mainly Keynesian approach; others wanted to reject it entirely. The great business cycle theory wars did huge damage to the prestige of economics as a profession; they also created a sense that nobody knew anything, which opened the door for various crank doctrines—most notably supply-side economics.

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they’re that country next to us) can attest that the nineties have by no means been always and everywhere as placid as the last few years in the United States. Moreover, we’ve been here before: Near the end of another long recovery, in the late 1960s, pronouncements that the business cycle was dead were just as prevalent as they are today. Why does the business cycle persist? Because, as the bumper stickers don’t quite say, stuff happens: The world refuses to stay put, and policy is always playing catch-up. To look at the causes of booms and slumps since the last time the business cycle was declared dead is to be awed at the sheer variety of curve balls history manages to throw at us. Who in 1969 imagined that a recession could be triggered by a war in the Middle East—let alone a fundamentalist revolution in Iran?

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And because the problems are new, we will handle them badly, and the business cycle will endure. But this is not a message business pundits want to hear; and for them Fischer’s book is the perfect answer. Of course, they can now say, the business cycle has been with us for the last 150 years—but the long view tells us that while instability is the norm while you are passing through a price revolution, it is smooth sailing once you pass through the crisis and reach the new “equilibrium.” And guess what—we have just arrived at the promised land. But the modern business cycle bears no more resemblance to the economic fluctuations that afflicted preindustrial Europe than NATO does to the Holy Roman Empire.

The Great Economists: How Their Ideas Can Help Us Today
by Linda Yueh
Published 15 Mar 2018

Ibid, p. 225. 18. Ibid. 19. Ibid., p. 271. 20. Nicolò De Vecchi, 2006, ‘Hayek and the General Theory’, European Journal of the History of Economic Thought, 13(2), pp. 233–58. 21. Schumpeter, Business Cycles, vol. I, p. vi. 22. Schumpeter, Capitalism, p. 83. 23. Schumpeter, Business Cycles, vol. I, pp. 104–7. 24. Schumpeter, Capitalism, pp. 93, 99–100. 25. Ibid., pp. 99–100. 26. Schumpeter, Business Cycles, vol. I, pp. 243–4. 27. Ibid., pp. 100–102. 28. Schumpeter, Capitalism, pp. 167, 170, 190–91. 29. Ibid., p. xiv. 30. Joseph Schumpeter, 1955, ‘Social Classes in an Ethnically Homogeneous Environment’, trans.

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Joseph Schumpeter, 1928, ‘The Instability of Capitalism’, Economic Journal, 38, pp. 361–86. 32. Schumpeter, Business Cycles, vol. I, pp. 103–4. 33. World Bank, 1993, The East Asian Miracle: Economic Growth and Public Policy, Washington, DC: World Bank. 34. Schumpeter, ‘The Instability of Capitalism’, pp. 364–6. 35. Joseph Schumpeter, 1934, The Theory of Economic Development, Cambridge, MA: Harvard University Press, pp. 75–8. 36. Schumpeter, Business Cycles, vol. I, pp. 102–3. 37. Schumpeter, Business Cycles, vol. II, pp. 907–1033. 38. Schumpeter, Economic Development, pp. 75–8. 39. Ibid., p. 66. 40.

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This was the book that made his name and it was to become one of the classics in economics. An English edition was later published by Harvard University Press in 1934 with the subtitle: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle. The ideas in this very early work formed the core of Schumpeterian economics, which were later developed in Business Cycles (1939) and the most popular of his books, Capitalism, Socialism and Democracy (1942). Schumpeter spent five months lecturing in America, which raised his profile, but soon after his return home the First World War broke out. Gladys had returned to England so was cut off from her husband.

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
by Wesley R. Gray and Tobias E. Carlisle
Published 29 Nov 2012

By “normalizing” earnings, Graham sought to adjust for the impact of the business cycle, which pushes earnings up in the boom and down in the bust. The rationale is that the extremes found at the peak and trough of the business cycle do not represent the “normal” earning power of the business, which is likely lower than at the peak and higher than at the trough. Earnings tend to be mean reverting, so we need to normalize the extremes to make them less attractive at the peak and more attractive at the trough. We can achieve this taking an average of earnings over the business cycle. We can't know how long a business cycle will last, so Graham recommended using an average of between 5 and 10 years.

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A sample of stocks with high returns will contain few with a genuine franchise, and many at the peak of the business cycle. Luck and competition will act to drive the high returns on capital to the cost of capital. Teasing out the genuine franchises from the peaking businesses is no easy task. Stocks that cannot maintain high returns over the business cycle do not possess a franchise. We can make an argument that stocks that have maintained high returns over the long term may possess a franchise. Stocks with high, stable returns maintained over the business cycle have demonstrable persistence, and are therefore good candidates for franchises.

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For this reason, return on capital is highly mean reverting. We propose several methods to deal with the high rate of mean reversion in return on capital. First, we seek stocks with a franchise proven over a business cycle. Our CFOA measure seeks to identify stocks that generate masses of cash after capital investments over an average business cycle. The eight-year geometric mean of ROA and ROC measures seek stocks that earn consistently high returns on capital over the business cycle. These metrics are intuitive and identify stocks that we would commonly assume to possess a franchise. Firms possessing a franchise will also maintain growing, or high, stable profit margins.

Global Governance and Financial Crises
by Meghnad Desai and Yahia Said
Published 12 Nov 2003

For an overall view across individual countries see Kindleberger, C.P. 7 But by late 1960s the long boom had lasted a long time and economists were talking about the end of business cycles. See Bronfenbrenner (1969) Is the Business Cycle Obsolete? References Adelman, F. and Adelman, I. (1959) ‘The dynamic properties of the Klein-Glodbeger Model’, Econometrica, XXVII, October. Allen, F. and Gale, D. (2003) ‘Asset price bubbles and monetary policy’, in Meghnad Desai and Yahia Said (eds), Global Governance and Financial Crises, Routledge, London. Financial crises and global governance 17 Baranzini, M. and Cencini, A. (1996) Inflation and Unemployment, Routledge, London. Barro, R. (1989) Modern Business Cycle Theory, Basil Blackwell, Oxford.

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The one certainty is that the banks holding the paper of bankrupt firms will suffer delay and perhaps a serious loss on collection. In other words, panics are an integral part of the business cycle. Asset price bubbles and monetary policy 31 Gorton (1988) conducts an empirical study of the panics that occurred in the United States during the National Banking Era (1865–1914) to differentiate between the “sunspot” view and the business-cycle view of banking panics. He finds evidence which is consistent with the view that banking panics are related to the business cycle and which is difficult to reconcile with the notion of panics as “random” events. The five worst recessions were accompanied by panics.

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In the new century, stock markets in G7 countries again witnessed a prolonged decline with widespread failures in the dot.com sector. Events of September 11, 2001 had less impact than the news of accounting malpractice at Enron and World.com. While during the 1990s there was talk of a new paradigm and abolition of the business cycle (as indeed happens in every long boom), by 2002 there was a widespread fear of a double-dip recession in the USA or even a depression. The business cycle was back with us, alive and well. The questions raised during the Asian crisis in those fifteen months between June 1997 and October 1998 and indeed since then in the most recent recession show that the issue of crises and cycles will not go away.

The Great Economists Ten Economists whose thinking changed the way we live-FT Publishing International (2014)
by Phil Thornton
Published 7 May 2014

Over that period he developed ideas on a range of subjects. But four areas stand out as having an importance and influence that have continued beyond his lifetime. These are: • an explanation of the business cycle; • the subsequent battle royal with Keynes; • the role of prices in communicating knowledge; • his opposition to central state planning on both a philosophical and economic basis. Chapter 6 • Friedrich Hayek123 Boom and bust/Squaring the business cycle As a free-market economist Hayek subscribed to the view set out by Adam Smith that the economy was driven by the collective power of thousands or millions of decisions by individual consumers, shopkeepers and factory owners.

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But if that were always the case at every moment in time there would never be a hiccough in growth. So how can we explain that? Hayek could see that economies did not follow a straight line but moved around in swings of boom and bust. His business cycle theory was based on the idea of a ‘natural rate of interest’ – the rate at which savings should equal investment. At this point the economy would be in equilibrium. At different times in the business cycle the market rate of interest – the cost of borrowing that people use – either rises above or falls below the natural rate and the economy moves out of equilibrium. Hayek could see that economies did not follow a straight line but moved around in swings of boom and bust.

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Index A Theory of Moral Sentiments (Smith, 1759) 2, 5–6 Adelman, Irma 110 American Economic Association 170 An Inquiry into the Nature and Causes of the Wealth of Nations see The Wealth of Nations anarchism 156 apartheid system in South Africa 199 Ariely, Dan 234 Arrow, Kenneth 191, 213 AT&T 22 austerity versus stimulus debate 43–4, 140–1 Austrian School of Economics 121–2 autarky concept 184 bank bailouts in the financial crisis 162 Bank of England 161 Barro, Robert 43 Barro-Ricardo equivalence 43–4 Becker, Gary (1930– ) 193–216 approach to human behaviour 212–15 building human capital 200–2, 210 early life and influences 195–7 economic perspective on discrimination 196–7, 198–9 Economics of Discrimination (1957) 196–7, 198–9 economics of the family 213–15 family decision making 203–6 key economic theories and writings 197–212 long-term impact 212–15 new home economics 203–6 Nobel Prize (1992) 194, 195–6 on crime and punishment 207–10 on drug addiction 210–12, 215 rational choice model 197, 212– 15, 216 verdict 215–16 Becker–Posner Blog 215 behavioural economics 218–19, 233–6 Bentham, Jeremy 31, 181 Bergmann, Barbara 206 Bergson, Abram 182 Bergson–Samuelson social welfare function 182–3 Bernanke, Ben 77, 159, 162 Bernoulli, Daniel 229 bias in decision making 222–5 in financial decision making 225–32 Bitcoin currency 138 Black, Fischer 187 Blinder, Alan 215 Bloomsbury Group 94 Blunt, Anthony 94 boom and bust cycles see business cycles Bretton Woods agreement 95, 108–9 Brown, Gordon 3, 42 Burgess, Guy 94 Burns, Arthur F. 147 Bush, George H.W. 139 business cycles 57, 65 Hayek’s explanation 123–6 Samuelson’s oscillator model 174–5 Butler, Eamonn 162 Cambridge School of economics 74, 86 Cambridge spy ring 94 capital flow controls 113 capital-intensive goods, effects of increase in wages 33 capitalism exploitation of the working class (Marx) 56–8, 62–3 Index239 ‘fictitious capital’ concept (Marx) 62 seeds of its own downfall (Marx) 56–8, 61–3 capitalist production process (Marx) 54–6 Carlyle, Thomas 33 cartels evil of 10–11 regulation to prevent 21–2 central banks control of economic activity 161 over-expansion of credit 123–4 central state planning, Hayek’s opposition to 134–6, 140 certainty effect 229, 230 ceteris paribus approach to economic analysis 79–80 Chapman, Bruce 19 Chicago School of economic thought 146, 160, 194 China savings and investment imbalance with the US 113 trade imbalance with the US 45 choice architecture 234 Churchill, Winston 98 classical economics 40, 54 Coase, Ronald 73 cognitive biases (Kahneman) 222–5 communism 19, 50 Communist Manifesto (Marx and Engels) 52, 58–61 company bailouts in the financial crisis 162 comparative advantage 35–8, 183–4 complex adaptive systems, science of 138 complex financial products 61–2, 187 computer-games-based money 138 confirmation bias 227 consumer demand marginal rate of substitution 180 revealed preference theory 180–1 consumption smoothing concept 149, 163 Corn Laws, attack by Ricardo 33–5 costs of production, relationship to value 75–7 credit expansion, as a driver of boom and bust cycles 123–4 crime and punishment, views of Becker 207–10 Darling, Alistair 112 Das Kapital (Marx) 52, 53–4, 59–61, 62, 67–8 decision making biases and errors in financial decisions 225–32 heuristics and bias in 222–5 Prospect Theory (Kahneman) 228–32, 234 under risk 228–32 demand side economics 127 depression Keynesian interventionist view 92–3, 94, 105–6 see also Great Depression (1930s) dialectic style of analysis 52, 54 Diamond, Peter 179 diminishing marginal utility 82 discrimination economic perspective of Becker 196–7, 198–9 views of Friedman 157 distribution of economic value (Marx) 54–6 division of labour and productivity 11–14 car production 20–1 in daily life 20–1 divorce rates 205 drug addiction, views of Becker 210–12, 215 Dubner, Stephen 234 Eastern Europe, influence of Hayek 140 Ebenstein, Larry 158 Economics: An Introductory Analysis (Samuelson, 1948) 168, 171–3, 188–9 Economics of Discrimination (Becker, 1957) 196–7, 198–9 Efficient Market theory 111, 112, 187 240Index elasticity of demand 82–4 Elizabeth II, Queen 158 emerging markets, offshoring of jobs to 41 endogenous growth 202 endowment effect 232, 234 Engels, Friedrich 52, 58–61 ethical judgements in economics 182–3 European Central Bank 161 exchange rates, impact of trade on 185–6 expected utility theory (EUT) 228, 229–30, 232 externalities 85 factor price equalisation theorem 186–7 Fama, Eugene 160, 187 family decision making economic perspective 183, 203–6, 213–15 welfare decision making 183 fiat currency 152 ‘fictitious capital’ concept (Marx) 62 financial decision making, biases and errors in 225–32 financial economics, work of Samuelson 187 First World War 95 Folbre, Nancy 206 Ford Model-T car, assembly-line production system 21 Foundations of Economic Analysis (Samuelson, 1947) 168, 169–70 Fox, Charles James 23 Freakonomics (Levitt and Dubner) 234 free-market mechanism of supply and demand 8–9 free market system view of Adam Smith 13–14, 16–18 view of Hayek 131–3 view of Friedman 155–7 free rider problem in public goods 177–8 Free to Choose (Friedman and Friedman, 1980) 158 free trade, influence of Adam Smith 22–3 Freeman, Richard 201 frictional unemployment 155 Friedman, David 156 Friedman, Milton (1912–2006) 94, 110, 145–64, 190–1, 196 advocate of the free market 155–7 belief in individualism 155–7 criticism of Keynesianism 149–50 early life and influences 147–8 economics in action 160–3 fiat currency 152 Free to Choose (1980 ) 158 influence of the Great Depression (1930s) 148 influence on modern economic theory 158–60 limited role of government in the economy 152, 155–7 long-term legacy 157–63 monetarism 151–2 monetarist rule 152 monetary policy 151–2 ‘natural’ rate of unemployment 153–5 new explanation for the Great Depression 150–1 Nobel Prize in economics (1976) 146, 147–8, 154, 161 non-accelerating inflation of unemployment (NAIRU) 153–5 permanent income hypothesis 148–50 role of money supply in the economy 151–2 verdict 163–4 Friedman, Rose (formerly Rose Director) 147, 148, 157, 158, 160 FTSE-listed plcs 86 Funk, Walter 108 Funk Plan 108 Galbraith, J.K. 159 gambler’s fallacy (misconception of chance) 224 General Agreement on Tariffs and Trade (GATT) 40 Index241 general equilibrium theory 8 genetically modified foods 42 geographical effects in economics 84–6 Giffen goods 84 global financial crisis (2007–8) 92, 174 and Keynesianism 111–13 global stimulus package 113 Marxist view 61–3 global free trade influence of Adam Smith 22–3 influence of Ricardo 40–2 global public goods 177–8 global recession (2009) see Great Recession (2009) gold standard, criticism by Keynes 95, 98, 107 government debt and the Great Recession (2009) 43 taxpayer view of (Ricardo) 38–9 government role in the economy anti-central planning view of Hayek 134–6, 140 Keynesian view 92–3, 94, 105–6 view of Adam Smith 9, 10, 16–18 view of Friedman 152, 155–7 Great Crash (1929) 98, 99 Great Depression (1930s) 19, 22–3, 85, 92 explanation of Friedman and Schwartz 150–1 influence on Friedman 148 influence on Keynes 99–100 role of the Federal Reserve 159 Great Recession (2009) 23 and government debt 43 arguments against protectionism 42 austerity versus stimulus debate 43–4, 140–1 Greece, sovereign debt crisis 113–14 Greenspan, Alan 111–12, 235 Grossman, Michael 212 Hansen, Lars Peter 160 Hayek, Friedrich (1899–1992) 110, 111, 119–42 business cycle theory 123–6 clash with Keynes 120, 126–31 collapse of the Soviet Union 140 early life and influences 120 emphasis on individual freedom 134–6, 140 explanation for boom and bust cycles 123–6 First World War 121 focus on supply side economics 127 influence in Eastern Europe 140 influence on George H.W.

Money Free and Unfree
by George A. Selgin
Published 14 Jun 2017

. ——— (1986b) “Spurious Volatility in Historical Unemployment Data.” Journal of Political Economy 94 (1): 1–37. ——— (1989) “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908.” Journal of Political Economy 97 (1): 1–37. ——— (1992) “What Ended the Great Depression?” Journal of Economic History 52 (4): 757–84. ——— (1994) “Remeasuring Business Cycles.” Journal of Economic History 54 (3): 573–609. ——— (1999) “Changes in Business Cycles: Evidence and Explanations.” Journal of Economic Perspectives 13 (2): 23–44. ——— (2009) “New Estimates of Prewar Gross National Product and Unemployment.”

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FREQUENCY AND DURATION OF RECESSIONS Some of the hazards involved in attempting to compare pre– and post–Federal Reserve Act measures of real volatility can be avoided by instead looking at the frequency and duration of business cycles. Doing so, Francis Diebold and Glenn Rudebusch (1992: 993–34) observe, “largely requires only a qualitative sense of the direction of general business activity,” while also allowing one to draw on indicators apart from those used to construct measures of aggregate output. The National Bureau of Economic Research’s (NBER) conventional business cycle chronology suggests that contractions have been both substantially less frequent and substantially shorter on average, while expansions have been substantially longer on average, since World War II than they were prior to the Fed’s establishment.

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Besides supplying a more accurate account of the frequency of banking panics before and after the Fed, Jalil’s chronology of panics allows him to revise the record concerning the bearing of panics on the severity and duration of recessions. Whereas DeLong and Summers (1986), employing their own series for the incidence of panics between 1890 and 1910, conclude that banking panics played only a small part in the pre-Fed business cycle, Jalil (2009: 34) finds that they were a “significant source of economic instability.” Nearly half of all business cycle downturns before World War II involved panics, and those that did tended to be both substantially more severe and longer lasting than those that did not: between 1866 and 1914, recessions involving major banking panics were on average almost three times as deep, with recoveries on average taking almost three times as long, as those without major panics (p. 35).27 This evidence suggests that, by serving to eliminate banking panics, deposit insurance also served, for a time at least, to reduce the frequency of severe recessions.

Wall Street: How It Works And for Whom
by Doug Henwood
Published 30 Aug 1998

Shown nearby are idealized — idealized by averaging, not by imagination — representations of the behavior of the stocks and interest rates around business cycle peaks and troughs. Interest rates fall sharply as a recession matures; because the average post-World War 11 recession has lasted about nine months, you can say that short-term rates begin drop- WALL STREET financial markets and the business cycle 105 95 90 85 peaks -9 -6 -3 T +3 +6 +9 -9 -6 -3 P +3 +6 +9 These charts show the behavior of interest rates and stock prices around business cycle peaks and troughs, based on the average of nine U.S. business cycles between 1948 and 1995, with either the peak or trough month indexed to 100.

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These pages were a residue of another casualty of budget constraint, the Business Conditions Digest, snuffed in 1990; the BCD's yellow pages were folded into the Survey. (The BCD was origianlly known as the Business Cycle Digest, but in the optimistic days of the late 1960s, when it was thought the business cycle had been conquered by adept Keynesian management, the Cycle was changed to Conditions.) They join in death the Survey's "blue pages," another compendium of useful indicators, snuffed in 1994. No doubt, the Conference Board will do a fine job in assembling and distributing the indicators. But they apparently feel no sense of public duty in pricing their new service, Business Cycle Indicators; a year will go for $95 and up. A subscription to the Survey of Current Business, however, was $41 in 1996, and the journal also contains huge amounts of original information. 9.

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"Mergers: Causes, Effects, Policies," International Journal of Industrial Organizations!, pp. 1-10. Mullin, John (1993). "Emerging Equity Markets and the Global Economy," Federal Reserve Bank of New York Quarterly Review 18 (Summer), pp. 54-83. Mullineux, A.W. (1984) The Business Cycle After Keynes: A Contemporary Analysis (Toto-wa., N.J.: Barnes & Noble Books). — (1990). Business Cycles and Financial Crises (New York and London: Harvester WheatsheaO. Munnell, Alicia H., and Nicole Ernsberger (1987). "Pension Contributions and the Stock Market," New England Economic Review Novemher/Decemher, pp. 3-14. Munnell, Alicia H., Geoffrey M.B.

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes
by Mark Skousen
Published 22 Dec 2006

Certainly investment in consumer goods would expand, but increased expenditures for consumer goods would do little or nothing to construct a bridge, build a hospital, pay for a research program to cure cancer, or provide funds for a new invention or a new production process. According to business-cycle analysts, retail sales and other measures of current consumer spending are lagging indicators of economic activity. Almost all of the components of the U.S. Commerce Department's Index of Leading Economic Indicators are production and investment oriented, for example, contracts and orders for plant equipment, changes in manufacturing and trade inventories, changes in raw material prices, and the stock market, which represents long-term capital investment (Skousen 1990, 307-12). Typically in a business cycle, consumption starts declining after the recession has already started; similarly, consumer spending picks up after the economy begins its recovery stage.

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As a prophet Marx was colossally unlucky and his system colossally useless" (1967, 622). 3. There is little evidence of increased concentration of industries in advanced capitalist societies, especially with global competition. 4. Socialist Utopian societies have not flourished, nor has the proletarian revolution inevitably occurred. 5. Despite business cycles and even an occasional great depression, capitalism appears to be flourishing as never before. Update: Marxists as Modern-Day Doomsdayers In The Communist Manifesto, Marx and Engels warned, "It is enough to mention the commercial crises that by their periodical return put on its trial, each time more threatening, the existence of the entire bourgeois society" (1964 [1848], 11-12).

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The Curious Case of Nikolai Kondratieff One famous Russian economist to contradict the official Marxist prediction of capitalism's inevitable demise was Nikolai Kondratieff (1892-1938). In 1926, he delivered a paper before the prestigious Economic Institute in Moscow, making the case for a fifty- to sixty-year business cycle. Based on price and output trends since the 1780s, Kondratieff described two-and-a-half upswing and downswing "long wave" cycles of prosperity and depression. Kondratieff found no evidence of an irreversible collapse in capitalism; rather, a strong recovery always succeeded depression. In 1928, Kondratieff was removed from his position as head of Moscow's Business Conditions Institute and his thesis was denounced in the official Soviet encyclopedia (Solomou 1987, 60).

End the Fed
by Ron Paul
Published 5 Feb 2011

But I assure you, especially in this post-meltdown world, that it is irresponsible, ineffective, and ultimately useless to have a serious economic debate without considering fundamental issues about money and its quality, as well as the Fed’s massive role in manipulating money to our economic ruin. What is the Fed and what does it do? To answer these questions, you can read books, study pamphlets issued by the Fed, or attend economics lectures at your local college. You can even consult the Fed’s comic books on its own Web site. 1 You will be told how the Fed serves to stabilize the business cycle, control inflation, maintain a solvent banking system, regulate the financial system, and more. Certainly, the Fed’s spokes-men claim that they do all this and do it well. I disagree on each point. After all is said and done, the Fed has one power that is unique to it alone: it enables the creation of money out of thin air.

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Without the Fed, the federal government would have to live within its means. It would still be too big and too intrusive, just like all state governments are today, but the outrageous empire at home and abroad would have to come to an end. There are other benefits as well, such as stopping the business cycle, ending inflation, building prosperity for all Americans, and putting an end to the corrupt collaboration between government and banks that virtually defines the operations of public policy in the post-meltdown era. Ending the Fed would put the American banking system on solid financial footing.

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Here is a general overview, courtesy of the American Institute for Economic Research: 10 Purchasing Power in the United States of Gold and Selected Currencies (1913 = 1.0) Note: Purchasing power calculated from the implicit price deflator for U.S. GDP and the exchange rates of foreign currencies for U.S. dollars. As for business cycles and the abolition of panics, the data show otherwise. Recessions of the twentieth century as documented by the National Bureau of Economic Research include: 1918–1919, 1920–1921, 1923–1924, 1926–1927, 1929–1933, 1937–1938, 1945, 1948–1949, 1953–1954, 1957–1958, 1960–1961, 1969–1970, 1973–1975, 1980, 1981–1982, 1990–1991, 2001, and 2007, which is the current panic of which there is no end in sight.

The Levelling: What’s Next After Globalization
by Michael O’sullivan
Published 28 May 2019

At times policy makers will feel they are masters of the business cycle, but most of the time they are simply its passengers. The good ones, at least, will adapt their rhetoric to it: upturns will be carefully managed to channel animal spirits, whereas downturns are caused by wild speculators who need to be reined in. In seeking to understand business cycles, Minister Chidley might be interested to know that the NBER of the United States has a dedicated business cycle website.5 To noneconomists, this may seem like a very quirky, specialized undertaking, but the business cycle can govern our lives and can make or break political careers.

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In seeking to understand business cycles, Minister Chidley might be interested to know that the NBER of the United States has a dedicated business cycle website.5 To noneconomists, this may seem like a very quirky, specialized undertaking, but the business cycle can govern our lives and can make or break political careers. The NBER has collected business cycle data going back to the 1850s and breaks business cycles into phases of expansion and contraction. Cycles have lasted for about five years on average (fifty-six months). Globalization has changed all that. The two business cycles that characterized this era of globalization (July 1990 to March 2000 and November 2001 to December 2007) are by a decent stretch two of the longest in economic history. (Those cycles spent 92 and 120 months in expansion compared to an average of about 30 months. The 1960s are the only other period to come close in terms of duration of economic expansion.)

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Bank managers, investors, and companies can become overconfident and can overinvest (often taking on debt to do so). Historically, shorter business cycles had the opposite effect: indebtedness was lower and more frequent, and recessions had the habit of clearing out imbalances, by which I mean, for instance, uneconomic loans, zombie companies (a company—state owned or private—that needs bailouts in order to survive), and asset bubbles. Business cycles, as the saying goes, don’t die of old age but, rather, are usually brought to an end by the consequences of imbalances, most often ignited by rising interest rates. Not only is the current business cycle very long by historical standards, but it is peculiarly marked by an unprecedented amount of monetary and fiscal stimulus internationally, in return for relatively low growth, meager investment, and slowing productivity, to the extent that nearly six years through this “expansion,” academics spoke of “lower for longer” and “secular stagflation.”6 The notion of lower growth for longer periods has, at least in the United States, been pushed to the sidelines by President Trump.

Austerity: The History of a Dangerous Idea
by Mark Blyth
Published 24 Apr 2013

I concentrate on Schumpeter’s 1942 volume rather than his 1939 two-volume set, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (London: McGraw Hill, 1939) because Business Cycles is much more a restatement of his earlier work than a reaction to contemporary developments. That is, except for one line, where he states that “there seems in fact to be an element of truth in the popular opinion that there must be help from outside of the business organism, from government action or some favorable chance or event for instance, if there is to be a recovery at all.” It remains, however, one line. Schumpeter, Business Cycles, 1:154.

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One1 of Joseph Schumpeter’s lasting contributions to economic thought was his concept of gales of “creative destruction” that sweep through the economy.2 Torn asunder by the entrepreneurial utilization of technology, continual organizational innovation, and the rigors of competition, businesses rise and fall, driving the business cycle over time. It is, then, hard to imagine a less Schumpeterian economy than Germany’s. Consider, for example, when some of Germany’s flagship companies, which are still with us today, were founded: BASF (chemicals), 1865; Krups (appliances), 1846; ThyssenKrupp (metalworks), 1891 and 1811; Daimler/Mercedes Benz (automotive), 1901 and 1926; Siemens (engineering), 1847, to name but a few. These firms have survived two world wars, occupation, partition, the Cold War, and reunification—let alone conglomeration and the ups and downs of the business cycle. Unlike in Schumpeter’s world of entrepreneurs and competitive small firms, these companies in many cases started as large-scale concerns made possible by the complex state and banking linkages typical of late-industrializing states.

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“Yes,” said Hayek, “but … it would take a very long mathematical argument to explain why.”41 By 1944, Hayek found himself similarly ignored, in semiretirement, writing on the dangers of socialism in his epic The Road to Serfdom. Hayek’s earlier Prices and Production, his Meisterwerk on business cycle theory, like Schumpeter’s 1939 Business Cycles, arrived dead at the presses. First ignored and then defeated in Europe, Austrian ideas survived in America, where their popularity has ebbed and flowed for nearly a century. Although battered and beaten-down by the Keynesian revolution after World War II, Austrian ideas never quite disappeared from the American scene.

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
by Detlev S. Schlichter
Published 21 Sep 2011

The British Classical economists of the so-called Currency School (David Ricardo, Lord Overtone, and others) demonstrated this in the middle of the nineteenth century. But it was the economists of the Austrian School of Economics, in particular Ludwig von Mises and Friedrich August von Hayek, who from 1912 to 1932 developed this insight into a complete theory of the business cycle. This theory is known today as the Austrian theory of the business cycle. Although it is probably the most compelling theory of economic fluctuations in modern times, it did not obtain a prominent place in the developing macroeconomic mainstream of the twentieth century. That mainstream was shaped by Keynesianism and later Monetarism, schools of thought that, despite their ideological differences, both embrace state-issued elastic money.

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Per executive order, Roosevelt confiscated all privately held gold in the United States and banned private ownership of it. In what should have been the shining hour of the Austrian theory, as it was by the early 1930s not only practically uncontested in the realm of business cycle theory but had also proven useful for predicting and explaining an economic disaster, it was instead ignored. By 1933, the major contributions from Mises and Hayek on the origins of business cycles had been published and the theory had found its way into the English-speaking world.36 Yet, it had practically no impact on policy. The political mainstream now embraced state action, mistrusted the market, and harked back to old mercantilist ideas, which found a popular restatement in the 1930s in the works of John Maynard Keynes.

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There is no reason to assume that the recessionary forces will somehow feed on themselves and lead to ever worsening conditions. The recession will end when structures are again more closely aligned with the preferences of consumers. Policy Implications of the Austrian Theory As mentioned previously, what we describe here is a business cycle theory, usually called the Austrian theory of the business cycle. I give a stylized and compressed version of the theory, which should be sufficient for our purposes but necessarily neglects some of the finer points of the theory. This theory is called the Austrian theory because it was first formulated by Viennese economists working in the methodological tradition of Carl Menger (1840–1921), who elaborated the principles of what became the Austrian School of Economics in the latter part of the nineteenth century.8 Building on Menger’s methodological foundation, Eugen von Boehm-Bawerk (1851–1914) made crucial advances in the theory of capital and interest,9 and Ludwig von Mises (1881–1973), who became the leading intellectual light of the Austrian School in the twentieth century, did seminal work in several areas, among them notably the theory of money.

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory
by Kariappa Bheemaiah
Published 26 Feb 2017

The first DSGE models were known as Real Business Cycle (RBC) models were introduced in the early 1980’s and were based on the concepts detailed by Finn E. Kydland and Edward C. Prescott in 1982. RBC models were based on the assumptions of perfect competition on the goods and labor markets and flexible prices and wages, and increasingly gained traction thanks to their success in matching some business cycle patterns (Slanicay, 2014). These models saw business cycle fluctuations as the efficient response to exogenous changes which implied that business cycles were created by ‘real’ forces and that productivity shocks were created by technological progress.

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This was because the Chicago led thought considered that all that was needed to face business cycles and/or recessive trends was an active monetary policy. Some thought that not even that was needed since they believed that free market adjustment will always find the way out (Garcia, 2011). This belief was also shared by the new‐neo‐Keynesians, who believed that fiscal policy was not needed to deal with business cycle or recessive trends. Hence both schools of thought converged in the idea that all that was needed to avert the risks of business cycles or recessive trends was a clever monetary policy guided by a monetary rule (García,2010).

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Their model showed that if we were to manufacture and inject a sovereign digital currency equal to 30% of the GDP, it would result in a 3% increase in GDP, owing to reductions in interest rates, tax rates, and transaction cost savings (they chose 30%, as it was similar in magnitude to the QE conducted by central banks over the last decade. Their DSGE model was calibrated to match the US economy in the pre-crisis period). Furthermore, the authors found that such a regime would offer policy makers with a new tool to stabilize the business cycle. As the quantity and/or price of the digital currency could be tempered by the government, it would allow them to leverage this flexibility in a countercyclical manner to the changing business cycle. While the supply of money today is dependent on private lending decisions, having a policy instrument that controls the price and quantity of cash becomes especially effective in times of economic shock when private money demand fluctuates.

The Tyranny of Nostalgia: Half a Century of British Economic Decline
by Russell Jones
Published 15 Jan 2023

The notion that government could not improve on market forces – that they could only distort them, and that they should, as far as possible, disengage – was thereby greatly strengthened. Another group of counter-revolutionaries went a step further still. Confronting the inconvenient fact that the business cycles that seemed to be impossible if the REH was taken to its logical conclusion were an undeniable reality, economists led by Edward Prescott, then of the University of Minnesota, developed real business cycle (RBC) theory. This posited that these cycles must be the result of variations in potential output, such as those that result from random fluctuations in the rate of technological progress, which then reverberate through the economy as the result of a tendency of workers to work more in favourable times and less in unfavourable times.

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Rational Expectations and the Theory of Price Movements. Econometrica 29, 315–335. 9 See, for example, R. Lucas. 1995. Monetary Neutrality. Nobel Memorial Prize in Economic Sciences 1995 prize lecture, 7 December. R. Lucas. 1981. Studies in Business-Cycle Theory. MIT Press, Cambridge, MA. 10 G. Stadler. 1994. Real business cycles. Journal of Economic Literature 32(December), 1750–1783. 11 E. F. Fama. 1991. Efficient capital markets: II. Journal of Finance 46(5), 1575–1617. See also E. F. Fama. 1965. Random walks in stock market prices. Financial Analysts Journal 21(5), 56–60. 12 JMK. 1983.

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Equally, however, it was soon clear to me that the critical influences on the paths of economic advancement and policymaking do not stop at history. Contrary to the perceptions of many laypeople, who are wont to view economics as a bounded subject, an appreciation of other disciplines is required to grasp the dynamics of the business cycle (to the extent that such a phenomenon exists3), to contextualize the relative performance of individual sectors and economies, to appreciate the intricacies of the different strands of government strategy or the progress of international economic relations, and to get to grips with the often seemingly random gyrations of financial markets.

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One
by Meghnad Desai
Published 15 Feb 2015

There were short lapses from full employment, but these were quickly corrected thanks to the “built-in” stabilizers – unemployment compensation, social security, old age pensions – which kept demand up even when unemployment was rising. The result of the continuous full employment was that any interest in business cycles disappeared from academia just 20 years after Schumpeter had written his two-volume classic, Business Cycles. The view that business cycles of the prewar type were a thing of the past gained popularity. There would be small recessions which would be short-lived, but not cycles which the policy-makers could not control. In 1970, a collection of articles came out with the title Is the Business Cycle Obsolete?7 It seemed prophetic, though it proved to be hasty. During the 1950s and even into the 1960s, Keynesian economics informed the economic thinking of academics, especially of the generation born since 1920.

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Riding the Waves with Eugen Slutsky If you plot the course of income or sales or investment, it will look like a wave. The literature on business cycles often uses the term long waves to describe the data. There are often systematic reasons why there are cycles. Indeed, as we’ve seen, Marx, Wicksell and Schumpeter among others looked for explanations of the cycles. At Columbia University in the immediate aftermath of World War I, Wesley Clair Mitchell (1874–1948) launched an extensive program of measuring business cycles. He chose a variety of time series – rail shipments, bank loans, agricultural output and prices, sales and inventories, etc.

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In Selection of Reports and Papers of the House of Commons: Banking – Currency, vol. 30, p. 467, para. 5758. House of Commons, 1832. Aubrey, T., Profiting from Monetary Policy: Investing through the Business Cycle. Palgrave Macmillan, London, 2013. Bellofiore, R. and G. Vertova, eds, The Great Recession and the Contradictions of Contemporary Capitalism. Edward Elgar, Cheltenham, 2014. Black, F. and M. Scholes, “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy, 81.3 (May–June 1973): 637–54. Bronfenbrenner, M., ed., Is the Business Cycle Obsolete? Wiley, New York, 1970. Corry, B., Money, Saving and Investment in English Economics 1800–1850. Macmillan, London, 1962.

Samuelson Friedman: The Battle Over the Free Market
by Nicholas Wapshott
Published 2 Aug 2021

One of Samuelson’s earliest contributions to economic theory was a diagnostic tool used to analyze business cycles, called the multiplier-accelerator, later known as the Hansen-Samuelson model,20 which attempted to explain the reasons market economies proceed in an established cycle, from boom to bust, and so on. He observed the effect of outside influences on an economy, such as foreign investment, and how such exogenous factors contribute to the ebb and flow of the business cycle. He concluded that neither Keynes’s multiplier nor J. M. Clark’s acceleration principle was adequate to explain business cycles and he offered his own explanatory formula.

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In 1951, Samuelson first unveiled his ingenious synthesis of economics old and new. In Principles and Rules in Modern Fiscal Policy: A Neo-Classical Formulation, he spelled out how government policy could minimize unemployment by countering the natural ebb and flow of the business cycle. He said the success of public works programs during the New Deal had been overestimated and that cutting taxes as a means of stimulus had been underestimated. The key to taming the business cycle was fiscal policy: a mixture of public spending and tax changes. He did not mention the role money and the Fed might play in maintaining the appropriate money supply. For Samuelson in 1951, in a period of economics he later referred to as “Model T Keynesianism,”46 money did not matter.

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“But a long list of important cases arises where economics suggests that governments should intervene.”1 The Keynesianism he described in his textbook Economics: An Introductory Analysis, by the mid-Sixties in its seventh edition, envisioned “a progressive full-employment economy in which the excesses of the business cycle are moderated. We want to control the ‘mad dance of the dollar’ as the business cycle passes from boom to crisis and slump.”2 Besides, he told Newsweek readers in 1968, “the New Economics really does work.” He continued, “Wall Street knows it. Main Street, which has been enjoying 92 months of advancing sales, knows it. The accountants who chalk up record corporate profits know it.

Unfinished Business
by Tamim Bayoumi

In response to the observation that there was no change in behavior over the business cycle, proponents of the tighter monetary policy explanation argued that the earlier work looking at the business cycle had not included measures of inflation expectations. They argued that it was the anticipation of low and stable future inflation that was the main conduit through which tighter monetary policy had lowered inflation and reduced output fluctuations. Under this view the surprise was less that a different monetary policy altered the business cycle, but that it could simultaneously improve outcomes for growth and inflation.

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* * * The Way We Were The pre-crisis macroeconomic orthodoxy had a precise and relatively narrow view of policy challenges. It focused on business cycle fluctuations around a slowly evolving path for underlying output (underlying output was determined by technology and was thus not part of the analysis). These fluctuations were primarily ascribed to wages and prices being sticky in the sense that they responded slowly to changes in economic slack. The challenge for policymakers was to minimize these temporary deviations from a slowly moving baseline. The central bank of each country was viewed as the main institution responsible for responding to such business cycle fluctuations. Its policies were ideally guided by an inflation target, since an overheating economy would generate upward inflationary pressures while an economy with too much slack would exhibit downward inflationary pressures.

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For example, there appears to be an increasing consensus that financial stability and macroeconomic stability should be treated as separate objectives and assigned to separate policies—macro-prudential policies for financial risks and monetary policy for the business cycle. This reflects an evolving belief that monetary policy is too blunt an instrument to support financial stability, which is better left to more focused and specialized policies and policymakers.2 Hence, while macroprudential policies have been elevated to new macroeconomic instrument, the basic pre-crisis assignment that financial regulators should take care of financial risks and that monetary policymakers should focus on stabilizing the business cycle has been largely maintained. Equally strikingly, central banks continue to use inflation targets as their basic framework, even though in the run-up to the crisis it was asset prices and trade deficits rather than inflation that most clearly pointed to overheating in the United States and the Euro area periphery.

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
by Jack (edited By) Guinan
Published 27 Jul 2009

Related Terms: • Bear Market • Fundamental Analysis • Uptrend • Downtrend • January Barometer Business Cycle What Does Business Cycle Mean? The recurring and fluctuating levels of economic activity that an economy experiences over a long period; the five business cycles are growth (expansion), peak, recession (contraction), trough, and recovery. At one time business cycles were thought to occur on a regular and predictable basis, but today they are thought of as being more irregular, varying in frequency, magnitude, and duration. Investopedia explains Business Cycle Since World War II, most business cycles have lasted three to five years from peak to peak.

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The best examples of gearing ratios include the debt-to-equity ratio (total debt/total equity), times interest earned (EBIT/total interest), equity ratio (equity/assets), and debt ratio (total debt /total assets). A company with high gearing (high leverage) is more vulnerable to downturns in the business cycle because it must continue to service its debt regardless of how bad sales are. A larger proportion of equity provides a cushion and is seen as a measure of financial strength. Related Terms: • Business Cycle • Debt/Equity Ratio • Leverage • Debt Ratio • Equity Generally Accepted Accounting Principles (GAAP) What Does Generally Accepted Accounting Principles (GAAP) Mean? The overriding accounting principles, standards, and procedures that companies follow when compiling their financial statements.

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Technically, a recession is said to have occurred when there have been two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP). Investopedia explains Recession Recession is a normal (albeit unpleasant) part of the business cycle; however, one-time crisis events can often trigger the onset of a recession. A recession generally lasts from 6 to 18 months. Interest rates usually fall are lowered in recessionary times to stimulate the economy by offering cheap rates at which to borrow money. Related Terms: • Bear Market • Consumer Price Index—CPI • Gross Domestic Product—GDP • Business Cycle • Market Economy Record Date What Does Record Date Mean? The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
by George A. Akerlof and Robert J. Shiller
Published 1 Jan 2009

We believe that there is an easy and simple test to prove that what we are saying is correct—not only correct, but also more correct than the modeling that fails to deal with the three blank questions in current mainstream macroeconomics. We think that our description of how the economy operates fits almost any business cycle. If we take the most recent business cycle, starting in 2001 and continuing to the present day, we think that our description of the economy, with animal spirits at center stage, gives a remarkably good rendition of what has actually occurred. Let’s review the current U.S. economic cycle (we could do this as well for other countries) and see how the themes in this book have played themselves out.

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As we write this concluding chapter we do not know the extent to which the problems of the various non-bank banks—the investment houses and the hedge funds, all but unsupervised and holding literally trillions of dollars of assets and liabilities—will contribute to this problem.9 This is the story of our time. It is the story of the business cycle that began in 2001. When the current downturn will end, we do not know. But the point of our book, and the test of our theory, is that we could have told this same story, or a similar story, using our description of the animal spirits and how they operate, to describe almost any other business cycle. For the United States, we could have gone back to the collapse of 1837, with its land speculation and state bank collapses, and told a similar story.

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FOURTEEN Conclusion Notes References Index Preface to the Paperback Edition * * * The worldwide recession that was raging just as the hardcover edition of this book was published in February 2009 seems to many observers, as of this writing in October 2009, to be coming to an abrupt end. There are definite signs of improvement. These observers could be right. Maybe this is just another recession that will eventually be forgotten among the annals of business-cycle history. But the theory that we lay out in this book gives us cause to worry that we may be in a sick economy over much of the world for years to come. Even the stirring success stories of the past decade or so in the developing world, notably China and India, may see their economic growth reduced to a disappointing level.

The Future of Money
by Bernard Lietaer
Published 28 Apr 2013

Last but rot least, the use of a GRC in complement with conventional national currencies would automatically tend to counteract me prevalent business cycle, thereby improving me overall stability and predictability of the world's economic system. This is so because there is always an excess of raw materials when the business cycle is weakening (weakening of raw material picas is one of the key indicators of a recession). Corporations would therefore tend at this point of the business cycle to sell more raw materials for storage to GRC Inc., which would pay for them with Terra. The Terra would be used immediately by these corporations to pay their suppliers, so as to avoid me demurrage charges.

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Both Keynes and Friedman have shown that with conventional money, the velocity of money is pro-cyclical (each for different masons: the former on me basis of changes in interest rates, the lathe on the basis of the predominant role of Friedman's 'Permanent Revenue' in determining the demand for money). The fact that the quantity of Terra in circulation would be counter-cyclical to me business cycle would therefore tend to counteract the pro-cyclical nature of the conventional money system. In summary, the introduction of a GRC would tend automatically to dampen the business cycle by providing additional monetary liquidity in counter-cycle with the business cycle relating to the conventional national currencies. Theoretical and practical soundness The box on 'Economic tech talk' synthesises some key effects of the Terra for those who prefer a purely economic language.

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What is important to realise is that these 'strategic layoffs' are of a totally different nature from the traditional cyclical layoffs. It was considered normal for example that factory workers would be let go whenever inventories of finished goods piled up as the business cycle moved into low gear. They would also be re-employed as soon as those inventories were absorbed and the good days of the cycle returned. But with strategic layoffs, there is no reason to expect that the business cycle will reverse the trend. What is going is gone forever. Growth without increased employment is not a forecast; it is an established fact. William Greider's statistic is worth repeating: the world's 500 largest corporations make and sell seven times more goods and services than 20 years ago, but have managed simultaneously to reduce their overall workforce.

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
by Justin Fox
Published 29 May 2009

Veblen was a lowly instructor in an economics department dominated by neoclassicists. But he made a big impression on Mitchell, who stayed on at Chicago for his Ph.D., then went on to become the nation’s foremost authority on the business cycle. Mitchell subscribed neither to Roger Babson’s simplistic action-begets-reaction formula nor to Fisher’s belief that the “dance of the dollar” explained all fluctuations. He seemed to subscribe to no theory at all. Instead, he saw the business cycle as a natural part of the workings of capitalism and hoped that close examination of the data would enable him to understand it better. Mitchell’s commitment to the drudgery-filled work of assembling better economic evidence so impressed Irving Fisher that he tried to lure the younger scholar to Yale, inviting the Mitchells up to New Haven one weekend in 1912 and throwing a dinner party in their honor.

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“The one name by which the eager young men swore was the only one I had not known…Wesley Clair Mitchell,” he later wrote. “Indeed business cycles and institutionalism were the two main topics of discussion.”11 Fred Macaulay, Mitchell’s student at Columbia and one of his first hires at NBER, was said to have “worshiped Mitchell as though he were a god.”12 When the great crash and the Depression came, the moment seemed ripe for Mitchell and the institutionalists to seize control of American economics once and for all. The business cycle had asserted itself in all its ferociousness. Irving Fisher’s talk of a “permanently high plateau” for stock prices proved to be nonsense, and near-complete shutdowns of the financial system—as occurred in the early 1930s—certainly weren’t covered in Alfred Marshall’s standard neoclassical textbook.

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The phrase “random walk” appears to have been coined in 1905, in an exchange in the letters pages of the English journal Nature concerning the mathematical description of the meanderings of a hypothetical drunkard.34 Most early studies of economic data had been a search not for drunken meanderings but for recognizable patterns and, not surprisingly, many were found. The purported link between the British business cycle and sunspots was one. Another famous example came in the mid-1920s when the young founder of Moscow’s Business Cycle Institute, Nikolai Kondratiev, proposed that economic activity moved in half-century-long “waves.”35 As the study of statistics progressed and the mathematics of random processes such as Brownian motion became more widely understood, those on the frontier of this work began to question these apparent cycles.

Rethinking Money: How New Currencies Turn Scarcity Into Prosperity
by Bernard Lietaer and Jacqui Dunne
Published 4 Feb 2013

THE PROCYCLICAL MONEY CREATION PROCESS The economy grows or contracts in a series of repetitive expansions (booms) and contractions (busts). Referred to as the business cycle, this pattern comprises an interlude of escalation of above-average economic growth, reaching a peak, followed by a contraction to below-average economic growth, potentially all the way to a depression at the low point. Then a new business cycle begins with a new swell of growth, and the pattern repeats itself. While business cycles are recurrent, each is unique in longevity, depth of dip, and height of peak. 52 SCARCITY The way money is created, by bank debt, tends to amplify both the ups and the downs of the business cycle. Banks tend to have a herd instinct when making credit available or restricting it for particular countries or industries.

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See also Terra Trade Reference Currency Beauty, 152, 201, 223 Bell Telephone, 96 BerkShares, 75, 89– 91, 90 Bezant, 24, 65, 227n2, 230n9 251 252 INDEX Bike repair, 84 Biology, 32 Biomimicry, 102 Bioregion, 86 Biowaste, 142 Blaengarw, 159–161, 161 Blame, 216 BONUS, 170–171 Boom. See Business cycle Boulder Gaian, 113 Brazilian Network of Community Development Banks (CDB), 107 Bridge financing, 121 Bristol Credit Union, 114 Bristol Pound (BP), 114–115 Brixton pound, 75 Brünningsche Notverordnungen, 179 Bubble, 33 Bullion, 27, 113. See also Gold standard Burden of expectations, 19 Bureaucracy, 108, 126–127 Burnout, 194 Business cycle, 51; bank debt amplifying, 52; Terra and, 134 Business-to-business system, 5 Bust. See Business cycle Bus token, 141–143 Butterfly effect, 31 Capitalism, 4, 22. See also Competition Capivari, 109 Carbon-backed currency, 116, 137, 201 Carbon premium exchange (CPX), 116–117 Carebank, 84– 85 Cash crunch, 148–149 Cell phone.

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The counteractions, however, usually are not very effective. Furthermore, the capacity of central banks to intervene in monetary markets has been significantly reduced in deregulated financial markets. Consequently, despite their efforts, the collective actions of the banking system tend to exacerbate the business cycle in both boom and bust directions. WHAT’S THE BOTTOM LINE? Interest is having a devastating impact on life as we know it. For example, there’s the Depression of the late 1930s; Japan since 1990; and the developments in the United States leading to the 2008 financial crisis.20 They were all generated by asset bubbles, and when those asset priced bubbles popped, huge numbers of businesses and banks failed.

Guide to business modelling
by John Tennent , Graham Friend and Economist Group
Published 15 Dec 2005

However, Gross domestic product 71 many years of observation have revealed that gdp growth rates do not change dramatically from year to year and that they generally follow a cyclical pattern – sometimes described as the business cycle. These two observations can be used to produce a simple forecast for gdp growth and gdp. The approach used assumes an average underlying gdp growth rate that has a linear trend in either a positive or a negative direction. The actual rate of growth in any one year, however, will depend on the position within the business cycle. The business cycle is modelled as a sine curve where assumptions entered by the user determine the length and amplitude of the business cycle. The use of a sine curve represents a simplifying assumption, as business cycles do not usually exhibit a constant cyclical pattern.

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In this example it is assumed that no alternative forecasts are available and that the modeller must forecast the behaviour of gdp for every year. The expected behaviour of gdp growth is modelled as a sine curve and is defined by the user inputs below. This example assumes a five-year business cycle.  The number of years for a complete business cycle (cell E5).  The stage of the business cycle for the current level of gdp, that is, 23,000 (cell E6). A figure of 25% indicates a start point at the top of the cycle; a figure of 75% implies a start point at the bottom of the cycle. It is assumed that gdp of 23,000 is at the top of the cycle, which is represented by an assumption of 25%.  The size of the variations during the cycle (cell E7).

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The workings have been broken down into a number of stages:  Rows 4, 5 and 6 are intermediate steps in producing the gdp growth rate that is calculated in row 8.  Row 4 determines the stage of the business cycle that will help determine the gdp growth rate.  Row 5 divides the full amplitude of the business cycle in half.  Row 6 adjusts the average growth rate for the trend in the average growth rate using a compounding calculation.  Rows 4 to 6 are combined in row 8 to produce the gdp growth rate. The adjusted growth rate of row 6 is altered up or down by the multiplication of the position within the business cycle (row 4) and half of the amplitude (row 5).  The resulting gdp growth rate is then used to generate the final result for gdp in absolute terms in row 9.

The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market
by Tobias E. Carlisle
Published 13 Oct 2017

In our earlier example, the market required 10 percent. For most businesses, high profits aren’t sustainable because they attract competitors. While they may earn more over a short time, most businesses will only earn a market return—say 10 percent—on average over the full business cycle. Recall our earlier drawing of the business cycle: Business Cycle: High Returns Mean Revert Down This, says Buffett, is why the moat is so important to the business:32 A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns.

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Because the markets are ruled by a powerful force known as mean reversion: the idea that things go back toward normal. Mean reversion pushes up undervalued stocks. And it pulls down expensive stocks. It pulls down fast-growing, profitable businesses, and it pushes up shrinking loss-makers. It works on stock markets, industries, and whole economies. It is the business cycle: the boom after the bust and the bust after the boom. The best investors know this. They expect the turn in a stock’s fortunes. While the crowd imagines the trend continues forever, deep-value investors and contrarians zig before it turns. Mean reversion has two important consequences for investors: 1.Undervalued, out-of-favor stocks tend to beat the market.

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Mean Reversion: Things Go Back Toward Normal Mean reversion pushes up the prices of undervalued stocks, and it pulls down the prices of expensive stocks. It returns fast-growing and high-profit businesses to earth, and it points business with falling earnings or growing losses back to the heavens. It works on stock markets, industries, and whole economies. We know it as the booms and busts of the business cycle or the peaks and troughs of the stock market. Extrapolation: We Find the Trend and Extrapolate It Mean reversion is the expected outcome. But we don’t expect mean reversion. Instead, our instinct is to find a trend and extrapolate it. We think it will always be winter for some stocks and summer for others.

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future
by Paul Krugman
Published 28 Jan 2020

And Lucas warned that any attempt to fight the business cycle would be counterproductive: activist policies, he argued, would just add to the confusion. By the 1980s, however, even this severely limited acceptance of the idea that recessions are bad things had been rejected by many freshwater economists. Instead, the new leaders of the movement, especially Edward Prescott, who was then at the University of Minnesota (you can see where the freshwater moniker comes from), argued that price fluctuations and changes in demand actually had nothing to do with the business cycle. Rather, the business cycle reflects fluctuations in the rate of technological progress, which are amplified by the rational response of workers, who voluntarily work more when the environment is favorable and less when it’s unfavorable.

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Moreover, recessions and recoveries depend far more on the Federal Reserve than on the administration in power, and happen to Republicans and Democrats alike. That is why a sensible assessment of economic trends involves comparing business cycle peaks or, even better, asking what has happened to the level of income associated with any given unemployment rate. It is therefore ironic that supply-side ideologues, who originally crusaded against the traditional Keynesian focus on the business cycle, now rest their claims for success entirely on the business cycle recovery from 1982 to 1989. But of course they must, for their program failed to produce any acceleration in long-term growth. The rise in median income from 1982 to 1989, Robert Bartley’s “seven fat years,” represented almost entirely a transitory business cycle recovery, which reached its inevitable limit at a level only 4 percent above the 1979 peak.

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Look again at Figure 3. It is clear that from the recession year of 1982 to the business cycle peak in 1989, median income rose substantially (12.5 percent, versus 16.8 percent for average income). If you use these years as the basis of comparison, the lag of median behind average income doesn’t look very important. The question is whether these are really the right years to compare. If there is one really solid contribution of macroeconomic theory to human knowledge, it is the distinction between the business cycle and long-term growth. Long-term growth is achieved by expanding the economy’s productive capacity; recessions and recoveries represent fluctuations in the degree to which that capacity is being utilized.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms
by Russell Napier
Published 18 Jan 2016

One would expect adjustments in internal pricing to play a more important role in periods when the exchange rate is fixed. In this environment, internal price adjustments, given the restriction on exchange-rate adjustments, play a crucial role in driving the business cycle. Similarly, one would expect internal price alterations to be less important in the business cycle as the US moved towards the freely flexible currency. Whatever the truth of this for the economy, price changes still imparted important information for the equity investor in 1982, despite the change in the monetary framework. Despite the removal of the external anchor for monetary policy, the lessons from 1921, 1932 and 1949 remain valid in this one area where they are most likely to have been undermined by structural change.

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From November 2005 to the peak of the US equity market in October 2007 inflation did rise, if not by much, but the price of the 10-year US government bond declined and the yield rose from 4.5% to 5.3%. The Fed Funds rate, the policy interest rate set by the US Federal reserve, rose steadily from 4.0% in November 2005 to 5.25% by September 2007. The first cut in the Fed Funds rate came in September 2007 and the business cycle peaked in December 2007. So, as forecast in the 2005 edition, the bear market did commence when inflation and bond yields had risen, the Fed had begun to cut interest rates and a recession had begun. This had all happened by the end of 2007 and a vicious bear market developed that was not to end until March 2009.

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[12] Price stability & the bear A phrase began to beat in my ears with a sort of heady excitement: ‘There are only the pursued, the pursuing, the busy, and the tired.’ F Scott Fitzgerald, The Great Gatsby In the summer of 1921 bullish forecasts by the WSJ, businessmen and government officials proved accurate. So what was the secret of success for those who proclaimed the bottom of the business cycle and the end of the bear market in stocks. One recurring piece of evidence cited by these commentators augured well for the end of the business contraction - the increasing stability of prices. Some of their more bullish declarations were: ‘The accumulated evidences of stabilisation at lower levels of such things as copper, cotton, wool, silk, hides and grain.’

Stolen: How to Save the World From Financialisation
by Grace Blakeley
Published 9 Sep 2019

If, on the other hand, businesses are investing too much, leading to inflation, the state can cut spending or raise interest rates to mute the upward swing of the business cycle. Managing the business cycle also required reining in the influence of finance, because lending and investment are also pro-cyclical: they rise during the good times and fall during the bad times. If the role of government was to lessen the ups and downs of the business cycle, it must properly regulate finance, which so often exacerbated these ups and downs. This kind of Keynesian economic management had a significant influence on economic policy in the post-war period.

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Falling pay, rising inequality, and low investment threatened to recreate the conditions that preceded the Great Depression. Keynes and others argued that the best way to combat the low-wage, low-investment, low-demand doom-loop was for the government to intervene at strategic points to curb the twists and turns of the business cycle. They would signal their willingness to do this by committing to maintaining full employment, whatever the stage of the business cycle. If unemployment was rising, the state would step in to pick up the slack — either by directing increasing spending or cutting interest rates to boost investment in the private sector. The problem, as outlined in Chapter one, was that this model of growth gave workers more power.

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If businesses’ confidence about the future turns, then they are likely to stop investing. These lower levels of investment will result in lower revenues for suppliers, who may have to lay people off, who will reduce their spending, leading to a fall in economic activity. This kind of self-reinforcing cycle of expectations is what gives rise to the business cycle: the ups and downs of the economy through time. It also shows why, over the short term, Say’s law doesn’t hold — if businesses lack confidence in future economic growth, they may choose not to spend even if they can afford to do so. And as Keynes famously stated, “in the long run we are all dead”.

Money and Government: The Past and Future of Economics
by Robert Skidelsky
Published 13 Nov 2018

All monetary investigations, he wrote, ‘are ultimately concerned with creating and maintaining a monetary system which is reliable and elastic, in other words a medium of exchange whose purchasing power in relation to commodities changes either not at all or only very slowly in either direction’.16 Wicksell also identified himself as a quantity theorist, and agreed with Fisher about the QTM as applied to a purely cash economy – one where the only money in circulation is notes and coins. However, money in an economy with a developed banking system is mainly created by the banks, and it is disturbances to the credit system – to the supply of, and demand for, loans – not exogenous money shocks, which give rise to the business cycle. The business cycle is a ‘credit cycle’. The banks have a double role in Wicksell’s model. On the one hand they are loan intermediaries between the savings of households and the investments of business. But they also supply credit to the business sector. The ‘circular flow’ thus consists of savings and credit, both flowing in and out of the banks.

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As Thomas Sargent quipped: ‘All agents inside the model, the econometrician, and God share the same model.’65 Dynamic Stochastic General Equilibrium models (DSGE) Like rational expectations, DSGE modelling takes root in New Classical economics, where the works of Lucas (1975), Kydland and Prescott (1982), and Long and Plosser (1983) were most prominent. The earlier DSGE models were pure Real Business Cycle (RBC) models, i.e. models that attempted to explain business cycles in terms of real productivity or consumption shocks, abstracting from money. The logic behind RBC models is clear. If money cannot affect real variables (because of QTM and rational expectations), the source of any disturbance to the real economy must be non-monetary; that is, business fluctuations must be caused by ‘real’ unanticipated shocks.

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One may feel that insistence on the need for short-run pain (e.g. austerity) for the sake of long-run gain, when the short-run can last decades and the long-run may never happen, testifies to a refined intellectual sadism. I V. C u r r e nc y Sc hool v e r sus Ba n k i ng Sc hool The second of the grand monetary discussions of the 1800s was really a continuation of the first, but this time in the context of the restored gold standard and a business cycle connected with railway speculation. The Currency School, led by Lord Overstone, George Norman and Robert Torrens, expanded on the arguments of the Bullionists. While the Bullionists regarded convertibility into gold as a sufficient safeguard against the over-issue of notes, the Currency School argued that the drain of gold from the central bank wouldn’t immediately curtail issue of credit by the country banks, who were not subject to specie reserve requirements. 25 The Bank of England had to have control over the whole note issue in order for domestic currency to behave like a metallic currency.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest
by Andrew W. Lo and Stephen R. Foerster
Published 16 Aug 2021

Monetary policy and the economy are my favorite topics, and there was always someone at the Fed to talk about this with.”18 From Economics to Investments Although trained as an economist, Siegel also had a strong interest in investments. His particular niche was applying academic economic concepts to the area of investments. One of his earliest ventures was investigating the relationship between the stock market and business cycles.19 The concept of the business cycle sometimes causes confusion, perhaps because its name suggests a regular, periodic motion. But the business cycle is no such thing. Business cycles capture changes in overall economic activity, as measured by the gross domestic product (GDP) of the country, and the occurrence of these changes is quite unpredictable. There are four key drivers of economic activity: consumption, including goods we buy and the services we pay for; business investment, such as capital expenditures made by corporations; government spending; and net exports, or a country’s exports less imports.

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Of course, it’s much easier said than done to categorize an environment as either expansionary or recessionary, as it often takes economists six months or more after the start or end of a recession to make such a categorization. However, Siegel’s research shows us that if we can predict business cycle turning points and invest more heavily in stocks before the trough in the business cycle and then switch out of stocks before the peak of the business cycle, investors can outperform a buy-and-hold equity strategy—again, much easier said than done.3 You may want to rely on professionals such as economists, who in turn often rely on business cycle models, to answer this question about where we are in the current environment. FIGURE 12.1: Determine which of sixteen investor types fits you best based on four key characteristics: (1) risk aversion (Hawk or Dove), (2) income level (Midas or Penia), (3) spending needs (Scrooge or Gatsby), and (4) economic environment (expansion or recession).

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According to Cochrane, the profession has now come to accept that the main reason stock prices are so volatile relative to dividends is because investors vary their expected returns, unlike the simple models that suggest investors have constant expectations. What is still up for debate, particularly between Shiller and Fama, is the nature of those time-varying expected returns. “To Fama, it is a business cycle–related risk premium. He (with Ken French again) notices that low prices and high expected returns come in bad macroeconomic times and vice versa.… To Shiller, no. The variation in risk premiums is too big, according to him, to be explained by variation in risk premiums across the business cycle. He sees irrational optimism and pessimism in [investors’s] heads.” The notion of “irrational optimism” (or exuberance) would play a major part in forever tying Shiller to the Federal Reserve’s most famous chairman, Alan Greenspan.

Common Stocks and Uncommon Profits and Other Writings
by Philip A. Fisher
Published 13 Apr 2015

Does this mean that if a person has some money to invest he should completely ignore what the future trend of the business cycle may be and invest 100 per cent of this fund the moment he has found the right stocks, as defined in Chapter Three, and located a good buying point, as indicated in this chapter? A depression might strike right after he has made his investment. Since a decline of 40 to 50 per cent from its peak is not at all uncommon for even the best stock in a normal business depression, is not completely ignoring the business cycle rather a risky policy? I think this risk may be taken in stride by the investor who, for a considerable period of time, has already had the bulk of his stocks placed in well-chosen situations.

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In the event that such a record had not been attained, at least all of an investor's assets would not be committed before he had had a warning signal to revise his investment technique or to get someone else to handle such matters for him. All types of common stock investors might well keep one basic thought in mind; otherwise the financial community's constant worry about and preoccupation with the danger of downswings in the business cycle will paralyze much worthwhile investment action. This thought is that here in the mid-twentieth century the current phase of the business cycle is but one of at least five powerful forces. All of these forces, either by influencing mass psychology or by direct economic operation, can have an extremely powerful influence on the general level of stock prices. The other four influences are the trend of interest rates, the over-all governmental attitude toward investment and private enterprise, the long-range trend to more and more inflation, and—possibly most powerful of all—new inventions and techniques as they affect old industries.

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Even a casual glance at American stock mar-ket history will show that two very different methods have been used to amass spectacular fortunes. In the nineteenth century and in the early part of the twentieth century, a number of big fortunes and many small ones were made largely by betting on the business cycle. In a period when an unstable banking system caused recurring boom and bust, buying stocks in bad times and selling them in good had strong elements of value. This was particularly true for those with good financial connections who might have some advance information about when the bank-ing system was becoming a bit strained.

Milton Friedman: A Biography
by Lanny Ebenstein
Published 23 Jan 2007

Research for A Monetary History began in 1948 as a three-year study for the National Bureau of Economic Research to investigate the “role of monetary and banking phenomena in producing cyclical fluctuations, intensifying or mitigating their severity, or determining their character,”2 Friedman wrote at the time. He does not now believe that there is a business cycle, in the sense of regular, recurrent ups and downs in economic activity: “I really don’t believe that there is a business cycle.... The notion of a business cycle is something of a regularly recurring phenomenon that is internally driven by the mechanics of the system. I don’t believe there is a business cycle in that sense. I believe that there is a system that has certain response mechanisms and that system is subject over time to external random forces.”3 He is thus a follower of Eugen Slutzky’s idea of random causes as the source of economic fluctuations.

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There was some falling-out, or at least decline, in his relationship and that of his allies at Chicago generally with Koopmans and the Cowles Commission after Koopmans harshly criticized Arthur Burns and Wesley Mitchell’s 1946 National Bureau of Economic Research work, Measuring Business Cycles. Koopmans’s criticism, “Measurement Without Theory,” appeared in a prominent August 1947 review in the Review of Economic Statistics, six months after Friedman’s letter of recommendation on Koopmans’s behalf. In the review, Koopmans argued that because Burns and Mitchell had no theory of a business cycle, they had no determinate idea of what data to gather or hypotheses to test. In a contemporary conference comment, Friedman made reference to the “desultory skirmishing between what have been loosely designated as the National Bureau and the Cowles Commission techniques of investigating business cycles.”8 Robert Solow, who received the Nobel Prize in Economics in 1987, relates an anecdote about the response to Cowles Commission member Lawrence Klein’s Economic Fluctuations in the United States (1950) at a Cowles seminar, which gives an idea of relations between Friedman and the commission: “There was formal discussion.

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Friedman also now writes of his “skepticism about whether there is indeed an economic phenomenon justifying the designation ‘cycle,’ or whether the economic fluctuations glorified by that title are not merely reactions to a series of random shocks, along the lines of a famous 1927 article by Eugen Slutzky.”4 Economic fluctuations do not a business cycle make. Early in his career, Friedman did not possess a particularly monetarist perspective of economic activity. Although Mints, from whom he learned monetary theory, possessed a Fisherian, quantity theory of money perspective, he was not empirical or statistical, and monetary theory was not Friedman’s focus until the 1948 National Bureau study. When he taught a course on business cycles at the University of Wisconsin in 1940, he called them an “unsolved problem.”5 In a final exam question, he did not indicate that monetary explanations for economic fluctuations were his preferred method of analysis, as they later become—indeed, his focus appears to have been fiscal policy.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

More than forty years ago, I […] worked out […] neoclassical growth theory […] [I]t was clear from the beginning what I thought it did not apply to, namely short-run fluctuations in aggregate output and employment […] the business cycle […] [N]ow […] if you pick up an article today with the words ‘business cycle’ in the title, there is a fairly high probability that its basic theoretical orientation will be what is called ‘real business cycle theory’ and the underlying model will be […] a slightly dressed up version of the neoclasssical growth model. The question I want to circle around is: how did that happen? (Solow 2001: 19) Solow inadvertently provided one answer to his own question when he discussed the preceding IS-LM model: For a while the dominant framework for thinking about the short run was roughly ‘Keynesian.’

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Consider these statements by the doyen of the freshwater or ‘New Classical’ faction of neoclassical macroeconomists, Nobel laureate Edward Prescott: the key to defining and explaining the Great Depression is the behavior of market hours worked per adult […] there must have been a fundamental change in labor market institutions and industrial policies that lowered steady-state, or normal, market hours […] [T]he economy is continually hit by shocks, and what economists observe in business cycles is the effects of past and current shocks. A bust occurs if a number of negative shocks are bunched in time. A boom occurs if a number of positive shocks are bunched in time. Business cycles are, in the language of Slutzky, the ‘sum of random causes.’ The fundamental difference between the Great Depression and business cycles is that market hours did not return to normal during the Great Depression. Rather, market hours fell and stayed low. In the 1930s, labor market institutions and industrial policy actions changed normal market hours.

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Any reduction in working hours is a voluntary act, so the representative agent is never involuntarily unemployed, he’s just taking more leisure. And there are no banks, no debt, and indeed no money in this model. You think I’m joking? I wish I was. Here’s Robert Solow’s own summary of these models – initially called ‘real business cycle’ models, though over time they morphed into what are now called ‘Dynamic Stochastic General Equilibrium’ models: The prototypical real-business-cycle model goes like this. There is a single, immortal household – a representative consumer – that earns wages from supplying labor. It also owns the single price-taking firm, so the household receives the net income of the firm.

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Published 14 Oct 2019

In addition, narrative epidemics are more similar in countries that share a language or borders. The examples in this book come mostly from the United States, the country in which I have lived my life and the country about which I have the best intuition and knowledge. Also, the United States has long documented its business cycle history. The National Bureau of Economic Research (NBER) maintains a chronicle of business cycle expansions and contractions back to the year 1854. Some critics might argue that institutional changes in the United States have been so profound and transformative that there is practically nothing useful to be learned from distant history. However, the events and reactions of 50, 100, and 150 years ago are surprisingly similar to what we see and experience today.

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A constellation of narratives is now built around it, such as the story that Mark Twain, born in a Halley’s comet year, predicted his own death 75 years later when Halley’s comet returned again. The earliest ProQuest News & Newspapers mention of the business cycle came during the depression of 1858, and it appeared alongside a reference to weather: Some, claiming to be learned in meteorology, say the seasons ran in decades: it seems also that there is a sort of business cycle of the same length of time; and it happens very fortunately that the decimal panic comes at the same time with the mildest winter. Whether this is a coincidence or a providence, or whether it is a fact at all, I leave for others to decide.9 The idea that business fluctuations are a repetitive cyclical event with a wavelength of a decade, or any other identifiable fixed interval, has become less popular with economists, but the narrative that recessions and drops in confidence are somewhat periodic and forecastable remains entrenched in popular thinking.

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New York: National Bureau of Economic Research, 1938, https://www.nber.org/chapters/c4251.pdf. Reprinted in Geoffrey Moore, Business Cycle Indicators. Princeton, NJ: Princeton University Press, 1961. Mokyr, Joel. 2013. “Culture, Institutions, and Modern Growth.” In Sebastian Galiani and Itai Sened, eds., Institutions, Property Rights, and Economic Growth: The Legacy of Douglass North. Cambridge: Cambridge University Press. ________. 2016. Culture and Growth: The Origins of the Modern Economy. Princeton, NJ: Princeton University Press. Moore, Geoffrey H. 1983. “The Forty-Second Anniversary of the Leading Indicators.” In Geoffrey Moore, ed., Business Cycles, Inflation and Forecasting. 2nd ed.

The Bitcoin Standard: The Decentralized Alternative to Central Banking
by Saifedean Ammous
Published 23 Mar 2018

Only with an understanding of the capital structure and how interest rate manipulation destroys the incentive for capital accumulation can one understand the causes of recessions and the swings of the business cycle. The business cycle is the natural result of the manipulation of the interest rate distorting the market for capital by making investors imagine they can attain more capital than is available with the unsound money they have been given by the banks. Contrary to Keynesian animist mythology, business cycles are not mystic phenomena caused by flagging “animal spirits” whose cause is to be ignored as central bankers seek to try to engineer recovery8.

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For Austrians, on the other hand, the fact that governments have to resort to coercive measures of banning gold as money and enforcing payment in fiat currencies is at once testament to the inferiority of fiat money and its inability to succeed in a free market. It is also the root cause of all business cycles' booms and busts. While the Keynesian economists have no explanation for why recessions happen other than invoking “animal spirits,” Austrian school economists have developed the only coherent theory that explains the cause of business cycles: the Austrian Theory of the Business Cycle.11 Unsound Money and Perpetual War As discussed in Chapter 4 on the history of money, it was no coincidence that the era of central bank‐controlled money was inaugurated with the first world war in human history.

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When the central bank manipulates the interest rate lower than the market clearing price by directing banks to create more money by lending, they are at once reducing the amount of savings available in society and increasing the quantity demanded by borrowers while also directing the borrowed capital toward projects which cannot be completed. Hence, the more unsound the form of money, and the easier it is for central banks to manipulate interest rates, the more severe the business cycles are. Monetary history testifies to how much more severe business cycles and recessions are when the money supply is manipulated than when it isn't. While most people imagine that socialist societies are a thing of the past and that market systems rule capitalist economies, the reality is that a capitalist system cannot function without a free market in capital, where the price of capital emerges through the interaction of supply and demand and the decisions of capitalists are driven by accurate price signals.

Deep Value
by Tobias E. Carlisle
Published 19 Aug 2014

The longer the good business can maintain a high return on invested capital, the more valuable the business. What then distinguishes the first-class business from the ordinary business? The differentiator is not simply high returns on capital, which, as Graham pointed out, even an ordinary business will earn at some point in the business cycle, but sustainable high returns on capital throughout successive business cycles. The sustainability of high returns depends on the business possessing good economics protected by an enduring competitive advantage, or what Buffett describes as “economic castles protected by unbreachable ‘moats.’”39 First-Class Businesses A business’s intrinsic value turns on its ability to sustain high returns on invested capital and resist reversion to the mean.

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The so-called economic franchise is therefore a special business with unusual, naturally occurring economics that allow it to earn a naturally high return on invested capital over the course of the business cycle and to sustain that return despite the incursions of competitors. Where competition causes the return of the average business—one with a weak or no competitive advantage—to revert to the mean, franchises and first-class businesses resist mean reversion. Most businesses over the course of a full business cycle will do no ­better than earn their required return. In peak earnings years they will appear to be good businesses earning a return exceeding the required return, but in trough earnings years they will look like bad businesses generating subnormal returns.

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Reinvestment will appear most attractive in peak years, and folly in trough years, but the reverse is usually the case because trough earnings follow peak earnings, and vice versa. Capital reinvested in peak years earns sub-normal returns as the business cycle moves toward a trough, and so is typically more valuable in shareholders’ hands. Capital reinvested in trough years has the opportunity to earn super-normal returns as the business cycle moves toward a peak, but often little incremental capital can be harvested organically because earnings are in a trough. In another cruel irony, businesses find capital in abundance—both from retained earnings and outside investors—when they need it least and scarce when they need it most.

10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less
by Garett Jones
Published 4 Feb 2020

And I mean someone who really doesn’t care about creating a boom. Someone who cares only about low and stable inflation. That might be a Wall Street– or London–, or Hong Kong–based banker, someone who has spent his career worrying that high surprise inflation might crush the value of his bond portfolio. Or it could be someone trained in real business cycle (RBC) theory, the Nobel-winning theory that modern boom-bust cycles are mostly caused by oil price changes, regulatory and tax changes, and other supply-side forces that have nothing to do with central banks and money. In its most extreme form, RBC theory means that monetary policy is irrelevant to the real economy.

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RBC theory doesn’t prove that money doesn’t matter, but it gives economists another set of explanations, alternative hypotheses, to explain why the economy grows faster some years than others. This seems to matter in real life. I mentioned that one past Federal Reserve Bank president coauthored a key RBC paper—indeed, the very paper that coined the name “real business cycles.” This skepticism about the power of the central bank and the all-powerful role of economic demand shows up throughout the central banking world. I’ve known a few economists who have worked at central banks, and one of my favorite questions to ask them goes like this: Why do booms and busts happen?

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Kenneth Rogoff, “The Optimal Degree of Commitment to an Intermediate Monetary Target,” Quarterly Journal of Economics 100, no. 4 (1985): 1169–1189. 11. Finn E. Kydland and Edward C. Prescott, “Time to Build and Aggregate Fluctuations,” Econometrica (1982): 1345–1370. Also see John B. Long Jr. and Charles I. Plosser, “Real Business Cycles,” Journal of Political Economy 91, no. 1 (1983): 39–69. 12. Orson Scott Card, Ender’s Game (New York: Tor Books, 1985). 13. Jeroen Klomp and Jakob De Haan, “Central Bank Independence and Financial Instability,” Journal of Financial Stability 5, no. 4 (2009): 321–338. 14. Alberto Alesina and Andrea Stella, “The Politics of Monetary Policy,” in Handbook of Monetary Economics, vol. 3, ed.

The Long Good Buy: Analysing Cycles in Markets
by Peter Oppenheimer
Published 3 May 2020

The idea that there are cycles in financial markets in general, and in equity markets in particular, has been with us for a very long time. Fisher (1933) and Keynes (1936) both examined the interaction between the real economy and the financial sector in the Great Depression. Burns and Mitchell found evidence of the business cycle in 1946 and later academics argued that the financial cycle was a part of the business cycle, and that financial conditions and private sector balance sheet health are both important triggers of the cycle and factors that can amplify cycles (Eckstein and Sinai 1986). Other research has demonstrated that waves of global liquidity can interact with domestic financial cycles, thereby creating excessive financial conditions in some cases (Bruno and Shin 2015).5 More recent studies suggest that measures of slack in the economy (or output gaps – the growth rate versus potential output) can be explained partly by financial factors (Boria, Piti and Juselius 2013) that play a large part in explaining fluctuations in economic output and potential growth, as well as ‘determining which output trajectories are sustainable and which are not’,6 thereby implying a close link and feedback loop between financial and economic cycles.

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The impact of investor psychology on stock markets: Evidence from France. Journal of Academic Research in Economics, 5(1), 35–59. Dice, C. A. (1931). New levels in the stock market. Journal of Political Economy, 39(4), 551–554. Eckstein, O., and Sinai, A. (1986). The mechanisms of the business cycle in the postwar era. In R. Gorden (Ed.), The American business cycle: Continuity and change (pp. 39–122). Cambridge, MA: National Bureau of Economic Research. The end of the Bretton Woods System. IMF [online]. Available at https://www.imf.org/external/about/histend.htm Evans, R. (2014). How (not) to invest like Sir Isaac Newton.

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Description: Chichester, West Sussex, United Kingdom : John Wiley & Sons, 2020. | Includes bibliographical references and index. Identifiers: LCCN 2020001577 (print) | LCCN 2020001578 (ebook) | ISBN 9781119688976 (cloth) | ISBN 9781119688983 (adobe pdf) | ISBN 9781119689003 (epub) Subjects: LCSH: Business cycles. | Investments. | Finance. Classification: LCC HB3720 .O67 2020 (print) | LCC HB3720 (ebook) | DDC 338.5/42—dc23 LC record available at https://lccn.loc.gov/2020001577 LC ebook record available at https://lccn.loc.gov/2020001578 Cover Design: Wiley Cover Image: JDawnInk/DigitalVision Vectors/Getty Images To Joanna, Jake and Mia Acknowledgements This book is about economic and financial market cycles and the factors that affect them.

World Economy Since the Wars: A Personal View
by John Kenneth Galbraith
Published 14 May 1994

Was it not a fair conclusion that by whatever means they were predestined to poverty? Nothing in the history of social ideas is more interesting than the treatment of the so-called business cycle in the central tradition of economic thought. Its study was isolated in a separate compartment until very recent times. Prices, wages, rents and interest, all of which were profoundly affected by depressions, were studied very largely on the assumption that depressions did not occur. Normal conditions were assumed; normal meant stable prosperity. In the separate study of the business cycle, emphasis was placed on the peculiar and nonrecurring conditions which lay back of each depression—the retirement of the greenbacks prior to 1873, the readjustments following World War I, the breakdown of international trade and capital movements and the collapse of the stock market in 1929.

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But this term eventually acquired a foreboding quality and a recession in 1953–1954 was widely characterized as a rolling readjustment. By the time of the Nixon administration, the innovative phrase "growth recession" was brought into use. To view the business cycle as a normal rhythm was to regard it as self-correcting. Hence, nothing needed to be done about it. Remedies are unnecessary if the patient is certain to recover, and they are also unwise. Writing in 1934, Joseph A. Schumpeter, then with Wesley C. Mitchell one of the world's two most eminent authorities on the business cycle, surveyed the experience of the preceding century and concluded, "In all cases ... recovery came of itself... But this is not all: our analysis leads us to believe that recovery is sound only if it does come of itself.

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To increase output by increasing the rate of capital formation or by expanding the total labor force or by a serious effort to increase the rate of technological innovation was not part of his concern.4 Most important of all, the loss of production as the result of depressions was not peculiarly a liberal concern. No one was deeply committed politically on this problem; conservatives had an equal interest with liberals in "smoothing out" the business cycle. During the decade of the twenties, the political leadership in discussion of possible means to mitigate the business cycle was assumed by Herbert Hoover. The classical program of American liberals, until the decade of the thirties, sought the redistribution of the existing income, greater economic security and the protection of the liberties and immunities of individuals and organizations in face of the highly unequal distribution of economic power.

Universal Basic Income and the Reshaping of Democracy: Towards a Citizens’ Stipend in a New Political Order
by Burkhard Wehner
Published 10 Jan 2019

It would serve this purpose best if it was not financed by government debts, but rather by interest-free central bank loans to the welfare state.1 Moreover, such a stabilization allowance would be beyond suspicion of leading to unwanted side effects on the distribution of income and wealth, as is the case with most conventional measures of business cycle policy. An economic stimulus by means of a supplement to the citizens’ stipend would thus be far superior to conventional policy measures for this purpose. As with all business cycle stimuli, such stabilizations allowances would also require provisions to ensure that the stimulus does not induce unsustainable claims against the welfare state. For this purpose, these allowances could be declared as advance payments of citizens’ stipend.

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References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... .... 3 3 .... .... 5 10 . . . . . . . . 11 11 13 13 ................... ................... ................... 14 15 18 3 A Long-Term Vision . . . . . . . . . . . . . . . . . . 3.1 Maximal Market Transparency . . . . . . . 3.2 Maximal Transparency in Redistribution 3.3 Basic Income and Social Security . . . . . 3.4 Basic Income, Minimum Wage and Full Employment Guarantee . . . . . . . . . . . . . 3.5 Optimization, Not Maximization . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Basic Income in Other Policy Areas . . . . . . . 4.1 Basic Income and Business Cycle Policy . 4.2 Basic Income and Demographic Policy . . 4.3 Basic Income for Nations in Need . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 19 20 21 23 5 Common Objections to Basic Income 5.1 Tax Burden and Work Incentives 5.2 Further Objections . . . . . . . . . . .

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A constitutional right to system transparency could thus be a Trojan Horse that would inadvertently open the way for basic income into a formerly rigid political and social order. 18 3 A Long-Term Vision References Wehner B (1992) Der Neue Sozialstaat: Vollbeschäftigung, Einkommensgerechtigkeit und Staatsentschuldung (The new social state: full employment, fair income distribution and the redemption of public debt). Westdeutscher Verlag, Opladen Wehner B (1997) Der Neue Sozialstaat: Entwurf einer neuen Wirtschafts- und Sozialordnung (The new social state. Outline of a new social and political order). Westdeutscher Verlag, Opladen Chapter 4 Basic Income in Other Policy Areas 4.1 Basic Income and Business Cycle Policy A citizens’ stipend system of the type proposed here would thus bring about a broad spectrum of positive changes without risking serious transitional problems. Such a system would be administratively easy to handle, it would be transparent, it would be fair, it would make the economy and working life more creative and innovative, and it would lead to full employment by reshaping the wage structure and economic risk sharing.

Breakout Nations: In Pursuit of the Next Economic Miracles
by Ruchir Sharma
Published 8 Apr 2012

The easy money flows from a sea change in the way the United States sees hard times. The old view was that recessions were a natural phase in the business cycle, unpleasant but unavoidable. A new view started to emerge in the Goldilocks economy of the 1990s, when after many straight years of solid growth, people started to say that the Federal Reserve had beaten back the business cycle. Under Alan Greenspan and his successor, Ben Bernanke, the Fed shifted focus from fighting inflation and smoothing the business cycle to engineering growth. Low U.S. interest rates and rising debt increasingly became the bedrock of American growth, and the increases in total U.S. debt started to dwarf the increases in total U.S.

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Forecasts are valuable, indeed unavoidable for planning purposes, but it doesn’t make much sense to talk about the future beyond five years, maybe ten at the most. The longest period that reveals clear patterns in the global economic cycle is also around a decade. The typical business cycle lasts about five years, from the bottom of one downturn to the bottom of the next, and the perspective of most practical people is limited to one or two business cycles. Beyond that, forecasts are often rendered obsolete by the appearance of new competitors (China in the early 1980s) or new technologies (the Internet in the early 1990s) or new leaders (the typical election cycle is also about five years).

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In a period of impending change, like this one, with the painful ending of a golden age of easy money and easy growth, it is typical for people to cling to dated ideas and rules for too long, particularly notions that minimize or explain away potential risks. The most dramatic recent example is the idea that the basic tools of economic stimulus—lowering interest rates and raising public spending—can end a business cycle, not only in the United States but also in the developing world. In the emerging markets, there has long been a disturbing tendency among leaders to take credit for boom times and blame bad times on the West: that phenomenon was widespread in late 2011, as many leaders attributed any slowdown in emerging markets to contagion from Europe, forgetting that lending from European banks was a key driver of the boom in the first place.

The Great Crash 1929
by John Kenneth Galbraith
Published 15 Dec 2009

[back] *** 2 New Levels in the Stock Market, p. 257. [back] *** 3 Walter Bagehot, Lombard Street, p. 130. The quotation from Macaulay. above, is cited by Bagehot, p. 128. [back] *** 4 "At present it is less likely that the existence of business cycles will be denied than that their regularity will be exaggerated." Wesley Clair Mitchell, Business Cycles and Unemployment (New York: McGraw-Hill, 1923), p. 6. [back] *** 5 Geoffrey H. Moore, Statistical Indications of Cyclical Revivals and Recessions, Occasional Paper 31, National Bureau of Economic Research, Inc. (New York. 1950). [back] *** 6 H.

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Neither did any of the other public figures who then, as since, made similar statements. These are not forecasts; it is not to be supposed that the men who make them are privileged to look farther into the future than the rest. Mr. Mellon was participating in a ritual which, in our society, is thought to be of great value for influencing the course of the business cycle. By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue. Especially among businessmen the faith in the efficiency of such incantation is very great. VI Hoover was elected in a landslide. This, were the speculators privy to Mr.

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There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country's businesses and banks. This inventory—it should perhaps be called the bezzle—amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed.

The End of Growth: Adapting to Our New Economic Reality
by Richard Heinberg
Published 1 Jun 2011

Unfortunately, people tend to act (to some degree, at least) the way they are expected and conditioned to act; thus Homo economicus becomes a self-confirming prediction. Business Cycles, Interest Rates, and Central Banks We have just reviewed a minimalist history of human economies and the economic theories that have been invented to explain and manage them. But there is a lot of detail to be filled in if we are to understand what’s happening in the world economy today. And much of that detail has to do with the spectacular growth of debt — in obvious and subtle forms — that has occurred during the past few decades. The modern debt phenomenon in turn must be seen in light of recurring business cycles that characterize economic activity in modern industrial societies, and the central banks that have been set up to manage them.

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Critics describe the system as a military-industrial “welfare state for corporations.”15 The upsides and downsides of the business cycle are reflected in higher or lower levels of inflation. Inflation is often defined in terms of higher wages and prices, but (as Austrian School economists have persuasively argued) wage and price inflation is actually just the symptom of an increase in the money supply relative to the amounts of goods and services being traded, which in turn is typically the result of exuberant borrowing and spending. Inflation causes each unit of currency to lose value. The downside of the business cycle, in the worst instance, can produce the opposite of inflation, or deflation.

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— Paul Krugman (economist) The conventional wisdom on the state of the economy — that the financial crisis that started in 2008 was caused by bad real estate loans and that eventually, when the kinks are worked out, the nation will be back to business as usual — is tragically wrong. Our real situation is far more unsettling, our problems have much deeper roots, and an adequate response will require far more from us than just waiting for the business cycle to come back around to the “growth” setting. In reality, our economic system is set for a dramatic, and for all practical purposes permanent, reset to a much lower level of function. Civilization is about to be downsized. Why have the vast majority of pundits missed this story? Partly because they rely on economic experts with a tunnel vision that ignores the physical limits of planet Earth — the context in which economies operate.

Social Democratic America
by Lane Kenworthy
Published 3 Jan 2014

However, none of these is related to economic growth in their analyses. A fourth is the average growth rate among the group of countries as a whole weighted by the degree of trade openness in each nation. In an analysis with yearly data, this is useful to control for business cycle effects, but it is unnecessary in an analysis that covers one or more complete business cycles. I estimated a series of regressions with various combinations of three other controls: education (average years of schooling completed), real interest rates, tax revenues (as a share of GDP). This did not yield a positive association between institutional coherence and economic growth. 30.

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As our evidence base grows, and particularly as we learn more about best practice in other nations, there is reason for optimism about the quality of future social policy. Can We Afford It? For the past half century, our government has taxed and spent a smaller portion of the country’s economic output than have most other affluent nations. In 2007, the peak year of the pre-crash business cycle, government expenditures totaled 37 percent of GDP in the United States. As figure 1.1 shows, in most other rich nations the share was well above 40 percent, and in some it was above 50 percent. The added cost of the new programs and expansions I recommend plus our existing commitments to Social Security and Medicare is likely to be in the neighborhood of 10 percent of GDP.22 If that sounds massive, keep in mind two things.

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Adding a national consumption tax could get us halfway there, and an assortment of relatively minor additions and adjustments would take us the rest of the way.23 FIGURE 1.1 Government expenditures as a share of GDP Includes government at all levels: national, regional, local. 2007 is the most recent business cycle peak year. Data sources: OECD, stats.oecd.org; Vito Tanzi, Governments versus Markets, Cambridge University Press, 2011, table 1. US 47 percent in 2060 is my projection. Since 1980, much of America’s left has thought about taxation in terms of its impact on the distribution of income, putting tax progressivity front and center.

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
by Sebastien Page
Published 4 Nov 2020

If we add inflation to the real return estimate, we get an expected nominal equity return of 7% (5% + 2%). Not bad. On the other hand, Robert Shiller, Yale professor and Nobel laureate, uses a P/E ratio that normalizes earnings over the last 10 years and adjusts for inflation (the cyclically adjusted price-earnings ratio, or CAPE). The 10-year period is meant to represent a full business cycle. His approach yields a meager 1% expected real return for US stocks, or 3% nominal if we assume 2% inflation.6 The CAPE is higher than the current P/E in part because earnings have increased significantly over the last 10 years. Another reason for Shiller’s ultralow forecast may be that he doesn’t simply invert the ratio—he adjusts the estimate based on a regression model.

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The lesson is that relative valuation signals work better in fixed income markets than in equity markets. There might be ways to improve on simple yield ratio signals. In the monograph I coauthored with my former PIMCO colleagues Vasant Naik, Mukundan Devarajan, Andrew Nowobilski, and Niels Pedersen (2016), titled “Factor Investing and Asset Allocation: A Business Cycle Perspective,” we use a definition of carry that includes roll down, based on the difference between spot and 12-month forward swap rates. My coauthors simulated a tactical strategy that ranks carry across six countries: United States, Germany, Japan, the United Kingdom, Australia, and Canada.

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Instead, macro factors are often used to confirm relative valuation signals. For example, if non-US equities are cheap relative to US equities based on valuation metrics (P/E and other such metrics) and if macro factors indicate non-US equities should outperform (weakening USD, non-US central bank stimulus, earlier stage in the business cycle versus that in the United States, potential GDP growth surprise, and so forth), then a tactical asset allocator may take a larger position in ACWI ex-US equities than if valuation and macro data don’t agree. Another caveat is that we don’t model expectations directly. In theory, we should run our scenarios against the expectations that are priced into the market.

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

Besides, Strong feared, employing a similar argument to that used by modern central bankers, that raising interest rates to curtail margin loans would produce collateral damage: I think the conclusion is inescapable, that any policy directed solely to forcing liquidation in the stock loan account and concurrently in the prices of securities will be found to have a widespread and somewhat similar effect in other directions, mostly to the detriment of the healthy prosperity of this country.21 The Swedish economist Gustav Cassel endorsed Strong’s view that it was the business of central bankers to maintain price stability and not to concern themselves with the stock market.22 One of the aims of US monetary policy in the 1920s was to dampen the seasonal fluctuations of interest rates caused by the agricultural cycle, which led to money being tight at certain times of the year. The Fed was so successful in this respect that Treasury Secretary Andrew Mellon went so far as to hail an end to the cycle of boom and bust. ‘We are no longer the victims of the vagaries of business cycles. The Federal Reserve System is the antidote for money contraction and credit shortage,’ Mellon declared a year after the Long Island meeting.23 By taming the business cycle, however, the Fed inadvertently encouraged speculative behaviour. As economist Perry Mehrling writes: ‘Intervention to stabilize seasonal and cyclical fluctuations produced low and stable money rates of interest, which supported the investment boom that fueled the Roaring Twenties but also produced an unsustainable asset price bubble.’24 The absolute level of interest rates played a key but less obvious role in fostering Wall Street’s boom.

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None of Kohn’s colleagues who were present at the meeting, including Greenspan and Bernanke, dissented from this opinion.fn4 A couple of months later, the President of the Dallas Federal Reserve, Robert McTeer, was asked whether central bankers were able to prolong the business cycle indefinitely. McTeer replied that: the business cycle is being dealt with much better than it used to be. Policy makers are smarter. They’ve got a lot of mistakes that they can learn from … In the early ’30s when that episode started, there were a lot of bank failures that wiped out a lot of money … Today, every time we have a major emergency, you know, the first thing we do is get on the microphone and open up – you open up a spigot.30 PRICE STABILITY IS NOT ENOUGH Not everyone was convinced that the Greenspan Federal Reserve’s policy of focusing on consumer prices and ignoring other financial imbalances was quite the trick.

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Most monetary theorists seem to have failed utterly to apprehend correctly the nature of the forces operative in America before the coming of depression, thinking apparently that the relative stability of the price level indicated a state of affairs necessarily free from injurious monetary influences.’ 60. Gottfried Haberler, ‘Money and the business cycle’, in The Austrian Theory of the Trade Cycle and Other Essays (Auburn, Ala., 1997), p. 19. 61. See F. A. Hayek, ‘The “Paradox” of Saving’, Economica, 32, May 1931. 62. Phillips et al., Banking and the Business Cycle, p. 201. ‘A policy which seeks to direct credit influences at any single index, whether it be of prices, either wholesale or retail, or production, or incomes, in the interests of stabilization, will result in unexpected and unforeseen repercussions which may be expected to prove disastrous in the long run.’ 63.

GDP: A Brief but Affectionate History
by Diane Coyle
Published 23 Feb 2014

There is always pressure on the statisticians to produce timely data, so early estimates of the previous quarter’s GDP will almost always be revised subsequently as more of the component sources of data become available. These revisions can be significant, which makes life frustrating for policymakers trying to figure out what, if anything, they need to do to respond to the business cycle. Although the notion of “fine-tuning” the economy by adjusting tax and spending or interest rates has been pretty much discredited among economists, thanks to the terrible experience of this approach going wrong in the 1970s, there is still immense pressure on politicians and central bankers to try to boost the growth of GDP during a recession.

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Table 2: Real Annual GDP Growth Rates (Percent) Country 1950–1973 1973–1998 United States 3.93 2.99 United Kingdom 2.93 2.00 France 5.05 2.10 Germany 5.68 1.76 Japan 4.61 4.96 Source: Angus Maddison, The World Economy: A Millennial Perspective (Paris: Organization for Economic Cooperation and Development, 2000). Even though the business cycle—the periodic downs and ups of the economy as a whole—returned, GDP growth continued above its earlier rates during the 1950s, 1960s, and early 1970s. In the United States, GDP growth averaged nearly 4 percent a year from 1950 to 1973, compared with less than 3 percent a year between the two world wars.

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So what was going wrong by the late 1960s, a decade that ended with students in the streets throwing stones and crude Molotov cocktails at the police, workers on strike, power cuts, and citizens hoarding food? As so often in life, the roots of failure lay in the nature of success. There was, in a way, too much growth. The tools of demand management proved too tempting and were used to boost the economy whenever there was a business cycle downturn. Both lower interest rates and extra government spending (or tax cuts) were generally used to try to limit downturns and keep the level of employment high. Politicians and other officials had in mind the model of the economy as a machine, just like the mechanical Phillips Machine that gave physical form to the circular flow of income in the national accounts (see chapter 1).

Money: 5,000 Years of Debt and Power
by Michel Aglietta
Published 23 Oct 2018

At the end of the eighteenth century it had embarked upon the Industrial Revolution, and thus enjoyed comparative advantages in profiting from the revival of trade in Europe. Up until 1848, it was able to limit deflation to low, albeit persistent, rates. It took no less than forty years to bring the public debt back down to 100 percent of GDP. From the 1840s onwards, the business cycles of industrial capitalism set the rhythm of financial crises. Each turnaround in the business cycle after its peak degenerated into a financial crisis. These panics were triggered by the collapse of some important financial institution, precipitating the demand for gold conversion in all banks. Constrained by convertibility, the Bank of England sought to protect its own reserves, in turn worsening the panic.

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These imbalances affect credit flows in both bearish and bullish phases of the financial cycle.20 Figure 7.3 portrays the financial cycles and short-term business cycles in the main Western countries in which finance is entirely liberalised. These series are logarithms presented in real terms, deflated by the consumer price index. Only credit as a share of GDP is expressed as a percentage. The financial cycle corresponds to the average of these three standardised and filtered series. Figure 7.3 Business cycles and financial cycles (1976 Q1–2014 Q3) Sources: IBS and OECD. Calculations by Thomas Brand for Aglietta and Brand, ‘La stagnation séculaire dans les cycles financiers de longue période’ (2015).

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The former offloads the burden of adjustment onto these countries, in particular if they are in deficit. This privileged situation puts the issuing country into the position of a business-cycle maker and generator of global shocks (for economic activity, raw materials prices, exchange rates, and so on). Conversely, the peripheral countries have to take on the burden of an asymmetrical adjustment. Their position as a business-cycle taker makes them vulnerable to exogenous shocks that they have to absorb. Here, too, they are incentivised to accumulate surplus foreign currency reserves as a precaution, and to implement restrictive neo-mercantilist policies focused on export-led growth.37 Finally, there is a profound asymmetry in terms of the autonomy of different countries’ economic policy.

The Asian Financial Crisis 1995–98: Birth of the Age of Debt
by Russell Napier
Published 19 Jul 2021

The assets traders and the bankers have seen their profits boom, far outstripping gains that could be made from general economic development. The ascendancy of the asset traders and their financiers is a feature of liquidity-driven markets throughout history. History also teaches that successful asset traders need more than a ruler, a pencil and a grasp of extrapolation to gain acceptable returns on capital throughout the business cycle. In short, as liquidity dries up, those that were first shall be last. The profits to be made in asset trading in Asia, much of it financed by debt, had become so attractive as to divert capital from productive activities. Arriving into this great liquidity-driven party, it was striking how this was all taken as normal.

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It is always tempting at the end of a bear market to proclaim that the bad news came as a surprise and nobody could have foreseen it coming. The complete meltdown of the Thai credit system was very apparent at least eight months before the authorities were forced to devalue the Thai baht exchange rate and almost two years before the price of Thai equities stopped falling. This of course was no ordinary business cycle or credit cycle. But that it was to be something that challenged the very solvency of the financial system was already fairly evident by the second half of 1996. I had attended the presentation in Edinburgh for the IPO for Somprasong Land just a few years before. We received a detailed list of the property the company owned and some delightful artist’s impressions, they always are, of the buildings they would build there.

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Investors in any stock market with the wrong monetary policy structure have to assess when the country is politically ready to make such a major choice for change and what its implications might be. While Greece did not ultimately make the choice to adopt a new monetary structure, by May 1997 Thailand was just a month away from such a momentous decision. Perhaps if all Thailand faced in May 1997 was a normal business cycle, the low market capitalisation of its local stock market might have indicated that good long-term returns would follow. However, as Thailand faced a major structural adjustment that unveiled the excesses wrought by the wrong monetary policy, the small stock market capitalisation said little about the level of likely future returns.

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis
by Johan Norberg
Published 14 Sep 2009

And even though the current crisis began in the United States, it remains a fact that countries with sophisticated financial markets have fewer financial crises than others.' One reason the peaks and troughs of the business cycle are evened out in developed countries is that people there can take out loans when times are bad. Before They Knew the Answers We cannot do without the confidence and cooperation that financial markets embody. But we have also seen how easy it is to develop confidence in the wrong people or business concepts. Toward the end of 2008, the worst financial storms had abated, at least for now, but this is also when the long and deep trough of the business cycle begins to make itself felt in earnest. As banks reduce their indebtedness and leverage, and as institutions that previously threw capital in all directions are wound down, companies, households, and in some cases even entire nations will be unable to borrow enough to cover their running expenses.

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The gigantic public works programs are being justified by reference to Keynes's teachings that the government can stimulate demand. In the absence of private demand, public spending is to fill the void and get the business cycle moving upward. But Keynes developed his ideas during the Great Depression and saw them as a way to get a completely stationary economy moving again. He was much more skeptical about whether public works could be used to control the business cycle. In 1942, he warned, "They are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date)."35 In fact, the delayed impact may reinforce the subsequent upturn, leading to overheating and a new crisis.

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He isn't a monetarist. He isn't a supplysider. If he's anything, he's a pragmatist, and as such, he is somewhat unpredictable? But regardless of what theory Greenspan's actions built on, they caused him to be declared a genius in some circles, where he was viewed as a magician who had lifted growth and tamed the business cycle. Journalist Bob Woodward, of Watergate fame, chose the title Maestro for his book about Greenspan, who is there credited with orchestrating the 1990s boom in the United States. During the 2000 presidential election, the Republican primary candidate John McCain joked that he would reappoint the then 76-year-old Fed chairman-even if he were to die: "I'd prop him up and put a pair of dark glasses on him and keep him as long as we could."3 An Inflationary Boom of Some Sort After September 11, 2001, the world once more looked to Alan Greenspan, the Fed chairman who, like Archimedes, got his best ideas in his bath.

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition
by Kindleberger, Charles P. and Robert Z., Aliber
Published 9 Aug 2011

Manias generally have occurred during the expansion phase of the business cycle, in part because the euphoria associated with the mania leads to increases in spending. During the mania the increases in the prices of real estate or stocks or in one or several commodities contribute to increases in consumption and investment spending that in turn lead to quickening of economic growth. Seers in the economy forecast perpetual economic growth and some venturesome ones even proclaim an end to recessions and declare that traditional business cycles have become obsolete. The more rapid growth induces investors and lenders to become more optimistic, and asset prices increase more rapidly.

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An epilogue summarizes some of the proposals for reform of the US financial system and asks whether the bubble and crisis of 2002–08 would have been significantly different if the legislation adopted in 2010 had been adopted in 2000. 2 The Anatomy of a Typical Crisis History vs economics Historians view each event as unique. In contrast economists search for the patterns in the data, and the systematic relationships between an event and its antecedents. History is particular; economics is general. The business cycle is a standard feature of market economies; increases in investment spending lead to increases in household income and in GDP growth. Macroeconomics focuses on the explanations for the cyclical variations in the growth of GDP relative to its long-run trend. An economic model of a general financial crisis is presented in this chapter, while the various phases of the speculative manias that lead to crises are illustrated in the following chapters.

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Theories based on uncertainty of the market, on speculation in commodities, on ‘overtrading,’ on the excesses of bank credit, on the psychology of traders and merchants, did indeed reasonably fit the early ‘mercantile’ or commercial phase of modern capitalism. But as the nineteenth century wore on, captains of industry ... became the main outlets for funds seeking a profitable return through savings and investments.7 Hansen – who was a foremost expositor of the Keynesian model of the business cycle and especially of persistent high levels of unemployment – wanted to downplay the significance of alternative explanations for declines in economic activity other than a high level of saving. Hansen’s emphasis on the importance of the relation between savings and investment does not require the rejection of the view that changes in the supply of credit can have important impacts on the prices of securities and economic activity.

Rethinking the Economics of Land and Housing
by Josh Ryan-Collins , Toby Lloyd and Laurie Macfarlane
Published 28 Feb 2017

NBER Working Paper Series, No. 7559. Bernanke, Ben, Mark Gertler, and Simon Gilchrist. 1999. ‘The Financial Accelerator in a Quantitative Business Cycle Framework’. Handbook of Macroeconomics 1: 1341–93. Berry, Sian. 2016. ‘Why a London Renters Union Stands In a Proud Tradition’. The Huffington Post. http://www.huffingtonpost.co.uk/sian-berry/london-housing_b_9090016.html. Bertay, Ata Can, Asli Demirgüç-Kunt, and Harry Huizinga. 2015. ‘Bank Ownership and Credit over the Business Cycle: Is Lending by State Banks Less Procyclical?’ Journal of Banking and Finance 50: 326–39. Bezemer, Dirk. 2009. ‘No One Saw This Coming: Understanding Financial Crisis Through Accounting Models’.

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While there is a strong theoretical case for allowing land to be used as a form of collateral from an economic development perspective (De Soto, 2000), there is also strong evidence that rapid rises in real estate credit increase financial fragility and are strong predictors of financial crises and long-lasting recessions. More generally, a number of economists now argue that capitalist economies are characterized by a land–credit ‘cycle’, which may be longer and deeper that the standard economics textbook ‘business cycle’ (Aikman et al., 2014; Borio, 2014). Figure 1.1 shows how house and land prices have developed over time in the UK over the last sixty years. We can see that since the 1960s land prices have become highly volatile, with three huge boom–bust cycles, corresponding to expansions in bank credit in the 1970s, late 1980s and 2000s.

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Eventually, a tipping point is reached, leading to the collapse of enterprises at the margin that can no longer afford to pay their staff and this may lead to a more widespread economic downturn with rising unemployment, banking crises and foreclosures. This natural tendency of economic rent to crowd out productive investment is, according to some, the true cause of the businesses cycles that plague advanced economies (Anderson, 2009; George, [1879] 1979, pp. 102–110).6 The solution, for George, was a comprehensive ‘single tax’, a land value tax (LVT), levied annually on the value of land held as private property. It would be high enough to end other taxes, especially upon labour and production, and would finance beneficial public investment in transport and provide improved social services, including a basic income for every citizen as a form of comprehensive welfare provision (see for example Van Parijs, 1992; Reed, 2016).

The American Dream Is Not Dead: (But Populism Could Kill It)
by Michael R. Strain
Published 25 Feb 2020

The base-year selection is always somewhat arbitrary, of course, but we still need to pick one. I like to use July 1990, for a few reasons. Wage growth typically responds to the business cycle. To make comparisons of wage growth between two periods, then, it is important to try to find periods that are at a similar point in the business cycle. For example, comparing wage growth during a recession to wage growth during an expansion might bias the calculation to show stronger growth than may exist in the underlying trend. July 1990 was a business-cycle peak, making it a good month to compare to today’s economy. (If anything, this date introduces a slight bias in favor of finding relatively weaker wage growth.)

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It looks as if wage growth can be broken into three periods: robust growth following the end of World War II, followed by a period of stagnant—or even declining—growth from the mid-1970s through the mid-1990s, followed again by a period of solid growth. So another reason to make comparisons to the summer of 1990 is that this was the business-cycle peak prior to the “structural break” that seems to have occurred in the mid-1990s. FIGURE 7. AVERAGE REAL WAGE FOR PRODUCTION AND NONSUPERVISORY EMPLOYEES. July 1990 is also roughly 30 years ago, which reflects the current narrative. You often hear that wages have been stagnant “for several decades,” which many take to mean 30 years.

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Stansbury and Summers have a straightforward empirical design. They calculate the three-year moving average of the change in real compensation and the three-year moving average of the change in labor productivity. They then correlate these smooth, short-run measures of compensation growth and productivity growth, holding constant effects from the business cycle. Their main results analyze the period from 1975 through 2015. The economists find that a 1-percentage-point increase in productivity growth predicts a 0.73-percentage point increase in median compensation growth, a 0.53-percentage-point increase in compensation growth for nonsupervisory employees, and a 0.74-percentage-point increase in average compensation growth.

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed
by Andrew Jackson (economist) and Ben Dyson (economist)
Published 15 Nov 2012

Belief in a ‘great moderation’ – that improvements in understanding the economy led to greater control of the business cycle through monetary policy – were endorsed by a wide range of economists including Ben Bernanke, Governor of the Federal Reserve (Bernanke, 2004). This behaviour is not surprising – psychologists have shown that success boosts confidence (Shiller, 1999). Thus extended periods of stability lead economic agents to revise what they believe to be ‘safe’ debt-equity ratios, spurred on by the proclamations of ‘experts’ (who believe themselves to have tamed the business cycle). One cause of over-optimism as to the future state of the economy is ‘disaster myopia’.

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Using the same 14 country 140 year dataset as Schularick and Taylor (2009), Jordà, Schularick and Taylor (2012) show “that throughout a century or more of modern economic history in advanced countries a close relationship has existed between the build-up of credit during an expansion and the severity of the subsequent recession.” As Taylor (2012) explains in a subsequent paper: “…that credit booms matter as a financial crisis risk factor is a rather narrow conclusion, and that a more general and worrying correlation is evident. During any business cycle, whether ending in a financial crisis recession or just a normal recession, there is a very strong relationship between the growth of credit (relative to GDP) on the upswing, and the depth of the subsequent collapse in GDP on the downswing.” Essentially, excess credit creation by the banking sector increases the severity of any subsequent downturn, whether it results in a financial crisis or just a normal ‘garden variety’ recession.

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Needless to say, these are not trivial sums. 5.4 Environmental impacts The following section looks at how the monetary system impacts on the environment as a consequence of the government’s response to the boom bust cycle, the funding of businesses, and the effect of the monetary system on growth.4 Government responses to the boom bust cycle As outlined in Chapter 4, the current monetary system creates an inbuilt tendency for the economy to experience temporary booms followed by recessions. This may also be followed by financial crisis when the burden of debt becomes too large to service. While the business cycle itself has a relatively neutral effect on the environment (excluding the mal-investment effect on resource use) the same cannot be said of the government’s response to these cycles, which tends to involve removing environmental regulations and reducing spending, as outlined below. Environmental regulation in economic downturns In a recession it is common to hear the argument that the costs of businesses are too high due to regulations which are represented as onerous, and that the relaxation of these regulations would allow businesses to hire, resulting in reduced unemployment and increased output.

The Age of Turbulence: Adventures in a New World (Hardback) - Common
by Alan Greenspan
Published 14 Jun 2007

When America mobilized for the war, the system helped planners set goals for military production and gauge how much rationing would be needed on the home front to support the war effort. The NBER is also the authority on the ups and downs of the business cycle; its analysts to this day determine the official beginning and ending dates of recessions. Arthur Burns was an avuncular, pipe-smoking scholar. He had a profound impact on business-cycle research—his 1946 book, written with Wesley Clair Mitchell, was the seminal analysis of U.S. business cycles from 1854 to 1938. His devotion to empirical evidence and deductive logic put him at odds with the economics mainstream. Burns loved to provoke disagreements among his graduate students.

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On Christmas Eve, the policy group wrote a memorandum warning him to expect more unemployment and the deepest recession since World War II. It was not a nice present. Worse, we had to tell him we didn't know how bad the recession would be. Recessions are like hurricanes—they range from ordinary to catastrophic. The ordinary ones are part of the business cycle: they happen when business inventories exceed demand, and companies cut production sharply until the excess inventory gets sold. The Category 5 kind happens when demand itself collapses—when consumers stop spending and businesses stop investing. As we talked through the possibilities, President Ford worried that America would find itself trapped in a vicious circle of falling demand, layoffs, and gloom.

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"In the medium and long term it will be a very good thing for the economy," he added. W hen George Bush won that fall, I hoped the Fed and his administra- tion would get along. Everybody knew that whoever came in after Reagan would face big economic challenges: not just an eventual downturn in the business cycle, but whopping deficits and the rapidly mounting national debt. I thought Bush had upped the ante substantially when he'd declared in his acceptance speech at the Republican convention: "Read my lips: no new taxes." It was a memorable line, but at some point he was going to have to tackle the deficit—and he'd tied one hand behind his back.

The Investment Checklist: The Art of In-Depth Research
by Michael Shearn
Published 8 Nov 2011

Be certain to distinguish between this kind of long-term growth and shorter-term cyclical changes. These short-term changes are also called business cycle changes: these are the ups and downs that are associated with growth and contraction in the wider economy. The earnings of a cyclical business, such as a steel manufacturer, are especially sensitive to business cycles, and change with swings in the economy. (Non-cyclical businesses don’t tend to go up and down with the economy.) If a business benefits from a secular growth trend, its growth is longer lasting than a single business cycle. Secular growth continues through a business cycle. In fact, earnings-per-share of businesses riding secular growth trends tend to peak at each succeeding major business cycle.

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To further protect itself, Brookfield will only borrow the amount that it would typically be able to pay back in one business cycle. Brookfield also staggers the maturity of its debt repayments so that they don’t all come due at the same time, thus decreasing refinancing risk. Brookfield will typically finance assets that generate predictable long-term cash flows with long-term fixed-rate debt, instead of variable-rate debt, in order to provide stability in cash flows and protect returns in the event of changes in interest rates. It also maintains access to a broad range of financing markets, such as equity and debt markets, so that it can facilitate access to capital throughout the business cycle. This way, it is not dependent on any particular segment of the capital markets to finance its operations.7 Determining How Much a Business Can Borrow You need to determine how much a business can borrow.

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Do not make the assumption that a discretionary business or industry will always lose sales in tough times, however. For example, many luxury retailers—such as Louis Vuitton Moët Hennessy or Compagnie Financière Richemont SA, which owns Cartier, Montblanc, Alfred Dunhill, and Van Cleef & Arpels—were thought to be sensitive to business cycles, and their stock prices fell when the recession began in 2007. However, the stock prices of these two companies quickly rebounded as their core customers, who are ultra-wealthy, continued their spending habits, and sales did not drop as much as was anticipated. 14. If the business disappeared tomorrow, what impact would this have on the customer base?

The Man Who Knew: The Life and Times of Alan Greenspan
by Sebastian Mallaby
Published 10 Oct 2016

Anticipating the objection that “the people” in question had voted for liberals, Spahr lectured his audience that “the last popular vote for Hitler was nearly 100% of the total vote cast.”14 Evidently, in those years when peace was new, the relics of the prewar economics lived on in the NYU faculty. The question is how far any of this made a difference to the young Greenspan. Toward the end of his undergraduate career, he took Spahr’s class on understanding business cycles. Ironically, Spahr’s views on this subject anticipated the lectures and articles that Greenspan would produce in his thirties and early forties. In Spahr’s opinion, Keynes and his disciples had business cycles backward: they favored budget deficits and money printing to battle recessions, but Spahr fervently believed that such activism would serve only to exacerbate swings in the economy. Yet if this was Spahr’s opinion, he was ineffective at communicating it.

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Keynes had taught how to combat economic slowdowns by running a government budget deficit, and neo-Keynesians had grasped how slumps could be averted by the central bank as well: low interest rates, hitherto regarded principally as a means of helping the government to borrow, were now understood as a tool of economic management.2 “The supply of money, its availability to investor borrowers, and the interest cost of such borrowings can have important effects on [GNP],” Paul Samuelson instructed in the 1961 edition of his bestselling textbook, revising the dismissal of monetary policy in his 1948 edition.3 “The worst consequences of the business cycle . . . are probably a thing of the past,” Samuelson wrote confidently, and conservative economists agreed.4 At the end of 1959, Greenspan’s mentor Arthur Burns proclaimed, “The business cycle is unlikely to be as disturbing or troublesome to our children as it was to us and our fathers.”5 It was not just that economists understood how to prevent recessions. Thanks to new computer models, they believed they understood the relationships between growth, inflation, and employment so precisely that they could “fine-tune” the economy to deliver the ideal combination.

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Now if you have a manic depressive and you kick him, he will go into a deeper manic depression. This assumption that is taken as a given, that you have to ‘spark’ the economy, is an incredible hypothesis. It’s just false! There is no evidence that ‘sparking’ an economy actually turns it on. . . . We’ve had centuries of business cycles which go up and which go down. There hasn’t been a single business cycle which has not recovered on its own.” Alan Greenspan, interview by the author, October 29, 2010. 6. While Friedman expected the Fed to succumb to political pressure, others thought the central bank was powerless because rational individuals would adjust their behavior in an offsetting direction.

The New Science of Asset Allocation: Risk Management in a Multi-Asset World
by Thomas Schneeweis , Garry B. Crowder and Hossein Kazemi
Published 8 Mar 2010

As with any futures based investment, returns are determined by both the expected returns on the deliverable and the expected cost of carry returns, as well as other storage and deliverable options. For example, as expected, Fama and French (1988) and Schneeweis, Spurgin, and Georgiev (2000) identified a strong business cycle component in industrial metals based futures contracts, a finding that is consistent with the business cycle variation of spot and futures prices of industrial metals.3 Commodity based index returns can also benefit from multiple sources of returns, many of which tend not to be correlated. These can include spot,4 roll,5 beta, momentum, rebalancing, and Treasury Bill, returns.

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The entire area of monitoring and evaluating fund risk is constantly evolving, and readers are directed to articles in academic (The Journal of Alternative Investments) and practitioner press to track changes and advances in the field. APPENDIX Risk and Return of Asset Classes and Risk Factors Through Business Cycles This appendix presents graphs of risks and returns of major asset classes through time. The goal is to familiarize readers with the behavior of these variables as the economy goes through various stages of the business cycle. Our other goal is to show that return and, especially, risk characteristics of asset classes do change through time and some of these changes will be quite dramatic during periods of economic stress.

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Notes CHAPTER 5 Strategic, Tactical, and Dynamic Asset Allocation Asset Allocation Optimization Models Strategic Asset Allocation Tactical Asset Allocation Dynamic Asset Allocation Notes CHAPTER 6 Core and Satellite Investment: Market/Manager Based Alternatives Determining the Appropriate Benchmarks and Groupings Sample Allocations Core Allocation Satellite Investment Algorithmic and Discretionary Aspects of Core/Satellite Exposure Replication Based Indices Peer Group Creation—Style Purity Notes 58 59 61 66 70 71 74 82 84 88 91 92 99 101 107 109 110 111 117 119 120 120 122 126 132 Contents CHAPTER 7 Sources of Risk and Return in Alternative Investments Asset Class Performance Hedge Funds Managed Futures (Commodity Trading Advisors) Private Equity Real Estate Commodities Notes CHAPTER 8 Return and Risk Differences among Similar Asset Class Benchmarks Making Sense Out of Traditional Stock and Bond Indices Private Equity Real Estate Alternative REIT Investments Indices Commodity Investment Hedge Funds Investable Manager Based Hedge Fund Indices CTA Investment Index versus Fund Investment: A Hedge Fund Example Notes CHAPTER 9 Risk Budgeting and Asset Allocation Process of Risk Management: Multi-Factor Approach Process of Risk Management: Volatility Target Risk Decomposition of Portfolio Risk Management Using Futures Risk Management Using Options Covered Call Long Collar Notes CHAPTER 10 Myths of Asset Allocation Investor Attitudes, Not Economic Information, Drive Asset Values Diversification Across Domestic or International Equity Securities Is Sufficient vii 134 135 139 143 148 153 160 166 167 168 170 173 179 179 185 185 189 189 194 195 195 200 202 203 206 206 208 210 212 213 214 viii CONTENTS Historical Security and Index Performance Provides a Simple Means to Forecast Future Excess Risk-Adjusted Returns Recent Manager Fund Return Performance Provides the Best Forecast of Future Return Superior Managers or Superior Investment Ideas Do Not Exist Performance Analytics Provide a Complete Means to Determine Better Performing Managers Traditional Assets Reflect “Actual Values” Better Than Alternative Investments Stock and Bond Investment Means Investors Have No Derivatives Exposure Stock and Bond Investment Removes Investor Concerns as to Leverage Given the Efficiency of the Stock and Bond Markets, Managers Provide No Useful Service Investors Can Rely on Academics and Investment Professionals to Provide Current Investment Models and Theories Alternative Assets Are Riskier Than Equity and Fixed Income Securities Alternative Assets Such as Hedge Funds Are Absolute Return Vehicles Alternative Investments Such as Hedge Funds Are Unique in Their Investment Strategies Hedge Funds Are Black Box Trading Systems Unintelligible to Investors Hedge Funds Are Traders, Not Investment Managers Alternative Investment Strategies Are So Unique That They Cannot Be Replicated It Makes Little Difference Which Traditional or Alternative Indices Are Used in an Asset Allocation Model Modern Portfolio Theory Is Too Simplistic to Deal with Private Equity, Real Estate, and Hedge Funds Notes CHAPTER 11 The Importance of Discretion in Asset Allocation Decisions The Why and Wherefore of Asset Allocation Models Value of Manager Discretion 215 215 216 216 217 217 218 218 218 219 220 221 222 222 223 223 223 225 226 226 230 Contents Manager Evaluation and Review: The Due Diligence Process Madoff: Due Diligence Gone Wrong or Never Conducted Notes CHAPTER 12 Asset Allocation: Where Is It Headed? An Uncertain Future What Is the Definition of Order? Costs and Benefits Today’s Issue Possible Governmental and Private Fund Responses to Current Market Concerns Note ix 232 233 239 240 241 243 246 246 247 249 Appendix: Risk and Return of Asset Classes and Risk Factors Through Business Cycles 251 Glossary: Asset Class Benchmarks 271 Bibliography 279 About the Authors 285 Index 287 Preface ithout reservation, everything we believe about asset allocation and the perceived science surrounding its application is not necessarily true. The corollary to this statement is that a complete understanding of asset allocation is impossible.

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader
by Colin Lancaster
Published 3 May 2021

At its simplest, global macro investing can be boiled down to investing in assets on the basis of changes in the fundamental landscape: the ups and downs in growth and inflation and interest rates. It’s understanding business cycles and how government spending and central bank policies will impact those cycles. As George Soros pointed out in his book The Alchemy of Finance, monetary policy and normal business cycles impact each other. Furthermore, variables such as credit, housing, employment, inflation, and consumption all flow into this analysis. Equity experts will do a tremendous amount of work in understanding how a company operates.

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As I settle into my seat, I keep thinking about the markets and the policies that are creating these problems. I used to love this stuff. In fact, that’s why I started doing it. Macro guys are different from other investors. We really get to think about the world and how government policies impact business cycles and real people. I used to love all of that learning. I’m not sure what changed, why I became so sour. As these thoughts are going through my head, I drift off to sleep. * I land in London early Saturday morning. I meet my driver and hop in the car. The radio is on and I hear “Orrrrrderrrrrrr.

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Whenever I speak with analysts on their first day, I avoid these sorts of wide-eyed musings and opt to give them the dry version of macro instead. It’s probably better to set the bar appropriately low. At its most mechanical level, macro is about investing in assets on the basis of changes in the fundamental landscape: the ups and downs in growth and inflation and interest rates. It’s about understanding business cycles, and how government spending and central bank policies will impact those cycles. We analyze an enormous amount of macroeconomic data and spend hours focused on central banks, attempting to predict both fiscal and monetary decisions and the impact of those decisions on financial markets, ranging from bonds to currencies to equities and commodities.

Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy
by Erik Brynjolfsson
Published 23 Jan 2012

Former Office of Management and Budget director Peter Orszag agrees, writing that “the fundamental impediment to getting jobless Americans back to work is weak growth.” In the cyclical explanation, an especially deep drop in demand like the Great Recession is bound to be followed by a long and frustratingly slow recovery. What America has been experiencing since 2007, in short, is another case of the business cycle in action, albeit a particularly painful one. A second explanation for current hard times sees stagnation, not cyclicality, in action. Stagnation in this context means a long-term decline in America’s ability to innovate and increase productivity. Economist Tyler Cowen articulates this view in his 2010 book, The Great Stagnation: We are failing to understand why we are failing.

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Their incomes and jobs are being destroyed, leaving them worse off in absolute purchasing power than before the digital revolution. While the foundation of our economic system presumes a strong link between value creation and job creation, the Great Recession reveals the weakening or breakage of that link. This is not merely an artifact of the business cycle but rather a symptom of a deeper structural change in the nature of production. As technology accelerates on the second half of the chessboard, so will the economic mismatches, undermining our social contract and ultimately hurting both rich and poor, not just the first waves of unemployed. The economics of technology, productivity, and employment are increasingly fodder for debate and seemingly filled with paradoxes.

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The gradual demand collapse that might have been spread over decades was compressed into a much shorter period, making it harder for workers to change their skills, entrepreneurs to invent new business models, and managers to make the necessary adjustments equally quickly. The result has been a dysfunctional series of crises. Certainly, much of the recent unemployment is, as past business cycles, simply due to weak demand in the overall economy, reflecting an extremely severe downturn. However, this does not negate the important structural component to the falling levels of employment, and it is plausible that the Great Recession itself may, in part, reflect a delayed response to these deeper structural issues.

The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities
by Mancur Olson

Mancur Olson For Ellika, Mancur Severin, and Sander Preface 1. The Questions, and the Standards a Satisfactory Answer Must Meet 2. The Logic 3. The Implications 4. The Developed Democracies Since World War 11 5. Jurisdictional Integration and Foreign Trade 6. Inequality, Discrimination, and Development 7. Stagflation, Unemployment, and Business Cycles: An Evolutionary Approach to Macroeconomics Acknowledgments Notes Index It may seem strange, at a time when so many find fault with economics, that an economist should claim to extend existing economic theory in a way that not only explains the "stagflation" and declining growth rates that have given rise to the recent complaints, but also provides a partial explanation of a variety of problems usually reserved for other fieldsthe "ungovernability" of some modern societies, the British class structure and the Indian caste system, the exceptionally unequal distribution of power and income in many developing countries, and even the rise of Western Europe from relative backwardness in the early Middle Ages to dominance of the whole world by the late nineteenth century.

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VI We must now develop a point that may at first seem unimportant, and that in any case is obvious to anyone who has endured a committee meeting where it took a long time to make (or fail to make) a decision. The point is that special-interest organizations and collusions tend to make decisions more slowly than the firms or individuals of which they are composed. We shall see later that this trait is crucial to understanding phenomena as important as the business cycle and the rate of adoption of new technologies, and that the reasons for this slowness of decision-making are also very much worthy of our attention. The two main reasons why special-interest groups make decisions more slowly than the individuals or firms of which they are constituted is that they must use either consensual bargaining or constitutional procedures, or both of these methods, to make decisions.

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Not all the definitions of rational expectations are exactly the same, but for present purposes it is best interpreted as the notion that people making decisions take into account all available information that is worth taking into account; economically rational expectations in this sense has all along been the usual implicit assumption in microeconomic theorizing. Equilibrium theorists explain obvious variations in the rate of unemployment over the business cycle primarily in terms of voluntary choices concerning when appears to be the most advantageous time to take leisure or education or to forgo gainful employment in order to spend full time seeking a better job. Their arguments are too complicated to summarize without violating the general constraints that govern the exposition in this volume.

Radical Uncertainty: Decision-Making for an Unknowable Future
by Mervyn King and John Kay
Published 5 Mar 2020

One of the authors was, as Deputy Governor of the Bank of England, asked to give evidence before the House of Commons Select Committee on Education and Employment on the subject of whether Britain should join the European Monetary Union. How, the MPs asked, could we know when the UK business cycle had converged with that on the Continent? The answer was that since business cycles are of the order of ten years in duration, and at least twenty or thirty observations would be needed to assess the issue, it would be two hundred years or more before we would know. Underlying the question was the assumption that the process driving business cycles was stationary, and that over time we could learn enough about that process to provide an answer. But it would be absurd to claim that economic cycles had been unchanging since the beginning of the Industrial Revolution.

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To go further we have to be able to gain insight into the origins of the shocks, and perhaps be able to formulate some probability distribution or narrative account of their occurrence. The nineteenth-century economist W. S. Jevons propounded a similar thesis. 19 His argument, not then entirely without empirical justification, was that business cycles were the result of fluctuations in nature. In particular, variations in sunspot activity influenced climatic conditions, which in turn affected the prices and volumes of agricultural products, which had consequential effects in other sectors of the economy. Jevons’ narrative identified the sources of the shocks, and described the ways in which they gave rise to economic cycles.

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But the programme of model-building which searches for a stable underlying set of structural relationships could be made consistent with observations of the economy only by the introduction of the shocks and shifts about which nothing could usefully be said. The result was that phenomena such as the financial crisis or the Great Depression could be explained only in terms of unanticipated developments in technology or a sudden preference for leisure rather than work. Such so-called ‘real business cycle’ models have generated few persuasive explanations of large movements in the economy. 22 And the presence in such models of ‘frictions’ – the complexity of the world of millions of individuals learning and adapting to changes in the structure of the economy – meant that forecasts were reasonably accurate only when nothing much was happening, and were wildly inaccurate in the face of any significant event, such as the financial crisis.

Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages
by Carlota Pérez
Published 1 Jan 2002

In this book, she makes an even more original and seminal contribution. She examines the interaction between that part of the economy commonly known as financial capital and the upsurge of new technologies from their first beginnings to the time when they predominate in the structure and behavior of the economy. In his major work, Business Cycles (1939), Joseph Schumpeter, whilst interpreting the major waves of economic growth and technological transformation as ‘successive industrial revolutions’, insisted that these clusters of radical innovations also depended on financial capital. In fact, more space is devoted to finance in his book than to technology but, rather strangely, his followers – often known as ‘neo-Schumpeterians’ – neglected this aspect of his work.

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This may very well be so and is wholly within the logic of the present model. For the previous paradigm, John Maynard Keynes developed a new economics, providing both a different understanding and a whole new set of policy tools. Although the debate still rages,228 these policies, where applied, pretty much achieved their purpose of tempering the business cycle and supporting smooth growth, full employment and consistent investment, for the duration of the deployment period of the fourth great surge. That set of policies and that vision of economics lost effectiveness when the economy of the mass-production revolution, for which it was designed, became exhausted at the end of the 1960s.

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If we look back into recent history we can have a measure of the amount of audacity required to visualize the future, even a decade or two ahead. How easy do we think it may have been for people in the depression of the 1930s to conceive the possibility of effective policies for full employment and for the control of business cycles? How many would have believed in the early 1940s, when empire building was still on the agenda, that most developing countries would soon gain independence? Or, in the mid1920s, how realistic would proposals have seemed for strict regulation of financial capital and for the official recognition of labor unions?

Irrational Exuberance: With a New Preface by the Author
by Robert J. Shiller
Published 15 Feb 2000

Now, Bootle declared, we are entering the “zero era,” brought on N E W E RA E CO N O MIC TH INKING 113 by global capitalism, privatization, and the decline of labor unions, all of which make it impossible for prices to be decided by committee.31 Steven Weber, with his 1997 article “The End of the Business Cycle” in the public policy journal Foreign Affairs, argued that macroeconomic risks are lower now: “Changes in technology, ideology, employment and finance, along with the globalization of production and consumption, have reduced the volatility of economic activity in the industrialized world. For both empirical and theoretical reasons in advanced industrial economies the waves of the business cycle may be becoming more like ripples.” Weber presented a number of reasonable-sounding arguments. For instance, he noted that the economy has come to be dominated by the service sector in a way that it was not thirty years ago, and he pointed out that service employment has always been more stable than industrial production.32 Downsizing and restructuring—terms describing so-called managerial revolutions in the 1980s—were thought then to be important reasons for the growth of profits since 1982.

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I use the ten-year average of real earnings for the denominator, along lines proposed by Benjamin Graham and David Dodd in 1934. The ten-year average smooths out such events as the temporary burst of earnings during World War I, the temporary decline in earnings during World War II, or the frequent boosts and declines that we see due to the business cycle.4 Note again that there is an enormous spike after 8 TH E S TOC K MAR KET LEVEL IN HIST OR IC AL PER SPEC T IVE Price-earnings ratio Figure 1.2 Price-Earnings Ratio, 1881–2000 Price-earnings ratio, monthly, January 1881 to January 2000. Numerator: real (inflation-corrected) S&P Composite Stock Price Index, January.

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If stock prices are supposed to be an optimal predictor of the dividend present value, then they should not jump around erratically when the true fundamental value is growing along a smooth trend. We learn by considering Figure 9.1 that the common interpretation given in the media for stock market fluctuations in terms of the outlook for the short-run business cycle is generally misguided. The prospect that a temporary recession is on the horizon should have virtually no impact on stock prices, if the efficient markets theory is correct. Fluctuations in stock prices, if they are to be interpretable in terms of the efficient markets theory, must instead be due to new information about the long-run outlook for real dividends.

Crisis and Leviathan: Critical Episodes in the Growth of American Government
by Robert Higgs and Arthur A. Ekirch, Jr.
Published 15 Jan 1987

Under such unstable dynamic conditions, business planning could be little more than guesswork, and many workers lost their jobs unexpectedly from time to time. As the relative shift of labor out of agriculture and into the urban-industrial sectors continued apace, the volatility of the economy's performance affected more immediately a growing proportion of the population. Even in the mostly prosperous Progressive Era the problem of the business cycle ranked high as an economic and hence a political concern. Probably because in those days a financial panic usually accompanied the onset of a business depression, many people subscribed to monetary theories of the economic cycle. During the depression that followed the financial panic of 1907, Congress created a National Monetary Commission to investigate the monetary and banking systems and make recommendations for remedial legislation.

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With only a vague notion of how the Fed would operate, the public expected that it would somehow smooth out the fluctuations in the nation's economic growth. The Fed's officers, uncertain of their own capabilities and authority, had scarcely settled into their new offices when the Great War began and the government thrust upon them even more pressing obligations. Attempts to tame the business cycle would have to wait. As troublesome as the problem of economic fluctuations was the problem of labor relations. After suffering crushing setbacks in the depressed 1890s, labor unions expanded their membership severalfold during the economic boom at the turn of the century. Total union membership surged from less than half a million in 1897 to about two million in 1904, then stabilized for several years before resuming a slow increase after 1909.

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No limitation was imposed until 1917, when Congress enacted a literacy requirement expected to bear disproportionately on the unpopular groups. Not until the 1920s were effective legal barriers raised. The onset of the war, however, squeezed the torrent of immigration to a trickle during 1915-1920. While problems of money, banking and the business cycle, labor relations, and immigration attracted widespread public concern, none of them could rival "the trust problem." The question of what to do about big business was without doubt the preeminent public policy issue of the Progressive Era. It was, of course, connected with all the others. One could not talk about banking without considering Morgan and Rockefeller's financial empires and their many links with the great industrial and railroad corporations.

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis
by Martin Wolf
Published 24 Nov 2015

Bradford de Long and Lawrence H. Summers, ‘Fiscal Policy in a Depressed Economy’, Brookings Papers on Economic Activity (Spring 2012), pp. 233–97. 15. The most prominent economists to believe that recessions are due entirely to real phenomena are those who believe in ‘real business cycles’. See http://en.wikipedia.org/wiki/Real_business_cycle_theory. 16. Alberto Alesina and Silvia Ardagna, ‘Large Changes in Fiscal Policy: Taxes versus Spending’, Tax Policy and the Economy, vol. 24, ed. Jeffrey R. Brown (Cambridge, MA: National Bureau of Economic Research). 17. http://krugman.blogs.nytimes.com/2013/03/19/cogan-taylor-and-the-confidence-fairy/. 18.

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The late and, until recently, disregarded Hyman Minsky, with whom this book began, described the broad features of such booms and busts.18 ‘A fundamental characteristic of our economy,’ wrote Minsky, ‘is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.’19 Minsky identified five stages in a bubble: ‘displacement’ – a trigger event, such as a new technology or falling interest rates; ‘boom’ – when asset prices start rising; ‘euphoria’ – when investors’ caution is thrown to the wind; ‘profit-taking’ – when intelligent investors start taking profits; and ‘panic’ – a period of collapsing asset prices and mass bankruptcy.20 Displacement is an event that raises optimism, such as an innovation, access to new economic resources, or maybe a decline in the cost of funds.

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Indeed any artificial rise in aggregate demand will severely distort the productive structure and can only generate unstable employment.’36 In later years, Hayek devoted his attention to the idea of privately issued money, rather than the 100 per cent reserve-backed money of von Mises. In the debates of the 1930s, the Austrians lost the public argument on business-cycle theory to the Keynesians and, subsequently, the monetarists. They ceased to have much influence on ideas about macroeconomic policy for a long time. Both economics and politics explain this failure. The economic explanation was the scale of the slump. It was impossible to argue that no more was involved than the reversal of the malinvestment during the 1920s.

Animal Spirits: The American Pursuit of Vitality From Camp Meeting to Wall Street
by Jackson Lears

To be sure, there were other sorts of capitalists at work in the early modern world as well, notably the sort devoted to calculation, efficiency, double-entry bookkeeping, and disciplined achievement as a way of life—Weber’s ideal type of early modern man, whose Protestant ethic was turning into a spirit of capitalism. Some finance capitalists undoubtedly resembled the Weberian type in certain ways, but many cultivated a more emotionally charged ethos, one more attuned to the fluctuations of the emerging business cycle. While the notion of animal spirits captured the emotional turbulence at the core of capitalism, it also illuminated alternative visions of universal animacy—some rooted in sacramental tradition, others resonating with newer forms of enchantment. The English Reformation was a time (and place) of religious searching, along and outside the borders of orthodoxy.

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Animal spirits were a force for health and well-being, for entertainment, pleasure, and beauty—but they were sometimes just a force, one that needed to be tamed. This view reflected growing concerns with hooliganism and mob violence in cities. The mushrooming of urban populations, the proliferation of (actual or imagined) hard-drinking immigrants in street-corner saloons, the rise of mass politics, the lurches and shudders of a business cycle increasingly based on “trading in the air”—all these developments intensified the ambiguous potential of animal spirits, as both threat and promise. Animal spirits fostered essential vitality but also hovered behind the visions that increasingly haunted the respectable American’s imagination—in politics, a mobocracy manipulated by demagogic animal magnetizers; in commerce, a swarm of traders enveloped in oscillations of elation and panic.

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The flood of emotional force drained away into trade was intensified by the ubiquity, uncertainty, and invisibility of forces promoting rise or ruin. As the Wall Street wag Frederick Jackson put it, panics called to mind the old riddle about smoke—“a houseful, a hole full, and you cannot gather a bowlful.” For good or ill, there was no such thing as an economics profession, and no understanding or expectations of a business cycle. Yet by the 1830s, it was beginning to be clear that lurches from boom to bust were accompanied by comparable swerves in the public mood from overweening confidence to crippling anxiety. A few observers suspected that the economic developments were preceded, even triggered, by the emotional developments.

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy
by Marc Levinson
Published 31 Jul 2016

Born into a Jewish family that had fled the Austro-Hungarian Empire at the start of the First World War, Burns grew up in Bayonne, New Jersey, where his father earned a living painting houses. The precocious young man won a scholarship to Columbia University in New York, where he discovered economics. When he returned to Columbia for doctoral study, Burns became the protégé of Wesley Mitchell, a prominent professor who had pioneered the study of business cycles—the economy’s irregular ups and downs. In the late 1930s Burns himself became a Columbia professor and later succeeded Mitchell as head of the National Bureau of Economic Research, the foremost institution for the study of the US economy. In 1953, he signed on to head the Council of Economic Advisers under President Dwight Eisenhower.

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Upon his inauguration, Nixon brought Burns into the White House as counselor to the president with cabinet rank. The fact that his favorite economist was a Democrat bothered the Republican president not at all.1 The new counselor’s academic expertise was in US economic policy—inflation, unemployment, and efforts to steady growth by smoothing the business cycle. But Nixon had other economists for that. Burns was instead given charge of a ragbag of domestic issues, from antipoverty programs to tax reform to oil import quotas. His main role, though, was professorial. With his white hair neatly parted in the middle, his rimless glasses, and his ever-present pipe, he became a familiar figure on the evening news.

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Burns dreamed of becoming secretary of the Treasury, but in October 1969 he was offered a job that would prove far more consequential. Nixon named Burns chairman of the Federal Reserve Board of Governors. Burns was the first professional economist ever to take the helm of the central bank. His expertise in business cycles was sorely needed. In the mid-1960s, Nixon’s predecessor, Lyndon Johnson, had offered America “guns and butter,” building up military forces in Vietnam without raising taxes or curtailing social programs. The Fed had loyally supported Johnson’s policies by making sure that short-term interest rates stayed low so that the government could borrow cheaply to fund the war.

End This Depression Now!
by Paul Krugman
Published 30 Apr 2012

Much of the academic side of macroeconomics is now dominated by “real business cycle” theory, which says that recessions are the rational, indeed efficient, response to adverse technological shocks, which are themselves left unexplained—and that the reduction in employment that takes place during a recession is a voluntary decision by workers to take time off until conditions improve. If this sounds absurd, that’s because it is. But it’s a theory that lends itself to fancy mathematical modeling, which made real business cycle papers a good route to promotion and tenure. And the real business cycle theorists eventually had enough clout that to this day it’s very difficult for young economists propounding a different view to get jobs at many major universities.

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In the 1970s the leading freshwater macroeconomist, the Nobel laureate Robert Lucas, argued that recessions were caused by temporary confusion: workers and companies had trouble distinguishing overall changes in the level of prices because of inflation from changes in their own particular business situation. And Lucas warned that any attempt to fight the business cycle would be counterproductive: activist policies, he held, would just add to the confusion. I was a graduate student at the time this work was being done, and I remember how exciting it seemed—and how attractive its mathematical rigor, in particular, was to many young economists. Yet the “Lucas project,” as it was widely called, went quickly off the rails.

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housing sector: construction in, 24, 32, 47, 112, 113 European bubbles in, 169, 172, 174, 176 home loss in, 4, 10, 45 net worth of, 117 postwar boom in, 50 prices in, 111–12, 117 recovery and, 219–21 U.S. bubble in, 14, 24, 32, 33, 65, 99, 111–12, 127, 172, 219 see also mortgages Hubbard, Glenn, 227 Human Events, 94 Hungary, 19 Iceland, 181 “immaculate inflation,” 154, 165 income: family, since World War II, 73–75, 74 spending and, 28, 30, 34 income inequality, 70, 93, 208, 209 CBO estimate of, 76–77 consumer spending and, 83 correlation of tax rates with, 82 and depression of 2008–, 85, 89–90 deregulation and, 72–75, 74, 81, 82, 89 education and, 75–76, 89 household debt and, 84 lack of skills blamed for, 75 and polarization of Congress, 89 rise in, 71–90, 74 sense of well-being and, 5 social norms and, 81–82, 83 top 0.01 percent and, 75, 76 top 0.1 percent and, 75, 76, 77, 96 top 1 percent and, 74–75, 74, 76–77, 96 2008 financial crisis and, 82, 83 income security, 120–21, 120 in depression of 2008–, 210 inflation, 53, 147, 149 conspiracy theories about, 160–61 core, 157–58, 161 costs of, 162 CPI and, 156–57 in depression of 2008–, 151–52, 156–57, 159–61, 189, 227 desirability of moderately high rate of, 161–65 Europe and, 180, 185, 186 fear of, 149, 150–65, 180, 203 Federal Reserve and, 161, 217, 219, 227 hyper-, 150, 162 inertia in, 158–59 measurement of, 156–59 mortgages and, 163–64 recovery and, 219 as self-perpetuating, 158–59 infrastructure investment, 148 deficit reduction and, 143 depression of 2008– and, 16–17 recovery and, 215 Institute for New Economic Thinking, 41 interest rates, 199, 201 Austerians and, 189, 196, 202–5, 207 in bond markets, 132–41, 133 in European crisis, 174, 176, 182–84, 190, 202–3 and fear of default, 139 Federal Reserve and, 33–34, 93, 105, 134, 135–36, 143, 151, 189–90, 193, 215, 216–17 inflation and, 151 long-term vs. short-term, 137–38, 216–17 zero lower bound in, 33–34, 51, 117, 135–36, 147, 151, 152, 163, 231, 236 International Monetary Fund, 17, 103, 145, 161–62, 186, 190, 198, 237 investors, rationality of, 97, 101, 103–4 Ireland: debt to GDP ratio in, 178 EEC joined by, 167 Ireland, debt crisis in, x, 4, 18, 140–41, 175, 175, 176, 178, 186, 200 housing bubble and, 172 interest rates in, 176 internal devaluation and, 181 unemployment in, 4, 18, 172, 181 Italy, debt crisis in, 4, 45, 138, 140–41, 175, 175, 178 unemployment in, 4, 18 Italy, debt to GDP ratio in, 178, 178 It’s a Wonderful Life (film), 59 Japan, 183, 201 austerity policies in, 198 financial troubles of, 31, 91, 152, 194, 216, 218 government debt as percentage of GDP in, 139–40, 140, 192 stimulus effort in, 198 Jensen, Michael, 98 job-creation policies, 188, 224 conservative animus toward, 96 and fear of deficits, 131, 143, 149, 206–7, 238 fiscal stimulus as, 238 New Deal, 39 recovery and, 228–29, 238 see also American Recovery and Reinvestment Act; unemployment Jobs, Steve, 78 Journal of Money, Credit and Banking, 26 Journal of the American Statistical Association, 35 junk bonds, 115, 115 Kahn, Lisa, 12 Kalecki, Michal, 94–96, 206 Kenen, Peter, 172 Keynes, John Maynard, 93, 205, 208, 210 depression as defined by, x on “long run,” 15 magneto trouble analogy of, 22, 23, 35–36 on markets, 97, 98 on recovery process, 21 renewed appreciation of, 42 on Ricardian economics, 205–6 on spending vs. austerity, xi Keynesian economics, 101, 134, 135, 227–28 New, 103, 104 opposition to, see anti-Keynesians role of government spending in, 53, 93, 94–95 Korean War, 234, 235, 235 Krenn, Robert, 38 labor mobility, 171–72, 173 Lack, Simon, 79 laissez-faire, 94, 101 Las Vegas, Nev., 112 Latvia, 181 Lehman Brothers collapse, 3, 4, 69, 100, 111, 114, 115, 115, 155, 157, 188, 191 Lehman effect, 115 lenders of last resort, 59 lending, loans, 30 lend-lease program, 39 leverage, 43, 44, 47, 48 in financial crisis of 2008–09, 44–46 Liberal Democrats, U.K., 200 liberals, 89 liquidationists, 204–5 liquidity, 33 euro and, 182–84, 185 returns vs., 57 liquidity traps, 135–36, 137, 138, 143, 144 in depression of 2008–, 32–34, 38, 51, 136, 155, 163 money supply and, 152, 155 unemployment and, 33, 51, 152 Lizza, Ryan, 125 Long Term Capital Management (LTCM) failure, 69 Lucas, Robert, 91–92, 102, 107 Lucas project, 102, 103 macroeconomics, 91–92, 227, 231 “dark age” of, 92 “freshwater,” 101–3, 110–11 “real business cycle” theory in, 103 “saltwater,” 101, 103–4 magneto trouble, Keynes’s analogy of, 22, 23, 35–36 Mankiw, N. Gregory, 227 manufacturing capacity, 16 marginal product, 78 markets: “efficient” hypothesis of, 97–99, 100, 101, 103–4 inflation and, 202 investor rationality and, 97, 101, 103–4 Keynes on, 97, 98 1987 crash in, 98 panic in, 4 speculative excess in, 97, 98 in 2008 financial crisis, 117 McCain, John, 113 McConnell, Mitch, 109 McCulley, Paul, 48 McDonald’s, 6, 7 Medicaid, 120, 120, 121 Medicare, 18, 172 Meltzer, Allan, 151–52 Mencken, H.

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again
by Atif Mian and Amir Sufi
Published 11 May 2014

Hal Varian interviews from two sources: Holly Finn, “Lunch with Hal,” Google Think Quarterly, March 2011, http://www.thinkwithgoogle.co.uk/quarterly/data/hal-varian-treating-data-obesity.html; and McKinsey & Company, “Hal Varian on How the Web Challenges Managers,” McKinsey Quarterly, January 2009, http://www.mckinsey.com/insights/innovation/hal_varian_on_how_the_web_challenges_managers. 2. Macroeconomists refer to this fundamentals-based theory as real business cycle theory, because fluctuations are driven by “real” shocks—that is, shocks to the productive capacity of the economy. The classic citation is Edward C. Prescott, “Theory Ahead of Business Cycle Measurement,” Federal Reserve Bank of Minneapolis Quarterly Review 10, no. 4 (1986): 9–21. 3. Robert Barro uses this example in chapter 2 of his textbook Macroeconomics, 5th ed. (Cambridge, MA: MIT Press, 1997). 4.

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For home owners with a mortgage, for example, we will demonstrate how home equity is much riskier than the mortgage held by the bank, something many home owners realize only when house prices collapse. But it’s not all bad news. If we are correct that excessive reliance on debt is in fact our culprit, it is a problem that potentially can be fixed. We don’t need to view severe recessions and mass unemployment as an inevitable part of the business cycle. We can determine our own economic fate. We hope that the end result of this book is that it will provide an intellectual framework, strongly supported by evidence, that can help us respond to future recessions—and even prevent them. We understand this is an ambitious goal. But we must pursue it.

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: An International Historical Comparison,” American Economic Review 98 (2008): 339–44. 18. Carmen Reinhart and Kenneth Rogoff, This Time Is Different (Princeton, NJ: Princeton University Press, 2009). 19. Oscar Jorda, Moritz Schularick, and Alan M. Taylor, “When Credit Bites Back: Leverage, Business Cycles, and Crisis” (working paper no. 17621, NBER, 2011). 20. The IMF study also confirms this. They show that elevated household debt leads to more severe recession, even in the absence of a banking crisis. IMF, “Chapter 3: Dealing with Household Debt.” 21. Jorda, Schularick, and Taylor, “When Credit Bites Back,” 5. 22.

Panderer to Power
by Frederick Sheehan
Published 21 Oct 2009

The pipe-smoking Burns enlightened the class: “Excess government spending causes inflation.”15 Greenspan did not entirely agree with Arthur Burns’s economic beliefs, but he did the important thing: he took up the pipe—Burns’s trademark. Arthur Burns’s own political aptitude was of the first order. 13 Ibid., p. 27. 14Burns was coauthor of Measuring Business Cycles (New York: National Bureau of Economic Research, 1946) with Wesley C. Mitchell. Mitchell also wrote Business Cycles (1913), which was highly regarded. 15 Martin, Greenspan, p. 29. The professor moved to Washington to head President Eisenhower’s Council of Economic Advisers in 1953. Burns was later appointed chairman of the Federal Reserve Board under Richard Nixon.

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They bred and nurtured younger seedlings, who also blessed government policies and programs that were too entrenched to reform. The younger generation would mature and grow old, calculating ever more fantastic rationalizations of the impossible. Columbia was only a subway ride uptown from NYU. Arthur Burns was the most prominent member of the Columbia economics faculty. Burns was coauthor of Measuring Business Cycles (1946), a respected text.14 On the first day of Alan Greenspan’s doctoral training, the professor asked his students, “What causes inflation?” Silence followed. This seems to have often been the case in Burns’s presence. The pipe-smoking Burns enlightened the class: “Excess government spending causes inflation.”15 Greenspan did not entirely agree with Arthur Burns’s economic beliefs, but he did the important thing: he took up the pipe—Burns’s trademark.

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Lever Brothers Chairman Charles Luckman explained: “New York is the inevitable answer to our major problem—selling.”20 By 1960, more than 25 percent of the nation’s 500 largest corporations had headquarters in New York City.21 Populism Defeats William McChesney Martin’s Battle against Inflation Martin fought a valiant battle against inflation, although he was stymied by Congress. The Employment Act of 1946 committed the Fed to seek healthy economic growth—in addition to its responsibility for stable money. When the economy turns down, it does not grow. It contracts. Insolvencies and recessions are instrumental to the business cycle. Martin stood his ground before the Senate: “We are dealing with waste and extravagance, incompetency and inefficiency, the only way we have in a free society is to take losses from time to time. This is the loss economy as well as the profit economy.”22 Washington, of course, did not want to hear this.

Not Working: Where Have All the Good Jobs Gone?
by David G. Blanchflower
Published 12 Apr 2021

The simple answer is labor demand has been too low. At the time of writing it is eleven years since the United States entered recession in December 2007. It took until December 2008, a year after the recession started, for the National Bureau of Economic Research Business Cycle Dating Committee, which maintains a chronology of the U.S. business cycle, to work that out.1 In September 2010 they concluded that the recession had ended in June 2009. In most other advanced countries, including the UK, France, Japan, and Italy, it started a few months later, around the second quarter of 2008. Almost all of the major advanced countries had two successive quarters of negative growth in 2008, which meets the usual definition of recession.

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There are obvious biases apparent from table 5.1 in excluding voluntary part-timers and full-timers from any calculation of underemployment in a country. The U7 is a downward-biased estimator of the extent of labor market slack in the period after the Great Recession. The extent of the bias will move over the business cycle and remains uncertain; the United States does not have such data, but it does seem there are consistent time-series patterns across countries. The Eurostat measure is a halfway house and less biased as it uses data from all part-timers but still excludes full-timers. As the recession hit all three groups of workers, involuntary and voluntary part-timers were more likely to say they would like more hours.

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Table 5.3 decomposes the net variation in aggregate desired hours between countries into components from voluntary and involuntary part-timers, and full-timers. It is clear that U7 is a biased estimator of the extent of labor market slack in the period after the Great Recession. The extent of the bias will move over the business cycle and remains uncertain—the United States does not have such data, but it does seem there are consistent time-series patterns across countries. As the recession hit all three groups of workers, involuntary and voluntary part-timers were more likely to say they would like more hours. In the UK, Germany, France, and Ireland, for example, in 2016, involuntary part-time employment accounted for only around a third of excess hours.

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace
by Matthew C. Klein
Published 18 May 2020

See employment rate unions: in China, 112 in Germany, 142–43, 148–49, 157–58 and transportation costs, 24, 25–26 in United States, 177 United Kingdom: Bank Act of 1826, 52 banking industry in, 41 business cycles in, 43 colonial territories of, 6, 17 credit supply in, 41 exchange rate regime in, 196, 218–19 and global credit boom (1820s), 46–51, 64 and global credit boom (1830s), 52–55 and global financial crisis (1873), 57, 58 and gold standard, 186, 187, 188 savings and investment in, 69–70, 76 tariffs in, 16–17 U.S. corporation income in, 37. See also Bank of England United States, 174–220 bilateral trade imbalances in, 97–100 and Bretton Woods, 189–91 and Bretton Woods II, 195–201 business cycles in, 43 class warfare in, 212–13 colonial territories of, 18 corporate tax avoidance in, 30–39, 36f, 39f credit supply in, 201–5, 204f current account balance in, 87, 96, 97–100, 176–79, 180–84, 182f, 210, 213–18, 214–15f, 221–22 and dollar’s rise as global reserve asset, 189–95, 212f employment rate in, 174, 190, 194, 210–11, 214–16, 219, 227 entrepreneurship in, 13, 25 and European banking glut, 63–64 and exchange rate regimes, 20, 189–201 fiscal policy in, 180–85, 182f, 210 and global credit boom (1830s), 52–55 and global financial crisis (1873), 55, 57 and global financial crisis (2008), 201–13 and global value chains, 27, 29 and gold standard, 185–89 and Hamilton’s “Report on the Subject of Manufactures,” 11–17 inequality in, 177, 210, 226 inflation in, 194, 210 infrastructure in, 184, 202, 217, 226, 227 interest rates in, 176, 178, 196–97, 198, 199, 201, 206 manufacturing in, 14–15, 23, 178–79, 210–11, 212–13, 214, 227 missing surplus mystery in, 176–79 policy choices for, 226–28 productivity in, 210–11 reserve assets in, 185–89 safe asset shortage in, 201–5, 204f savings and investment in, 70, 77–78, 77f, 83, 84, 178, 208 subprime mortgage crisis in, 205–13, 209f subsidies in, 78, 227 tariffs in, 20, 222–23 taxes in, 177, 181, 212 trade dispute with China, 2–3, 222–23 unions in, 177 in World War I, 19–20.

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After all, every country is unique and investors should be able to evaluate the effects of local political conditions, technological innovations, changes in demand or supply of an important locally produced commodity, and demographic shifts. Yet the history of the past several hundred years is replete with synchronized credit cycles. This pattern is clearly visible in the relation between Great Britain and the United States during the eighteenth and nineteenth centuries, when the two economies had tightly linked business cycles. Part of the connection can be explained by fundamental ties: the United States was a major source of cotton for British textile mills and a major market for British manufactured goods, so what drove underlying economic growth in one often drove underlying economic growth in the other. More significant, however, is that these cycles were even more highly correlated with financial conditions in Great Britain.

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At its peak in March 2000, the companies listed on the Neuer Markt were worth nearly €234 billion—tiny by American standards but large relative to the size of the total German stock market. The bubble burst shortly thereafter thanks to scandals (including insider trading, stock-price manipulation, and falsified earnings), fundamental overvaluation, and the turn in the business cycle. By 2002, companies listed on the Neuer Markt had collectively lost 95 percent of their value. Deutsche Börse announced that it would shut down the exchange that September.19 A borrowing binge had magnified the nonsense in the stock markets. Debt owed by German nonfinancial corporations rose by 25 percent between the start of 1997 and the end of 2001.

Endless Money: The Moral Hazards of Socialism
by William Baker and Addison Wiggin
Published 2 Nov 2009

There is no question that some speculative excess spills over into the equity and real estate markets in 77 Flat-Earth Economics 6 1870–1890 Real GDP Growth (%) 5 1940–1970 4 1890–1913 1913–1929 3 f(x)
5.58E2*^3  1.08E0*^2  6.12E0*  5.88E0 R^2
8.77E1 corr(^3,y)
1.31E1, corr(^2,y)
9.79E3, corr(^1,y)
2.09E1 1970–2008 2 1929–1940 1 0 0 Figure 4.1 1 2 3 4 5 6 7 Money Supply Growth (%) 8 9 Money Supply & Real Economic Growth Sources: Historical Statistics of the United States; Federal Reserve System Data. periods of moderate money growth. Consumer prices may rise somewhat more than moderately, but the reason may be shortages caused by the business cycle, or in the case of 1940-1970, the rebuilding of Europe and the fiscal policy of the Johnson administration. Granted, this attribution is overly simple, and one might legitimately assert that the meltdown of the early 1970s would have been averted with better policies, both fiscal and monetary, than those in force during the 1960s.

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Is it any wonder that the savings rate is chronically low, debt has risen to record levels compared to income, and wealth has been compelled to reside in risky assets? It may sound flippant, but the bedrock of today’s monetary policy is the rapid expansion of monetary aggregates at all points in the business cycle. The broadest measure of money supply (M3) was over $14 trillion in the United States as of December 2008, at which point its year-over-year growth rate was almost 11 percent.5 The power of compounding is remarkable. No one notices that prices in the United States increased 400 percent from 1940 to 1980.

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It is a bit like celebrating the genius of those who strung power lines instead of acknowledging Thomas Edison for inventing the light bulb, Anyos Jedlik the dynamo, or Michael Faraday the alternator. Although the transmission mechanism was also described by Fisher in the 1930s, the first economists to trumpet this new thesis in recent times were Ehsan Choudhri and Levis Kochin in their paper: The Exchange Rate and the International Transmission of Flat-Earth Economics 95 Business Cycle Disturbances.20 In this article, regressions show what Bernanke states in his speech and has echoed in his academic work, that nations remaining on the gold standard were worse off, and those that recovered sooner had abandoned gold earlier. Regressions by scholars such as Choudhri, Kochin, and the parade of others who have reprocessed the data first observed by Fisher undeniably establish the case.

The-General-Theory-of-Employment-Interest-and-Money
by John Maynard Keynes
Published 13 Jul 2018

So Keynes actually chose to answer a more limited question than most people writing about business cycles at the time. Indeed, most of Book II of The General Theory is a manifesto on behalf of Keynes’s strategic decision to limit the question. Where pre-Keynesian business cycle theory told complex, confusing stories about disequilibrium, Chap. 5 makes the case for thinking of an underemployed economy as being in a sort of equilibrium in which short-term expectations about sales are, in fact, fulfilled. Chapters 6 and 7 argue for replacing all the talk of forced savings, excess savings, and so on that was prevalent in pre-Keynesian business cycle theory—talk that stressed, in a confused way, the idea of disequilibrium in the economy—with the simple accounting identity that savings equal investment.

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Introduction by Paul Krugman    xxxiii nomic theorists before Keynes, Haberler believed that the crucial thing was to explain the economy’s dynamics, to explain why booms are followed by busts, rather than to explain how mass unemployment is possible in the first place. And Haberler’s book, like much business cycle writing at the time, seems more preoccupied with the excesses of the boom than with the mechanics of the bust. Although Keynes speculated about the causes of the business cycle in Chap. 22 of The General Theory, those speculations were peripheral to his argument. Instead, Keynes saw it as his job to explain why the economy sometimes operates far below full employment. That is, The General Theory for the most part offers a static model, not a dynamic model—a picture of an economy stuck in depression, not a story about how it got there.

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And Keynes’s limitation of the question was powerfully liberating. Rather than getting bogged down in an attempt to explain the dynamics of the business cycle—a subject that remains contentious to this day— Keynes focused on a question that could be answered. And that was also the question that most needed an answer: given that overall demand is depressed—never mind why—how can we create more employment? A side benefit of this simplification was that it freed Keynes and the rest of us from the seductive but surely false notion of the business cycle as morality play, of an economic slump as a necessary purgative after the excesses of a boom. By analysing how the economy stays depressed, rather than trying to explain how it became depressed in the first place, Keynes xxxiv Introduction by Paul Krugman helped bury the notion that there is something redemptive about economic suffering.

Time Management for System Administrators
by Thomas A.Limoncelli
Published 1 Jan 2005

The benefits are company-wide: marketing, operations, and budgeting can plan around the cycle, and it nearly eliminates the problem of developers scheduling vacations at inopportune times. Your company has a similar business cycle. It might be as fast as once a month or as long as a year. If you work at NASA, it might be as long as a multiyear space mission. If you work in politics, it might be as regular as the legislative cycle or the campaign cycle. Take some time to figure out your company's cycle. You might want to ask your boss what he thinks the business cycle is. Once that is done, consider the following questions: What is the business cycle for this company? How can I better schedule my projects? When is the optimal time to schedule my time off?

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Once the software "went gold" and was in manufacturing, stability was only important in the parts of the system that manufacturing relied on. Everyone else was celebrating. Then the cycle began again. By planning the system administration work around the company's business cycle, everything went very smoothly. Another common business cycle is the December holiday rush. For example, it is often true that retailers make half their sales during the holiday shopping season, often losing money the rest of the year. During the holiday rush, the network that supports the business must be completely stable.

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When is the optimal time to schedule my time off? Can the system administration group better schedule its projects? Can we turn the system administration processes into cycles that are linked to the light and busy parts of the business cycle? If the business pattern is random, can we influence the business to make it more regular? Or can we simply establish a periodic IT schedule and see whether others plan around it? Summary Managing your calendar is important to you and your career. People associate punctuality with responsibility and reliability. People who miss appointments and forget about meetings don't get promotions.

Does Capitalism Have a Future?
by Immanuel Wallerstein , Randall Collins , Michael Mann , Georgi Derluguian , Craig Calhoun , Stephen Hoye and Audible Studios
Published 15 Nov 2013

Marx also had a technological displacement mechanism, based on factory machinery, although in his argument it is combined with a number of other theoretical mechanisms, including business cycles, falling rates of profit, and—in current Neo-Marxian theories—financialization and financial crisis. What I want to emphasize, however, is that the process of technological displacement of labor, driven to a sufficient extreme, will generate the long-term and quite possibly terminal crisis of capitalism, all by itself and without the other processes in Marxian and Neo-Marxian theory. Business cycles may be hazy and imprecise in their timing and variable in the height and depth of their swings, as are Kondratieff waves and world-system hegemonies on the global level.

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It would surely be a rocky road, given the inherent volatility of financial markets, their tendency to booms and busts. This has been a long-term historical pattern, ever since the Dutch tulip investment mania in 1637 and the South Sea bubble in 1720. Speculative collapses have been so common that Schumpeter [1939] regarded business cycles as intrinsic to capitalism, and their presence a historical marker of the existence of self-driven capitalist dynamics. One could turn the historical argument around; speculative busts have always bottomed out and eventually financial markets have gone up again. Financial crises are in the nature of the capitalist beast, and the historical record suggests that we will always recover from any financial crisis.

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Freaks, Geeks and Cool Kids: American Teenagers, Schools and the Culture of Consumption. New York: Routledge, 2004. Schneider, Eric C. Vampires, Dragons and Egyptian Kings. Youth Gangs in Postwar New York. Princeton: Princeton University Press, 1999. Schumpeter, Joseph A. The Theory of Economic Development. New York: Oxford University Press, 1911. Schumpeter, Joseph A. Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. New York: McGraw-Hill, 1939. Skocpol, Theda. States and Social Revolutions. New York: Cambridge University Press, 1979 Tilly, Charles. Popular Contention in Great Britain, 1758–1834. Cambridge MA: Harvard University Press, 1995.

Cogs and Monsters: What Economics Is, and What It Should Be
by Diane Coyle
Published 11 Oct 2021

Nevertheless, campaigning for ‘happiness’ has a strong afterlife in the public domain, and has a strong appeal to those who distrust economics as being (they think) all about money and profit. An earlier example dates from the late 1970s and early 1980s, when a revival of classical monetarism combined with the development of rational expectations, ‘real business cycle’ models of the economy in academic research (that is, business cycles being due only to supply-side shocks such as a new technology). This is the fashion that lured me as a graduate student. There were some good reasons for the intellectual shift then towards what are termed ‘microfoundations’ for macroeconomic analysis, and the contention that in the short term the economy’s (metaphorical) aggregate supply curve was vertical, or in other words, output cannot be increased quickly when demand is rising.

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Above all, economists do not pay enough attention to their own political and institutional role in the policy process. It is not that there is no awareness of it at all. There are specific instances where it is explicitly discussed, such as the acknowledgement of ‘regulatory capture’, the phenomenon of time inconsistency, and the contribution of central banks to limiting the ‘political business cycle’. However, policy economists do not extend this self-knowledge and reflexivity as far as they should, to acknowledge that they are themselves agents in the decision-making processes they are modelling. The result is a certain naïvety about how expert research, or technocratic advice, will be implemented and how people will respond.

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Macroeconomics is inherently difficult, and I do not believe it can progress further without taking account of innovation, of institutional structures in key markets such as finance, construction, and energy, of quality changes in important goods markets such as consumer electronics and housing, of regional differences, of artefacts of aggregation in the data, and so on—or in other words becoming less aggregated. Perhaps this reflects my own experience writing a macroeconomic PhD dissertation—which taught me that all industries behave completely differently over the course of a business cycle, requiring different theories, meaning the macroeconomic outcomes are the artefacts of aggregation. Or my later experience running a model forecasting the UK economy, and understanding the fudges and tweaks that all forecasters have to make to get meaningful results. Alternative approaches such as agent-based modelling, designed to deal with complexity in social science, should be explored seriously in seeking to understand the whole economy, although it does not seem to have got very far (Axtell and Epstein 1996; Farmer and Foley 2009).

Seven Crashes: The Economic Crises That Shaped Globalization
by Harold James
Published 15 Jan 2023

Trescott, “The Failure of the Bank of the United States, 1930,” Journal of Money, Credit and Banking 24, no. 3 (August 1992): 384 –399. 62. Friedrich A. von Hayek, Business Cycles, ed. Hansjoerg Klausinger, vol. 8 of Hayek Works (Chicago: University of Chicago Press, 2012), 143, 149, 154 (“The Purchasing Power of the Consumer and the Depression”). 63. Ibid., 205 (“Capital and Industrial Fluctuations: A Reply to Criticism”). 64. Friedrich A. von Hayek, Prices and Production (London: Macmillan, 1932), 100, 66. 65. Hayek, Business Cycles, 155. 66. Skidelsky, Keynes, 2: 456. 67. Edward Nelson, Milton Friedman and Economic Debate in the United States, 1932–1972 (Chicago: University of Chicago Press, 2020), 1: 398 –399. 68.

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The middle of the 1840s appeared as a classical hunger or subsistence crisis of the ancien régime of the kind that had wracked Europe at the beginning of the eighteenth century in the midst of the War of the Spanish Succession. The historian Hans-Ulrich Wehler called it the “last agrarian crisis of the old type” for Germany or Central Europe, although there have been plenty of twentieth-century famines outside western Europe.1 But the crisis of the 1840s was also a modern business cycle downturn coupled with a financial and banking crisis. It began with an exceptionally vigorous boom that pushed prices up and seemed to contribute to the creation of scarcities. Prices rose dramatically in Britain, as well as in central Europe. It was in a sense, then, an eighteenth-century crisis, but also a twentieth- or twenty-first-century crisis.

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One of the people Marx may well have encountered on his daily visits to the British Museum’s reading room was Stanley Jevons, who had also been struck by Quetelet’s work, and had a much deeper command of mathematics and calculus. Like Marx, Jevons worked on long rows of price series and tried to detect the patterns that drove business cycle fluctuations. He became the father of marginalist economics. Marx, however, seems not to have come across his work, and never refers to it. It is perhaps too easy to transpose modern beliefs and especially techniques into the searching for connection and correspondence in the mid-nineteenth century.

Financial Statement Analysis: A Practitioner's Guide
by Martin S. Fridson and Fernando Alvarez
Published 31 May 2011

To avert a decline in profits, the company instituted cost-saving measures that actually resulted in a year-over-year gain in net income. In that context, Kimberly-Clark reduced inventories by $523 million and relied more heavily on vendor financing, allowing accounts payable to increase by $278 million. By virtue of being long past the high-growth phase of its business cycle, Kimberly-Clark did not have to spend heavily on adding to its productive capacity. Capital expenditures, the main component of investing activities, therefore absorbed only about one-third of cash from operating activities during 2005 through 2009. That left the company with cash generation of $1.5 billion to $1.7 billion a year (and $2.2 billion in 2009) before financing activities.

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Still, users of financial statements can draw some lessons for future reference. To begin with, an exceptionally long record of beating guidance or posting year-over-year gains in quarterly earnings is a reason to suspect earnings management. Businesses tend to grow unevenly over time, reflecting such factors as the business cycle, waxing and waning of competitive pressures, and fluctuations in input costs. A second lesson of the Krispy Kreme case is that related-party transactions and deceptive financial reporting often go hand in hand. Finally, when management offers an excuse for deteriorating earnings that does not stand up to scrutiny, as Krispy Kreme did by citing the low-carb craze, it may be using financial reporting tricks to try to conceal the true causes.

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Dividends The $37 million figure shown assumes that Colossal will continue its stated policy of paying out in dividends approximately one-third of its sustainable earnings (excluding extraordinary gains and losses). Typically, this sort of guideline is interpreted as an average payout over time, so that the dividend rate does not fluctuate over a normal business cycle to the same extent that earnings do. A company may even avoid cutting its dividend through a year or more of losses, borrowing to maintain the payout if necessary. This practice often invites criticism and may stir debate within the board of directors, where the authority to declare dividends resides.

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't
by Nate Silver
Published 31 Aug 2012

“Nobody has a clue,” he told me when I met him at Goldman’s glassy office on West Street in New York. “It’s hugely difficult to forecast the business cycle. Understanding an organism as complex as the economy is very hard.” As Hatzius sees it, economic forecasters face three fundamental challenges. First, it is very hard to determine cause and effect from economic statistics alone. Second, the economy is always changing, so explanations of economic behavior that hold in one business cycle may not apply to future ones. And third, as bad as their forecasts have been, the data that economists have to work with isn’t much good either.

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Torsten Rieke, “Ganz oben in der Wall Street,” Handelsblatt, October 19, 2005. http://www.handelsblatt.com/unternehmen/management/koepfe/ganz-oben-in-der-wall-street/2565624.html. 24. “Federal Reserve Economic Data,” Economic Research, Federal Reserve Bank of St. Louis. http://research.stlouisfed.org/fred2/. 25. Lakshman Achuthan and Anirvan Benerji, Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy New York: Random House, 2004). Kindle edition, locations 1476–1477. 26. “U.S. Business Cycle Expansions and Contractions,” National Bureau of Economic Research. http://www.nber.org/cycles.html. 27. Specifically, the stock market as measured by the S&P 500. 28. The original National Football League included the Pittsburgh Steelers, Baltimore Colts (now the Indianapolis Colts), and the Cleveland Browns (the original version of which became the Baltimore Ravens).

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But they can also be among the last to detect recoveries, with the public often perceiving the economy to be in recession long after a recession is technically over. Thus, economists debate whether consumer confidence is a leading or lagging indicator,36 and the answer may be contingent on the point in the business cycle the economy finds itself at. Moreover, since consumer confidence affects consumer behavior, there may be all kinds of feedback loops between expectations about the economy and the reality of it. An Economic Uncertainty Principle Perhaps an even more problematic set of feedback loops are those between economic forecasts and economic policy.

Slouching Towards Utopia: An Economic History of the Twentieth Century
by J. Bradford Delong
Published 6 Apr 2020

And its main obstacles in doing this were disruptive business cycles, which could cause mass unemployment. Empire managed to overcome these obstacles in two ways: first, by equipping the military needed to maintain the empire, which put people to work; and second, by taking advantage of the fact that empire is a good source of consumers for the products of domestic factories. European governments that pursued empire, Hobson thought, were less likely to face economic distress, and so more likely to hang on to power. The solution to empire, he thought, would be more equality at home. This would translate into smaller business cycles, less unemployment, and less need for empire.

…

Mass production plus mass consumption is what made the creation of America as a middle-class society possible—a middle-class society made up increasingly of people living in suburban houses and using automobiles to commute and shop, with washing machines, refrigerators, electric irons, electric and gas stoves, and much more. A whole host of inventions and technologies that greatly transformed the part of economic life that takes place within the household became interwoven with the public’s understanding of Polanyian rights. Back before World War I, the United States had had the most virulent business cycle in the industrialized part of the world. A huge crash and depression occurred after the 1873 bankruptcy of Jay Cooke and Company, then the largest investment bank in the nation, when the public subsidies for the Northern Pacific Railway that it had counted on failed to materialize. Another major railroad-crash depression started in 1884.

…

The long-run interest of American companies was to take care of their workers, a fact as obvious as Henry Ford’s $5-a-day wage and the Pullman Company’s worker housing. As the 1920s proceeded, Americans forgot about the deep recessions of the pre–World War I period and began to accept that they were living in a “new era” of faster economic growth and general prosperity. The recently established Federal Reserve had the tools to calm the business cycle. The systematic application of science to technology in research laboratories was generating an ever-accelerating stream of new inventions. This world was, if you looked selectively at the facts, brave and new and ambiguously utopian. Why shouldn’t people in America in the 1920s have expected prosperity to continue, and economic growth to accelerate?

Birth of the Euro
by Otmar Issing
Published 20 Oct 2008

Eight-year rolling correlations of pairs of euro area countries were first computed and the unweighted average of these correlations calculated subsequently. Figure 14 Average of eight-year rolling correlations of output gap across euro area countries1,2 (in unweighted terms) What is remarkable is the high degree of synchronisation in the business cycle. Figure 14 shows that the degree of synchronisation of business cycles across the euro area countries has increased since the early 1990s and is currently at a historically high level. From the business cycle perspective, the ECB’s single monetary policy poses no major problems. There are only limited differences in growth rates across euro area member countries, a finding that is borne out by a comparison with growth in different regions of the USA.

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Lucas even goes so far as to say: ‘I should think we would view any monetary model that did not have this neutrality property with the deepest suspicions, the way we would view a physical model that predicted different times for the earth to complete its orbit depending on whether the distance is measured in miles or kilometres’ (R. E. Lucas, Models of Business Cycles, Oxford, 1987). 106 • The ECB and the foundations of monetary policy y-axis: inflation rate x-axis: money (M2) growth 100 100 50 50 0 0 50 0 100 Source: G. McCandless and W. Weber, ‘Some monetary facts’, Federal Reserve Bank of Minneapolis Quarterly Review, 19:3 (1995). Figure 6 Money growth and inflation (per cent; long-term growth rates; 110 countries) with due seriousness.

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B. 41 Blinder, Alan 34–5, 40–1 Boyer, Miguel 10 Bretton Woods system 5 Brown, Gordon, as Chancellor of the Exchequer 58 budget deficits 193 (1990–8) 15 fig. 2 convergence criterion 17–18 limits on overall EU 196 reference values 196–8 budget policies automatic stabilisers 195, 198, 204 of euro area member states 55, 195 sustainable 196 Bulgaria 76 business cycles, synchronisation in euro area 209 fig. 14 Canada, exchange rate intervention 175 capital, free movement of 7, 8, 11 245 246 • Index central planning, vs. market economy 61–2, 75, 222 centralisation 30, 38, 234 Committee of Central Bank Governors 9–10 common market principles 7–8, 32 communication, and cross-checking 111–14 communication policy, of ECB 60, 72–4, 86–7, 116, 146, 156–69, 227 consensus principle 153–6, 160–3 Convention on the Future of Europe 224, 231 convergence and fixed exchange rates 6 in monetary policy instruments of national central banks 119–20, 134 process 13–20, 33 convergence criteria 11–12, 13–17, 48, 220 further issues 17–20 strict application of 19–20 convergence reports, by ECB General Council 75–6, 221–3 conversion rates, between euro and national currencies 20 table 1, 26 credit ceilings 119 collateral for 119, 123–4 credit institutions eligibility within euro area 123–4 minimum reserves 119, 128 and national central banks 119 standing facilities for 126–7, 130 cross-checking, and communication 111–14, 116, 155 cultural differences 228, 234 currencies anchor 75, 180–1, 183 common 3–4, 191 criteria for optimum currency area 48–9, 219 devaluations 6–7, 8, 215, 217 investment 178 invoicing 181 ‘lost’ 54–5 multi-currency system 183–4 reserve 178, 183 stateless 228 transaction 181, 183 and trust 33 see also euro; international currencies; national currencies current account balances financing 214–15 fig. 18 and unit labour costs 215–16 fig. 19 Cyprus 67, 220 Czech Republic 220 data collection for ECB 54 from government’s budget plans 205 time series problem 85–6, 94 uncertainty in ECB 82–4 defence policy, common 232, 240, 242 deficit spending policy 192–3 deflation, risk of 103, 115, 117 Delors Group 10 Report (1989) 11 Delors, Jacques 10, 23 democracy accountability and independence of ECB 30–1 and control of public finances 236 and independence of central banks 58–9, 164 democratic legitimacy 196 denarius 3, 32 Denmark 25, 75, 240 deposit facility 126–7, 134 Deutsche Bundesbank Act (1957) 58, 118–19 Index • 247 Central Bank Council 147 opinion on Stage III of EMU 18–19 statement (1990) 11 statement (1992) 12–13 ‘democratic deficit’ question 58 discount policy 121–2, 133 and EMS 6–7 established (1957) 23, 58 independence 37, 38, 56–8, 235 and minimum reserve issue 120–1 as model for European Central Bank 10, 25, 37, 42–3, 59, 85, 156 monetary policy after reunification 7–9, 78, 94–5 monetary targeting 93 Monthly Report 73 revaluation of gold reserves proposed 29 status of 22–3, 230 Deutschmark (D-Mark) 3, 4 as anchor currency 14, 75 ‘bloc’ 49 and EMS 6–7 floating (1973) 5 introduction (1948) 22–3 market outside Germany 121 performance (1950–98) 142 and resistance to euro 21–5 status of 57, 178 development indicators 109 Dichgans, Hans 229 Directorates General for Economics and Research 71–4, 85, 133, 184–5, 188–9 dollar (US) 1, 176, 178, 181, 183 euro exchange rate against (1999–2006) 172 fig. 12, 175, 178 ‘dollarisation’ 181 Duisenberg, Willem F. 26–7, 35, 41, 70, 72, 73, 99 Dutch central bank 156 ECB see European Central Bank ‘ECB and its Watchers’ conference (1999) 187–8 Ecofin (Council of EU Finance Ministers) 67, 137 economic growth development indicators 109 and inflation 63–4 fig. 5 sustainable 63–6 economic and monetary union proposal 4–5 see also European Economic and Monetary Union economic pillar, and monetary pillar 99–100, 105–11, 112, 116 economic policy coordination 38–9 economic research 184–90 economic theory, and monetary policy practice 184–90 ‘economistic’ position 6, 11–12 ECU see European Currency Unit efficiency 120, 226 elections, restrict time horizon for fiscal policy 193 EMI see European Monetary Institute employment employers and labour 204 levels 63–6 see also unemployment EMS see European Monetary System EMU see European Economic and Monetary Union energy prices 101, 208 epidemics 143 Erhard, Ludwig 58 ERM see exchange rate mechanism ESCB see European System of Central Banks Estonia 75 euro in 2008 1–2, 171 as an anchor currency 75, 180–1, 239 248 • Index euro – cont. as an international currency 176–84 table 5, 242 as an investment currency 178 as an invoicing currency 181 banknotes and coins 1, 24, 54, 136, 178, 181, 229 cash in circulation 181 as a catalyst for integration 47, 84, 232 citizens’ attitudes to 21–5 compared with US dollar 1, 176–83 conversion rates with national currencies 20 table I countdown to the 25–43 countries with exchange rates linked to the 182 table 7 a currency without a state 228–30 effects of decline in exchange rate on world economy 175 exchange rate 54, 169–76 exchange rate against US dollar (1999–2006) 172 fig. 12, 175, 178 German open letter on ‘coming too early’ 19–20 Germany’s adjustment to the 23–5 global reserves 1 historical background 3–51 non-participating countries 75 pacemaker role 229 real effective exchange rate (1999–2006) 173 fig. 13 as a reserve currency 178, 180 role as currency of denomination for credit 1 share in official foreign exchange reserves 178–80 table 6 share in world GDP 43 stability 1–2, 33, 141–6, 184, 234 stable in ECB monetary policy 131–90 as statutory unit of account (1999) 20 success of 2, 237, 240 symbol 135, 229 as a transaction currency 181 euro area 43–51, 171, 177, 184 ‘catching-up’ process 17, 216–18, 220 causes of divergence in economic conditions 207–12 compared with USA 43, 46–7, 83, 190, 209–10, 212 credit institution eligibility 123–4 criteria for an optimum 48–9, 219 data gap 83–4 economic growth at beginning of monetary union 138–41 economy 43–7 enlargement of the 219–27 equal treatment of all financial institutions 122–4 exogenous price shocks 143 growth rate differentials 209–10 fig. 15 HICP for 97–8 import prices 173, 174 inflation differentials 212, 216 key characteristics 44–5 table 2 living standards differences 17, 209–10 as a political vs. economic decision 47–51 price stability 150–1 price-setting in 189–90 synchronisation of business cycles 209 fig. 14 wage growth differentials 217 ‘Euro-DM market’ 121 Eurogroup (finance ministers of EMU member countries) 67, 176, 203 ‘euroisation’ 180 Europe the future 233, 237–44 monetary union 3–9 political unification 4, 242 Index • 249 social model 231, 238, 241 see also European integration European Central Bank (ECB) accountability 30–1, 33, 37, 60, 97, 99, 105, 113, 156–69, 168–9 appointments 26 catalogue for the posting of collateral 123 communication policy 60, 72–4, 86–7, 116, 146, 156–69, 188, 227 Convergence Report (2004) 221, 223 cooperation with national central banks 110, 131–3 credibility 86–7, 137–41, 144–6, 202 criticism 187–8 decision-making bodies 66–76 dispute over first President 26–7 draft statute for 10, 12 establishment (1998) 26, 76 evaluation of stability-oriented monetary strategy (2003) 114–18 Executive Board 25–8, 66, 70–4, 132, 226 membership 25, 26–8, 42, 70–1 terms of office 26–8, 56 and foundations of monetary policy 52–130 General Council 66, 74–6 Governing Council 66, 67–9, 111, 119 Briefing Note and Annexes 152 consensus principle in 153–6, 159 meetings 69, 97, 133, 136, 151, 152–3, 155–6 monetary policy-making in 146–56 number of members 155, 223–7 Orange Book 151–2 orientations in 131–5 reports 152 responsibility for monetary policy 135–41, 149–56 strategy review (2002) 114–18 timely information production 158 implementation of monetary policy 128–30 independence (Article 108) 30–1, 55–60, 87, 170, 192, 201 independence and inflation outcomes 37–8 independence and national legislation 13 independence and price stability 33, 234 instruments of monetary policy 118–30 modelled on Bundesbank 10, 25, 42–3, 59, 85, 156 monetary policy in EMU framework 191–236 monetary policy and exchange rates 169–76 monetary policy options 86–96 monetary policy for a stable euro 131–90 Monthly Bulletin 60, 72–4, 99, 104–5, 109, 117, 133, 153, 160, 167–8 neutrality 120, 183, 206 pillars of monetary policy strategy 54–66, 99–100, 105–11, 116–18, 139–40, 155 political pressure on 137, 162, 174, 202–3 preparations for the single monetary policy 76–85 President 26, 68, 226 President’s introductory statement 117, 158, 159, 167 press conferences 157–8, 167, 168 price stability mandate 33, 60–6, 87, 205, 234 publications 60, 72–4, 116, 156, 160 robustness 97 250 • Index European Central Bank (ECB) – cont. rotation and voting rights of national central bank governors 224–6 table 8 as scapegoat 37 seat in Frankfurt am Main 25, 29 and the single monetary policy 223–7 stability-oriented monetary policy strategy 96–118 fig. 7, 205 success of monetary policy 141–6 supranational status 122–4, 200–1 transfer of monetary policy responsibility to 11 transparency 31, 33, 42–3, 60, 84, 87, 97, 99, 113, 163–9 trust in 84, 86–7 vulnerabilities 241 Watchers Groups 187–8 see also Statute of the European System of Central Banks European Coal and Steel Community (1952) 4 European Commission 223, 224 ECB annual report to 60 proposal of member states to participate in monetary union 25–6 European Council 76 Brussels meeting (1998) 25–8 ECB annual report to 60 enabled to amend Statute of ECB 223, 224 stages in implementation of EMU 11 UK presidency 25 unanimity on price stability 170–1 European Currency Unit (ECU) 6 European Defence Community project 240 European Economic Community (EEC) (1958) 4, 233 European Economic and Monetary Union (EMU) constitution consultations 193–5 ECB and monetary policy in 191–236, 207 fiscal and monetary policy in 192–200 fiscal policy rules in 192–6 German resistance to 21–5 options for countries not joining 239–40 policy coordination in 200–7 political prerequisities for the success of 234–6 and political union 232, 242–4 possibility of a country’s exit from 239 preparedness for accession 219, 237 selection of participating countries 12–20, 25–6 Stage I 11 Stage II 11 Stage III 9–13 strengthening scenario 241–2 threats to 238, 243–4 vulnerability to asymmetric shocks 208 European integration 20, 32, 239–44 euro as a catalyst for 47, 232 and flexible exchange rates 8 functional 232 scenarios for possible 241–4 European Liberal, Democrat and Reform Party 39–40 European Monetary Institute (EMI) 72, 75, 76 established (1994) 11 European Monetary System (EMS) characteristics of 6–7, 8 established (1979) 5–6, 9 membership requirement for EMU participation 13 European Parliament 76, 223, 224 debate on symbolism of euro coin 229 Index • 251 debates on ECB 34–43 ECB annual report to 60 questionnaire and hearings for candidates for Executive Board of ECB 29–34 European People’s Party, Christian Democratic Group 36 European System of Central Banks (ESCB) 52–4, 97 see also Eurosystem European Union (EU) countries with euro 1, 20, 220 current status 219, 233 economic growth 220 enlargement 17, 75–6, 219–27 founder members 17 and monetary union 219–22 relationship with EMU 239–40 Eurostat 83, 101 Eurosystem 53–4, 67, 76, 135 basic tasks 53–4, 119, 205 euro-area and multi-country models for macroeconomic projections 110 expert reports 152 ‘information kit’ 168 and national central banks 150 operational framework 122–4, 129 price stability objective 63, 104–5 transmission mechanism 189 Eurosystem Inflation Persistence Network 189–90 exchange rate mechanism (ERM II) 75, 181, 222 exchange rate regime, significance of 169–71 exchange rates countries linked to the euro 182 table 7 crises 6–9 criterion for admission to EMU 13, 16, 222 ECB strategy ruled out 90–3 of the euro 54, 169–76 European views on issues 5–6 fixed 9, 169; see also Bretton Woods system; EMS floating (flexible) 8, 9, 169, 171–4 and monetary policy 169–76 ‘parity grid’ 6 pegging 181 and price stability 90–3 real 213–14 risk in public debt 194 stability 6, 7, 8, 30 exogenous shocks 48, 78, 104, 109, 113, 116, 138, 140, 243 asymmetrical 208, 214 ECB reaction to 204–5 euro protects against 237 and labour market flexibility 48–9 prices in euro area 143 expectations role of 57, 65, 166, 206–7 see also inflation expectations exports 208, 213–14 Fabio, Udo di 240 Feldstein, Martin 50 financial markets 18, 33, 166, 194 domestic openness 177 integration 214 international 84, 177 and monetary policy 167 financial sector economic analysis of data 109 and the monetary policy transmission mechanism 82 financial system, US compared with euro area 47 Financial Times 199 financing, of current account balances 214–15 fig. 18 Finland 14, 15, 16, 26 citizens’ attitudes to euro 21 conversion rates 20 First World War, Germany after 62 252 • Index fiscal policy institutional mechanisms to monitor 18 and monetary policy in EMU 192–200 and monetary policy relationship 30, 38–9, 109, 138, 191–2, 200–7, 237 national 200, 202, 203–4, 217 rules in EMU 192–6 stability 14, 18–20, 222 flexibility of markets 19, 35, 48–9, 208, 214, 218, 220, 231, 235, 241 food prices 101, 143 foreign exchange markets intervention 174–6, 181 and monetary policy 169–76 foreign policy, common 230, 232, 242 France 14, 15, 16, 26 conversion rates 20 infringement of Stability and Growth Pact 199 monetarism 6 presidential campaign (2007) 202 reservations on ECB 59 resistance to first President of ECB 26 single currency 4, 244 see also Banque de France Frankfurt am Main 25, 29 Frankfurt University, Center for Financial Studies 187 free market principle 120 Friedman, Milton 40, 88, 105 Funk, Honor 36 German Federal Ministry of Economics, Council of Experts report (1989) 10 Germany 14, 15, 16, 26 adjustment to the euro 23–5 benefits of economic integration 233, 244 citizens’ attitudes to euro 21–5, 36 consensus democracy 153–4 conversion rates 20 current account balance 214 customs borders (1790) 3 customs union (1834) 3 economic and political union 229 economistic position 6 government relations with Bundesbank 29 historical right to mint coinage 3 hyperinflation (1922–3) 22, 62 inflation rate 33 infringement of Stability and Growth Pact 199 interest rates 35 media debate over German candidacy for Executive Board of ECB 29 Nazism 22–3 real interest rate argument 212–13 Reich (1871) introduces Mark 3, 4, 229 restrained wage growth 217 reunification 7, 23, 78 and the Second World War 22–3, 38 stagflation 57 see also Deutsche Bundesbank global corporations 36 globalisation 78, 84, 144 gold standard 88 in Germany (1871–1914) 4, 22 government debt (1990–8) 15–16 fig. 3, 17–18 ceiling for 193–8 implicit and explicit 197 governments accountability to national parliaments for public finances 236 deficits (1990–8) 15 fig. 2 fiscal policy sovereignty 193–4 and ‘lost’ currencies 55 Great Britain see United Kingdom (UK) Index • 253 Greece 67, 75, 210 current account balance 214 infringement of Stability and Growth Pact 199 Guterres, Antonio 232 Hague summit (1969) 4–5 Hämäläinen, Sirkka 27–8, 70 Hanover summit (1988) 10 Harmonised Index of Consumer Prices (HICP) 83, 101, 138, and price stability 97, 98, 115, 141–2 table 4, 207 Hayek, Friedrich 234 Hendrick, Mark 34, 35 housing prices 101, 217–18 Hungary 220 income distribution 204 indexation 62, 101 measurement bias in 103 inflation 2 per cent rate over medium term 2, 103, 115, 116 (1970s) 37–8 convergence (1990–8) 14 fig. 1 convergence criterion 13–14, 41, 221 ‘core’ 101 differentials in euro area 212 fig. 17, 216 forecast and targeting 91–3 and growth of money supply 92–3, 105–6 fig. 6 perception vs. statistics 24 problems of measurement 41 and real economic growth 64 fig. 5 redistribution effect 62, 238 and unemployment 39–40 zero 102–3, 117 inflation expectations 1–2, 35, 40, 57, 84, 114, 207, 213 high 143–6 long-term in euro area 144 fig. 11 low-level 100–3 well-anchored 66, 87, 117, 140–1, 145–6 inflation targeting 30, 85, 90–3, 103 insolvency, of sovereign states 194, 196 interest rates at beginning of monetary union 138–41 criterion for admission to EMU 13, 17 deposit facility 126–7, 134, 139 long-term nominal 1–2, 144–5 main refinancing operation 124–6, 129–30, 134, 138–40 marginal lending facility 126–7, 130, 134, 139 and money market rates (1999–2006) 141 fig. 10 and money market rates at beginning of monetary union 139 fig. 9 real argument 212–13 standing facilities 126–7, 134–5 and zero inflation 102–3 interests commonality of 191 national 202–3 Intergovernmental Conference (2000) 171 international agreement, for ECB Statute 52–4 international currencies 176–7 euro as 176–84 table 5, 242 factors in 177 functions of 178–83 International Monetary Fund, World Economic Outlook 33 investment 35 risk-sharing 214 Ireland 14, 15, 16, 26, 213 conversion rates 20 as a model case 16, 210 254 • Index Issing, Otmar 28, 244 Directorates General for Economics and Research 71–4, 85, 133 early experiences in Brussels 28–43 on first Executive Board of ECB 27, 28 opening statement in hearing 32–4 responses to MEPs’ questions 34–43 responsibilities on Governing Council of ECB 152–3 Italy 14, 15, 16, 26 citizens’ attitudes to euro 21 conversion rates 20 as a critical case 16, 19, 25–6 devaluation of lira 8 fiscal policy 222 infringement of Stability and Growth Pact 199 interest rates 35 see also Banca d’Italia Japan euro currency area compared with 43, 138 exchange rate intervention 175 yen 183 see also Bank of Japan ‘k-per cent rule’ 40, 88 Katiforis, Giorgos 40–1 Kenen, Peter 48 Keynesianism 192–3 King, Mervyn 85 Kohl, Helmut 11, 25, 229 Kohn, Don 85 Kosovo 180 La Malfa, Giorgio 39–40 labour markets 192 female participation in euro area compared with USA 47 flexibility 19, 35, 48–9, 220, 231, 241 rigidity 39–40, 47, 238, 243 Lafontaine, Oskar 137 Lamfalussy, Alexandre 10, 11, 27 languages, official of EU 60, 155, 234 legislation ECB 13, 52–66 national compatibility with EU Treaty 223 Lenin, V.

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization
by Jeff Rubin
Published 19 May 2009

But when economic life returns to normal, we can make those car payments and start driving again. And then gasoline prices will quickly climb back to the levels we balked at when filling our tanks before the recession. Over the course of successive business cycles, the price of oil will move higher and higher—though not in a linear sense, since there will continue to be cyclical bumps along the way. And oil prices themselves will cause many of those bumps, as they caused the 2008 recession. But over successive business cycles, the price of oil will continue to rise, surpassing even the $147-per-barrel price seen briefly in 2008. The peak in one cycle’s oil prices will become the trough over the next cycle.

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We have been driving more and paying less to do it. Soon we will be driving less and paying more. Dependence on your car is starting to look like a bad idea. As much as it stung to fill up your tank when gasoline prices spiked in 2008, you can expect it to hurt even more in the near future. In the next business cycle, pump prices will rise to as high as $7 per gallon as oil becomes even scarcer on world markets. That’s 70 percent higher than the peaks we saw in 2008, which sent the world economy crashing into recession. What will the driving landscape look like at $7-per-gallon pump prices? Europe is as good a place as any to start getting an idea of what American highways will soon become.

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And since every unit of global GDP requires energy, strong economic growth translates into strong energy demand. The bigger the global GDP, the more oil we consume, as long as we power our economies on oil. But the world economy doesn’t grow all the time. Economies have always been subject to the ebb and flow of the business cycle, and that won’t change just because oil is becoming increasingly scarce over time. If your GDP shrinks, so does your appetite for energy. Look what happened in Russia in the wake of the collapse of the Soviet Union: energy demand plummeted by roughly a third as the economy simply stopped working.

The Complacent Class: The Self-Defeating Quest for the American Dream
by Tyler Cowen
Published 27 Feb 2017

These days, few macroeconomists are predicting that we have beat the business cycle forever. The current and wiser view is that business cycles and also deep recessions eventually return in a cyclical manner. Long periods of stability sooner or later give rise to excess risk-taking and some kind of overextension, leading to a later correction (and typically a bumpy rather than a smooth one). In fact, the stronger and more durable the initial period of calm, the more of a doozy the eventual downturn might be. The thing is, we’ve learned that about the business cycle, but only now is it starting to sink in that such patterns have a lot of power to explain cycles in other realms as well.

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Imagine they are assuming that there will be no nuclear war, that communism will fall, and that the world moves significantly closer to near-free trade. Now, we ask, what do you expect to happen to the male median wage over the course of the next forty-five or so years? Outside of the ups and downs of the business cycle, both economists would view ongoing growth in living standards as the normal state of affairs for a market economy. Even the most recent trends are discouraging. If we take out the gains of the top earners, take-home pay for typical American workers has been falling since the Great Recession ended in 2009, an unusual path for an economic recovery.

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More and more hints are coming that perhaps cyclical theories, with nasty kicks on and after their turning points, are the ones that apply. The return of the cyclical perspective is perhaps clearest in macroeconomics. Throughout most of the 1990s and considerably beyond, until about 2008, most economists believed in something called “the Great Moderation.” It was believed that the business cycle was, if not quite dead, defanged, due to better monetary policy and financial regulation. It was believed that the advanced economies could enjoy both growth and a kind of stability more or less forever, at least if our central banks would follow some textbook-level advice. And indeed, for many years the United States, among other countries, demonstrated fairly smooth economic performance with low unemployment.

Losing Control: The Emerging Threats to Western Prosperity
by Stephen D. King
Published 14 Jun 2010

The same arguments apply, in reverse, if the Fed chooses to raise interest rates. The Fed ends up setting monetary conditions in a dollar bloc that spreads far and wide around the world. This might not matter if most emerging economies’ business cycles were tied to the US business cycle because, in those circumstances, Fed policy that was good for the US goose would also be good for the emerging-market gander. But emerging-market business cycles are not perfectly linked with the US. In the late 1990s, at the time of the Asian crisis, the US economy was booming. In the early years of the twenty-first century, when the US economy was struggling to cope with the consequences of the collapse in its late 1990s technology bubble, emerging markets were booming.

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For a while, it was possible for central banks to kid themselves that their sovereignty was still intact. From the late 1980s through to the early years of the new millennium, the developed world supposedly benefited from the ‘Great Moderation’, a process whereby inflation and interest rates gradually fell, where business cycles became less volatile and where global economic growth strengthened in relation to the 1970s and early 1980s.9 Yet this moderation was followed by possibly the worst, and certainly the most synchronized, global economic downswing since the 1930s. If inflation was so low, why did things go so badly wrong?

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In the modern era, the first country to adopt an explicit inflation target was New Zealand in 1989–90. 7. From ‘The Federal Reserve System: Purposes and Functions’. 8. The letter, dated 22 April 2009, can be found at http://www.bankofengland.co.uk/ monetarypolicy/pdf/chancellorletter090422.pdf. 9. The first reference to the ‘Great Moderation’ was in James H. Stock and Mark W. Watson’s Has the Business Cycle Changed and Why?, Research Working Paper No. W9127, National Bureau of Economic Research, Cambridge, MA, 2002. The term was popularized by Ben Bernanke in a speech in February 2004 when he was a Governor at the Federal Reserve. His speech is available at http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm. 10.

The Fissured Workplace
by David Weil
Published 17 Feb 2014

But that anemic growth masks two very different trends: real income grew by 11.2% for families at the top 1% level but declined by 0.4% for the other 99% of families.46 Employment and Wages over the Business Cycle The dot-com recession of the early years of the twenty-first century and the Great Recession of 2007–2009 have been followed by very different recoveries than accompanied business cycles of the past. Two characteristics are particularly troubling. First, in both cases, employment recovered much more slowly than in the past, leaving large numbers of workers unemployed, underemployed, or out of the labor market entirely for longer periods of time.

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Outsourcing management to third parties can lead to violation of minimum wage laws. And franchising, an often unrecognized form of fissured employment, can create incentives that simultaneously demand adherence to product quality and create incentives for franchisees to violate laws. Even the business cycle may be affected by the spread of fissuring. Historically, hiring by large businesses led economic recoveries: as aggregate demand recovered, large firms directly increased employment. Now, employment decisions in many industries are mediated by fissured structures. Not only does this mean that the timing of recoveries may be slowed, since they must flow through multiple layers of fissured relationships; but the composition of jobs added also will reflect those relationships.

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More strikingly, while the real income of the top 1% grew by 58% between 1993 and 2010, that of the rest of the 99% of families rose by a paltry 6.4%.19 Although these shifts arise from a complex set of factors, the changing shape of employment and the outward shift of jobs from large companies to smaller ones play a role. Even our models of the business cycle may be affected by the presence of fissuring. Historically, large businesses led recoveries: as demand returned, large firms directly increased employment. Now, employment decisions in many industries are mediated by fissured structures. Not only does this means that the timing of recoveries may be slowed, since they must “flow through” the fissured relationships; but the composition of jobs added also will reflect those relationships.

Postcapitalism: A Guide to Our Future
by Paul Mason
Published 29 Jul 2015

If bank reserves have to match loans made, there can be no expansion of the economy through credit, and there can be little space for derivatives markets, where complexity – in normal times – aids resilience to problems such as drought, crop failure, the recall of faulty motor cars etc. In a world where banks hold reserves equivalent to 100 per cent of their deposits, there would have to be repeated stop-go business cycles and high unemployment. And simple maths shows us that we would go into a deflation spiral: ‘in an economy with an unchanged money supply but rising productivity … prices will on trend decline’, says Schlichter.25 That’s the preferred option of the right-wing money fundamentalists. Their big fear is that, in order to keep fiat money alive, the state will nationalize the banks, write off the debts, seize control of the finance system and kill for ever the spirit of free enterprise.

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An underground ‘Peasant Labour Party’, of which he was supposed to be leader, did not exist. Kondratieff’s real crime, in the eyes of his persecutors, was to think the unthinkable about capitalism: that instead of collapsing under crisis, capitalism generally adapts and mutates. In two pioneering works of data-mining he showed that, beyond short-term business cycles, there is evidence of a longer, fifty-year pattern whose turning points coincide with major structural changes within capitalism and major conflicts. Thus, these moments of extreme crisis and survival were not evidence of chaos but of order. Kondratieff was the first person to show the existence of long waves in economic history.

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The events that seem to cause the big turning points – wars, revolutions, discovery of new gold deposits and new colonies – were, he said, mere effects generated by the demands of the economy itself. Humanity, even as it tries to shape economic history, is relatively powerless over the long term. For a time in the 1930s, long-wave theory became influential in the West. The Austrian economist Joseph Schumpeter produced his own theory of business cycles, popularizing the term ‘Kondratieff Wave’. But once capitalism stabilized after 1945, long-wave theory seemed redundant. Economists believed state intervention could flatten out even the minor ups and downs of capitalism. As for a fifty-year cycle, the guru of Keynesian economics, Paul Samuelson, dismissed it as ‘science fiction’.3 And when the New Left tried to revive Marxism as a critical social science in the 1960s, they had little time for Kondratieff and his waves; they were looking for a theory of capitalist breakdown, not survival.

Boom and Bust: A Global History of Financial Bubbles
by William Quinn and John D. Turner
Published 5 Aug 2020

Title: Boom and bust : a global history of financial bubbles / William Quinn, Queen’s University Belfast, John D. Turner, Queen’s University Belfast. Description: New York : Cambridge University Press, 2020. | Includes bibliographical references and index. Identifiers: LCCN 2019048274 (print) | LCCN 2019048275 (ebook) | ISBN 9781108421256 (hardback) | ISBN 9781108367677 (ebook) Subjects: LCSH: Business cycles – History. | Financial crises – History. | Business forecasting. Classification: LCC HB3716 .Q56 2020 (print) | LCC HB3716 (ebook) | DDC 338.5/ 4209–dc23 LC record available at https://lccn.loc.gov/2019048274 LC ebook record available at https://lccn.loc.gov/2019048275 ISBN 978-1-108-42125-6 Hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. 

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The S&P 500 index, covering the largest US-based companies, rose by 115 per cent between January 1990 and 156 THE DOT-COM BUBBLE December 1996, prompting concern that the equity market was overheating. These gains appeared to be somewhat out of proportion with the money being made by its constituent firms. Robert Shiller’s cyclically adjusted price-to-earnings ratio (CAPE) stood at 28, meaning that S&P 500 companies were, after adjusting for the business cycle, valued at an average of 28 times their annual earnings. This was well above the longterm average of 15, leading Shiller to advise the Federal Reserve that a correction was due.19 Alan Greenspan, the Federal Reserve’s Chairman, gave what would become an iconic speech 3 days later, in which he questioned the point at which rising asset prices could be said to result from ‘irrational exuberance’ rather than changes in their intrinsic value.

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Since people used the Internet increasingly often, its revolutionary potential was widely apparent, and the Internet itself was 163 BOOM AND BUST a powerful means of spreading the new era narrative.50 In some cases, these theories encompassed broader sociological and political changes as well as technological ones. In a nod to Francis Fukuyama’s The End of History, perhaps the most influential new era narrative of the time, a 1997 article in Foreign Affairs argued that ‘changes in technology, ideology, employment, and finance’ had precipitated ‘the end of the business cycle’.51 While new era ideas look foolish with hindsight, as of 2000, pessimistic forecasters had been crying wolf for so long that their warnings were easy to ignore. While much has been written about the naive optimism of the late 1990s, curiously little has been written about the equally misplaced scepticism towards technology firms of a few years earlier.

Aftershock: The Next Economy and America's Future
by Robert B. Reich
Published 21 Sep 2010

At what point does an economy imperil itself politically, as large numbers conclude that the game is rigged against them? Most fundamentally, what and whom is an economy for? Technically, the Great Recession has ended. But its aftershock has only begun. Economies always rebound from declines, even from the depths of the darkest downturns. To this extent, the business cycle is comfortably predictable. Businesses eventually must reorder when inventories grow too depleted, families have to replace cars and appliances that are beyond repair, and modern governments invariably spend what they can and make it easier to borrow money in order to stimulate job growth. The larger and more interesting question is what happens next.

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Federal Reserve chief Alan Greenspan—who was no Marriner Eccles—insisted that Clinton cut the federal budget deficit rather than deliver on his more ambitious campaign promises, and Greenspan reciprocated by reducing interest rates. This ushered in a strong recovery. By the late 1990s the economy was growing so quickly and unemployment was so low that middle-class wages started to rise a bit for the first time in two decades. But because the rise was propelled by an upturn in the business cycle rather than by any enduring change in the structure of the economy, it turned out to be a temporary blip. Once the economy cooled, most family incomes were barely higher than before. During the Great Prosperity of 1947–1975, the basic bargain had ensured that the pay of American workers coincided with their output.

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By the late 1970s, all such jobs were on the endangered species list. By 2010, they were nearly extinct. But contrary to popular mythology, trade and technology have not really reduced the number of jobs available to Americans. Take a look at the rate of unemployment over the last thirty years and you’ll see it has risen and fallen with the business cycle. Jobs were plentiful in the 1990s even though trade and automated technologies were pushing millions of workers out of their old jobs. The real problem was that the new ones they got often didn’t pay as well as the ones they lost. That largely explains why the median wage flattened between 1980 and 2007, adjusted for inflation.

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone
by David Carey
Published 7 Feb 2012

To investors, the stupendous profit on Blackstone’s huge investment in UCAR was a mighty draw. Nearly all the 80 percent annualized return that Blackstone touted to investors was attributable to UCAR. It was a pattern that would recur with future funds: One or two great investments made at a trough in the business cycle could make a fund a huge success. The $4 billion third buyout fund, which had its final closing in October 1997, elevated Blackstone to the number-two position in private equity. Only KKR, the industry’s perennial kingpin, boasted a larger fund, a $5.7 billion vehicle raised in 1996. Forstmann Little, long KKR’s leading competitor, had rounded up just $3.2 billion in 1997 for its latest fund.

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Their returns were about 40 percent, and returns on most other buyout funds of the early decade were below that, so Blackstone stood out in the crowd. Blackstone’s 2002 fund sustained its lead among the biggest buyout funds, generating roughly a 40 percent annual return through the end of 2008, or two or three times the returns on competitors’ funds raised at the bottom of the business cycle in 2001 to 2003. That performance was the payoff from Schwarzman’s and James’s gut feeling in 2002 that things were bottoming out then and from Chinh Chu’s two knockout deals: Celanese and Nalco. As Blackstone geared up to raise its next fund, its returns gave it a competitive edge. It’s a law of finance and human nature that investment managers who make money for their clients attract more capital over time.

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He was dumbfounded to learn that Lehman was offering debt of up to seven times Tronox’s current cash flow. He figured the chemical industry was near a crest and that if business slacked off, the company wouldn’t be able to handle such a huge debt load. If earnings fell back to what one might expect at the midpoint in the business cycle instead of the peak, he reckoned, Tronox’s debt could suddenly equate to fourteen times cash flow—a perilous level. “The debt [offered] on that deal was twice what I thought the company was worth,” Chu says. With Lehman’s backing, Blackstone could have paid what Chu considered an absurd price, but Blackstone walked away.

Limitless: The Federal Reserve Takes on a New Age of Crisis
by Jeanna Smialek
Published 27 Feb 2023

Less demand for cash meant that interest rates—which, at their most basic, are how much people will pay to use money today versus tomorrow—had also naturally declined. As a result, the rate setting at which Fed policy would begin to seriously weigh on the economy had dropped steadily lower. The change was sapping the central bank of its power to offset recessions and steady the business cycle by cutting borrowing costs. During the 2007–2009 recession, Ben Bernanke’s Fed had slashed interest rates all the way to zero, then had bought unprecedented sums of government bonds to try to provide more help to the economy by lowering longer-term interest rates and by pushing money out of safe bonds and into riskier and more active uses.

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Randolph Burgess, who worked as a statistician at the New York Fed at the time, would later write. “For the first time in history, a bank of issue could direct its policy decisions to the whole economic picture.” Under Strong’s watch, the Fed began to engage in macroeconomic management. It guided the cost of borrowing in a way that aimed to keep the business cycle steady while supporting the international gold standard. As the Fed found its footing during those early years, becoming more of a powerful, private interest–controlled, New York–centric institution than Wilson and Glass had envisioned, it drew occasional criticisms. A former comptroller of the currency printed a scathing review in The New York Times blasting the Fed for spending $25,646,409 on a “palatial” New York building that its author swore would “make Solomon’s temple of old seem quite cheap in comparison.”[78] In fact, the New York Fed faced such scrutiny over its budget that it began calling its fifty-person team of statisticians the “reports department.”[79] Statisticians sounded fancy.

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He had secured his place at the head of the sort of dynasty that had become possible in that capitalistic century, one built on wealth and enterprise instead of the pedigrees of past eras. He believed that the Fed had succeeded at stabilizing the financial system and, as was fashionably accepted among the economic thinkers of his era, that business cycles were a bygone phenomenon. It was a new age of roaring prosperity. Then came the stock market crash of 1929, which left children starving to death and villages of families living in cardboard shacks.[86] Eccles, watching businesses fail by the dozen and staring down hard decisions about layoffs and belt-tightening himself, found doubt creeping into his mind.

What's Next?: Unconventional Wisdom on the Future of the World Economy
by David Hale and Lyric Hughes Hale
Published 23 May 2011

BULLION: Bar or ingot form of gold, silver, platinum, or palladium; occasionally used by central banks for the settlement of international debt. BUSINESS CYCLE DATING COMMITTEE: Committee on the National Bureau of Economic Research that maintains a chronology of the US business cycle. The chronology identifies the dates of peaks and troughs that frame economic recession or expansion. CAPACITY UTILIZATION: This metric measures the extent to which the nation’s capital is being used in the production of goods. The utilization rate rises and falls with business cycles. As production increases, capacity utilization rises, and vice versa. CAPITAL ACCOUNT: The component of a country’s balance of payments that records the nation’s outflow and inflow of financial securities.

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The goal is to provide the reader with concise views about challenges that people will confront in the financial service sector over the next few years. There is no way to predict precisely what will come next, but the issues reviewed in this compendium will play a major role in shaping the future. PART I WESTERN HEMISPHERE ECONOMIES 1 THE US RECOVERY David Hale The Business Cycle Dating Committee of the National Bureau of Economic Research has said that the great recession of 2008–2009 ended in July 2009. The US economy had a growth rate of 1.6 percent during the third quarter of 2009 followed by 5.0 percent during the fourth quarter and 3.7 percent during the first quarter of 2010.

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Their proposals drew immediate fire from House Minority Leader Nancy Pelosi (D-CA) and conservative Republicans for threatening entitlement programs and popular tax allowances, but they at least offered a set of ideas that attempted to hold the tax share of GDP below 21 percent while reducing federal spending to 22 percent of GDP. In 2010, the recession had reduced the tax share of GDP to only 14.8 percent while the Obama stimulus program had boosted the spending share of GDP to 25.4 percent. The resolution of fiscal policy uncertainties will play a major role in shaping the business cycle post-2010. If the government were to introduce a 10 percent VAT in 2012 or 2013, it would depress consumer spending. The Fed might have to offset the fiscal drag by easing interest rates. If there is no change in fiscal policy, bond yields could rise to 7–8 percent and jeopardize the upturn in the housing market.

Why Wages Rise
by F. A. Harper
Published 1 Jan 1957

The agreement between changes in profits and changes in employment is not exact, of course. But the similarity in a general way is clear. It definitely disproves the surplus value theory. Not only is the theory wrong, it is precisely upside down — at least when wage rates are pressing profits toward total disappearance, as in the 1930’s. Sweeps of the Business Cycle The notion persists that business swings upward and downward with more or less regularity, and that this is inherent or inevitable under private enterprise. It is also believed that these swings have been getting worse as we have proceeded into a complex economy since the industrial revolution.

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It would be as near a utopia as can be hoped for in economic affairs this side of Heaven. ______________ 1Technically, this is an elasticity of demand for labor of -3.0, or a little more. 2See Chapter 3, p. 19. Index A Abilities, exchange of, 35-42 Animals, tools of mankind, 28 B Bargaining, wage, 100 Benefits fringe, 72-83 vacation, 91 Bonds, government, 22 Business cycles (and charts), 107-119 Buying power loss of, 65 production and, 53 selling and, 95 theory, 112 C Capital General Motors, 14 Marxian view of, 25 unemployment and, 113 use of, 19-27 see also, Money Choice-making encouraged, 118 house building and, 117 leisure and, 88 spending and, 63-71 Clark, Colin, 86n Clipped dollars, 51 Communism determining needs, 72 Consumption.

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See Buying power Slave labor, 23 Socialism determining needs, 72 Specialization, 35-42 Spending, choice in, 63-71 Sun’s energy, 28 Supply, labor, 24, 103, 107-119 Surplus labor, 101 value theories, 24, 113 T Taxation double, 22 inflation as, 54 wages affected by, 69 Theories buying power, 112 labor and surplus value, 24, 113 Tools harnessing energy, 28-34 productive, 19-27 Trade. See Exchange Tucker series (chart), 11 U Unemployment. See Labor Unions, labor, 9-13, 89 V Vacation benefits, 91 Value labor and surplus, 24, 113 see also, Choice-making W Wage rates bargaining, 100 benefits to, 72-83 business cycles and, 107-119 contract for, 53-62 cost of government and, 63-71 demand of, 24, 103, 107 depression, 5, 111 division of, 14, 19-27, 109 exchange abilities and, 35-42 lubricant for, 43-52 free market, 14, 19-27, 107-119 inflation and, 49, 53-62 labor pricing, 95-106, 107-119 unions (and chart), 9-13, 89 leisure and, 84-94 monopoly and, 67 prices and.

Value Investing: From Graham to Buffett and Beyond
by Bruce C. N. Greenwald , Judd Kahn , Paul D. Sonkin and Michael van Biema
Published 26 Jan 2004

These are Benjamin Graham's famous net-net stocks, and although it was easier to find them during the Depression than it is today, such opportunities can occasionally be located. A second way to calculate the company's intrinsic value is to examine its stream of earnings over a period of years and to estimate how much the company should earn on average over the course of a business cycle. This figure should correspond to a market-level return on the intrinsic (reproduction) value of the assets. When the earnings repeatedly exceed this norm, the company may have earnings power that supports an intrinsic value higher than its adjusted net worth. These situations are not common, but they are much less rare than Graham's net-nets.

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Resolving discrepancies between depreciation and amortization, as reported by the accountants, and the actual amount of reinvestment the company needs to make in order to restore a firm's assets at the end of the year to their level at the start of the year; the adjustment adds or subtracts this difference. 3. Taking into account the current position in the business cycle and other transient effects; the adjustment reduces earnings reported at the peak of the cycle and raises them if the firm is currently in a cyclical trough. 4. Considering other modifications we discuss in Chapter 5. The goal is to arrive at an accurate estimate of the current distributable cash flow of the company by starting with earnings data and refining them.

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Resolving discrepancies between depreciation and amortization, as reported by the accountants, and the actual amount of reinvestment the company needs to make in order to restore a firm's assets at the end of the year to their level at the start of the year. The adjustment adds or subtracts this difference. 3. Taking into account the business cycle and other transient effects. The adjustment reduces earnings reported at the peak of the cycle and raises them if the firm is currently in a cyclical trough. 4. Applying other modifications as are reasonable, depending on the specific situation. The purpose of these adjustments is to arrive at a figure that represents distributable cash flow, or money the owners can extract from the firm and still leave its operations intact.

Marxian Economic Theory
by Meghnad Desai
Published 20 May 2013

It was by way of inflation, debt-accumulation, government-induced production, war-preparation and actual warfare that the dominant capitalist nations reached an approximation of full employment." (pp.122 - 123). In earlier years, business cycles performed the task of destroying accumulated capital. But according to Mattick, at the turn of the century, a point was reached whereby cycles were no longer sufficient. "The business cycle as an instrument of accumulation had apparently come to an end; or, rather, the business cycle became a 'cycle' of world wars." (p.13S). While Mane did not foresee many of these events, Mattick says. they are perfectly consistent with his theory.

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THE M4RXIAN VALUE-PRICE DUALITY Visible Price Invisible Value Domain ....Cl' OP Ezchange Domain Social relations between men Relations between things Class division between capitalist as owner of means of production and means of subsistence and worker as free labourer Equal relation of exchange between buyer and seller Value of labour power equal to the socially necessary labour time required for production and reproduction of the labourer equal to paid labour which is less than total labour expended The wage form Wages are paid for a full day's work Rate of surplus value equals unpaid labour pald labour Rate of profit Total value Surplus value + variable capital + constant capital (1 + rate of surplus value vaiable capital + constant capital, where constant capital has its full value transferred to the final product but creates no surplus value Total profits x Profits of f1Xed capltal + advanced circulating capital ~ock Total revenue·minus total cost Selling price minus cost price. where cost price equals cost of labour (wage bill) plus cost of materials and wear and tear of fixed capital XIII EXTENDED ~PRODUCTION: INTRODUCTION At many points in all the three volUllles of Capital, Mane emphasises that a revolution in value takes place continuously within the productive process under capitalism {34} {47} {68}. Changing technology as well as improvements in methods of utilizing given inputs, revolution in methods of circulation (packaging, transport, credit, marketing) are all occurring all the time. Along with growth and as a necessary part of it are crises - business cycles which force change upon individual capitalists {75}. In addition to these is the course of the class struggle - strikes, trade union growth, growth of new forms of capitalist associations e.g. multinational firms, changes in form of governments, e.g. growth of the welfare state etc. Beyond mentioning these changes, we can do little more because these have not been treated in analytical detail to any great extent.

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)
by Charles Wheelan
Published 18 Apr 2010

Recessions may actually be good for long-term growth because they purge the economy of less productive ventures, just as a harsh winter may be good for the long-term health of a species (if not necessarily for those animals that freeze to death). The business cycle takes a human toll, as the layoffs splashed across the headlines attest. Policymakers are increasingly expected to smooth this business cycle; economists are supposed to tell them how to do it. Government has two tools at its disposal: fiscal policy and monetary policy. The objective of each is the same: to encourage consumers and businesses to begin spending and investing again so that the economy’s capacity no longer sits idle.

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The unemployment rate climbed toward 10 percent. America’s biggest banks were on the brink of insolvency. The Chinese started musing publicly about whether they should continue to buy American treasury bonds. We liked it better the first way. What happened? To understand the cycle of recession and recovery—the “business cycle,” as economists call it—we need to first learn about the tools for measuring a modern economy. If the president really did wake up from a coma after suffering a horseshoe accident, it’s a fair bet that he would ask for one number first: gross domestic product, or GDP, which represents the total value of all goods and services produced in an economy.

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Purchases generated by the tax cut put workers back on the job, which inspires more spending and confidence, and so on. The notion that the government can use fiscal policy—spending, tax cuts, or both—to “fine-tune” the economy was the central insight of John Maynard Keynes. There is nothing wrong with the idea. Most economists would concede that, in theory, government has the tools to smooth the business cycle. The problem is that fiscal policy is not made in theory; it’s made in Congress. For fiscal policy to be a successful antidote to recession, three things must happen: (1) Congress and the president must agree to a plan that contains an appropriate remedy; (2) they must pass their plan in a timely manner; and (3) the prescribed remedy must kick in fast.

The Innovation Illusion: How So Little Is Created by So Many Working So Hard
by Fredrik Erixon and Bjorn Weigel
Published 3 Oct 2016

12.Ad Hoc Committee on the Triple Revolution, “The Triple Revolution: Cybernation, Weaponry, Human Rights.” 13.Tracy, “Why Some of Google’s Coolest Projects Flop Badly.” 14.Tracy, “Why Some of Google’s Coolest Projects Flop Badly.” 15.Polymath Consulting, “A Brief History of Payments.” 16.Byrnes, “Technology Repaints the Payment Landscape.” 17.Mainelli and Milne, “The Impact and Potential of Blockchain,” 4. 18.Mainelli and Milne, “The Impact and Potential of Blockchain,” 5. 19.Simmons, “George Foster: Are Startups Really Job Engines?” 20.AlixPartners, Press release on “C.A.S.E. – Car of the Future.” 21.Phelps, Mass Flourishing, 19. 22.Pugsley and Şahin, “Grown-up Business Cycles.” 23.Hathaway and Litan, “The Other Aging of America.” 24.Pugsley and Sahin, “Grown-up Business Cycles.” In the private sector, start-up employment went from 4 to 2 percent. 25.Buchanan, “American Entrepreneurship Is Actually Vanishing.” 26.Simon and Barr, “Endangered Species.” 27.Litan, “Start-up Slowdown.” 28.OECD, “The Future of Productivity.” 29.OECD, “No Country for Young Firms?”

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Third, the decoupling of productivity and labor incomes proves the transformational change of technology, and the unequal distributional effects of technological gains mean there are larger economic effects that national accounts fail to record. The first argument can be easily dismissed. Whatever the direction taken by US or European productivity growth in the past decade, it has not been an effect of the business cycle. In reality the cyclical effects on total factor productivity have substantially weakened over time to become acyclical, and labor productivity has been countercyclical – going up in recessions.34 Technology optimists like Brynjolfsson and McAfee would disagree. In their otherwise important book The Second Machine Age, they claim that “part of the recent slowdown simply reflects the Great Recession and its aftermath.”35 They argue that US productivity growth “in the decade following the year 2000 exceeded even the high growth rates of the roaring 1990s, which in turn was higher than 1970s or 1980s growth rates had been.”36 These propositions do not stand up to scrutiny.

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Intuition, however, is a poor source of information. While the relation between productivity and employment is “ambivalent,”54 to quote three leading economists, it does not lend support to the view that employment is depressed by productivity growth. Importantly, total employment in an economy changes with business cycles and reflects stronger forces in the economy than productivity growth, such as how demand is influenced by fiscal and monetary policy. For instance, the US lost 7 million jobs between 2007 and 2009, and there was productivity growth in the economy during these two years, but few, if any, would tender the view that there is a causal relation between the loss of jobs and productivity during these years.

Democracy and Prosperity: Reinventing Capitalism Through a Turbulent Century
by Torben Iversen and David Soskice
Published 5 Feb 2019

Collier probably rightly dismisses the Chartist movement of twenty years previously as an important influence; and few commentators saw (or see) the huge and impressive July 1867 demonstration in favor of reform—consisting mainly of middle-class and skilled workers, and led by industrialists—as seriously threatening to the privileged position of elites, let alone revolutionary.14 Acemoglu and Robinson take the demonstration and the ensuing 1867 Reform Act in the UK as key evidence of their hypothesis—as, at first sight, they might well. It is the first case they consider, and is set out on page 3 of their book: “Momentum for reform finally came to a head in 1867…. A sharp business-cycle downturn… increased the risk of violence…. The Hyde Park Riots of July 1867 provided the most immediate catalyst.” Searle (1993, 225) argues that “reform agitation in the country clearly did much to persuade the Derby ministry that a Reform Bill, any Reform Bill, should be placed on the statute book with a minimum of delay.’”

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Regulation or nationalization of banking and insurance were considered necessary to protect markets against mass bankruptcy and to allow governments to steer the national economy in the event of a crisis. Protected service markets could also be used more directly as an employment buffer against business cycle swings, stabilizing the economy and facilitating the government’s commitment to full employment. Finally, protection of services against competition was seen, rightly or wrongly, as a means to ensure universalism in service provision and as inherently inseparable from the goal of modernizing society by extending telephone, postal, transportation, and other services to rural and less developed regions.

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This matters because it is plausible that governments reflect the preferred mean level of spending or redistribution of middle classes—or coalitions between these with lower or higher classes—even as fluctuations of spending around these means are better aligned with expressed preferences of the affluent. Elkjær and Iversen (2018) show that this is largely due to those with high education and income being better informed about the changing constraints that affects fiscal policy—which could be a function of the standard business cycle and automatic stabilizers—even as they have little influence on spending levels.12 Our own reading of the comparative evidence points to two broad conclusions. First, in areas that have to do with promotion of the advanced sectors and economic growth, people have enough information to reward and punish governments for performance, and voters tend to agree on what the desirable policies are.

The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War (The Princeton Economic History of the Western World)
by Robert J. Gordon
Published 12 Jan 2016

The spread of the city is treated in chapter 5, in which the development of the city is viewed as a corollary of a succession of transportation innovations that steadily increased the distance that was feasible to travel between the home and the workplace. Decisions that encouraged urban sprawl after World War II are reserved for chapter 10, on housing after 1940. Another deliberate omission from this chapter is the effect of the business cycle. The ease or difficulty of finding jobs varied across recession intervals and across decades, and the decline in the standard of living during the Great Depression stands out. But the Great Depression did not cause housing units to become unplugged from the electricity, water, and sewer networks; the appliances purchased before 1929 still worked to improve the standard of living; and the decade of the 1930s witnessed a sharp increase in the diffusion of electric refrigerators and washing machines.

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Shifts were twelve hours per day in conditions lacking lockers and having only primitive toilet facilities, and the heat and danger of the job itself paints a portrait of dramatic imbalance between the power of employers and weakness of workers. Managers could dismiss workers instantly for any reason, including a perception that as a worker aged, he or she was becoming physically weaker. The number of hours worked per year varied randomly, not just with the business cycle, but also when any closure for maintenance, reconstruction, or slack demand sent workers onto the streets with no compensation and no unemployment insurance. Women faced a life of hard work, boredom, and drudgery, whether on the farm or in the city. The small percentage of women who entered the labor market found themselves cordoned off into female occupations, working to manufacture apparel or as clerks, nurses, or school teachers.

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But its role in providing consumer credit became more prominent in the early nineteenth century with the development of dense urban centers. The services of pawnbrokers were tied to the unpredictable nature of urban employment, which, as we learned in chapter 8, was unstable as a result not only of the macroeconomic business cycle, but also of the instability of employment in particular industries and at particular plants. In the Chicago stockyards, an employee returning home from work on Monday did not know whether he would be offered four, eight, or twelve hours of work on Tuesday. The pawnbrokers’ “cycle of pledging and redemption” followed weekly and seasonal patterns.

Getting Back to Full Employment: A Better Bargain for Working People
by Dean Baker and Jared Bernstein
Published 14 Nov 2013

Chapter 2: Evidence of the Benefits of Full Employment The historical record in the United States supports the notion that, when labor markets are tight, the benefits of growth are more likely to flow to the majority of working people. Conversely, when there’s slack in the job market, as has been the case more often than not in recent years, working families fall behind. Job markets operating below full employment are not confined to recessions. Business cycle expansions over the past 30 years have featured labor markets with too much slack to provide workers with the bargaining clout they need to claim their share of the growth they’re helping to produce (the later 1990s were an important exception). Moreover, the last three recessions have been followed by initially weak “jobless” and “wageless” recoveries, implying that, in recent years, incomes and wages have failed to get much of a lift in bad times or good ones.

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Some forms of spending are better than others in terms of reinvigorating demand, and one of the best forms is public infrastructure investment, which can employ hundreds of thousands of workers in projects that yield long-term, continuing returns on the dollar. The second policy idea is to launch a system of publicly funded jobs that can ramp up and down, expand and contract, as needed, in tandem with the business cycle. Under such a system the federal government, working through local intermediaries, would supply funds to subsidize hiring in the private sector as well as in important community services like education, child care, and recreation. Finally, we can take steps to ameliorate the disemployment effects of a downturn by sharing work, and we can counteract productivity-driven drops in demand for labor by restructuring work.

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“Workforce Development Programs.” In Legacies of the War on Poverty, ed. Martha J. Bailey and Sheldon Danziger, 121-151.New York, NY: Russell Sage Foundation. Johnson, Clifford M., Amy Rynell, and Melissa Young. 2010. “Publicly Funded Jobs: An Essential Strategy for Reducing Poverty and Economic Distress Throughout the Business Cycle.” Paper prepared for the Georgetown University and Urban Institute Conference on Reducing Poverty and Economic Distress after ARRA, January 15. Washington, DC: The Urban Institute. http://www.urban.org/uploadedpdf/412070_publicly_funded_jobs.pdf Kocherlakota, Narayana. 2010. “Inside the FOMC.”

Trend Commandments: Trading for Exceptional Returns
by Michael W. Covel
Published 14 Jun 2011

For example, when he states that “what Mills and Lowry have are still trend following tools, with all their advantages and limitations,” he seems to mean something more like “trend-lagging”—such as when a moving average turns higher after a trend has already begun. In other words, trend following was not yet a fully formed concept. “Trend” was not yet a noun adjunct, nor “following” a gerund. The individual who finally made the connection was perhaps William Dunnigan, a trader, technical analyst, and writer who ran a business cycle forecasting company in Palo Alto, California, in the 1950s. Dunnigan had many books and other publications to his credit, beginning with the academic Forecasting the Monthly Movement of Stock Prices in 1930, and following with a more technically oriented, mimeographed publication called “Trading With the Trend” in 1934, to name two.

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When the economic weather changes, we will change our course with it and will not try to forecast the future time or place at which the wind will change.”20 William Dunnigan today remains an underrated trading researcher, although he was highly, if not widely, regarded in his day, even by academic economists. Elmer Clark Bratt, for example, refers to Dunnigan’s “trading with the trend” in his Business Cycles and Forecasting, one of the premier economics textbooks of his day: “Intermediate movements in the stock market do not last any stated length of time, so we never know just when a rally or a reaction will take place. What has been called “trading with the trend” by Dunnigan appears to be the only important forecasting principle which can be derived.”21 Next in line among the pioneers of trend following was the much better known Richard Donchian, whose article “Trend-Following Methods in Commodity Price Analysis” appeared in the Commodity Yearbook of 1957.

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Alfred Winslow Jones, “Fashions in Forecasting.” Fortune, March 1949, p. 180. 19. William Dunnigan, New Blueprints for Gains in Stocks and One-way Formula for Trading in Stocks and Commodities. United Kingdom: Harriman House Limited, 2005, reprint of 1954 and 1956 editions, p. 31. 20. Ibid., p. 32. 21. Elmer Clark Bratt, Business Cycles and Forecasting, fourth edition. Homewood, Illinois: Richard D. Irwin Inc., 1953, p. 497. 22. Richard D. Donchian, “Trend-Following Methods in Commodity Price Analysis.” Commodity Year Book, 1957, p. 35. 23. William Baldwin, “Rugs to Riches.” Forbes, March 1, 1982, p. 143. 24. Darrell Jobman, “Richard Donchian: Pioneer of Trend-Trading.”

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
by Stephanie Kelton
Published 8 Jun 2020

With a job guarantee in place, the economy can pass through a rough patch without throwing millions of people into unemployment. The rough patches are inevitable. There isn’t a capitalist economy on earth that has found a way to eradicate the business cycle. Economies grow and create jobs and then, eventually, something happens to throw them into recession. We can and should use discretionary policy to try to tame the business cycle. Smoother rides are preferable to bumpy ones. But no country has figured out how to steer clear of every possible hazard. Over the past sixty years, the US has been hit with recessions in 1960–1961, 1969–1970, 1973–1975, 1980, 1981–1982, 1990–1991, 2001, and 2007–2009.

…

What he meant was that the Fed can make it cheaper to borrow, but it cannot force anyone to take out a loan. Borrowing money puts companies and individuals on the hook for the debts they incur. Loans must be repaid out of future income, and there are good reasons why the private sector might be reluctant to increase its indebtedness at various stages of the business cycle. Remember, households and businesses are currency users, not currency issuers, so they do need to worry about how they’re going to make their payments. In the wake of the Great Recession, which was itself precipitated by a massive buildup in private (subprime mortgage) debt, it became clear that the Fed was struggling to fix the economy on its own.

…

Federal programs like Trade Adjustment Assistance (TAA)14 are important, but something more is needed. That something is a federal job guarantee. By no means is it a panacea, but at a minimum, it begins to tackle the problem of unemployment directly (as opposed to subsidizing the effects of unemployment). Through the thick and thin of the business cycle, we leave tens of millions of Americans idle in the belief that this makes political, economic, and social sense. Consider the closure of the Harley-Davidson manufacturing facility in Kansas City, Missouri, the city in which I taught for seventeen years. The company’s eight hundred workers were left stunned by the announcement that ultimately resulted in a net loss of 350 jobs.15 The timing was particularly pernicious, coming as it did against the backdrop of a dividend increase for shareholders and an announcement that the company would spend millions buying back up to fifteen million shares of its own stock.

The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham
by Joe Carlen
Published 14 Apr 2012

Considering the number of instances in which he criticizes himself and even his work (e.g., regarding Baby Pompadour, the poorly received play he cowrote: “The probabilities are that it wasn't good enough for Broadway and that it deserved to fail.”19) Graham's memoirs, intended only for posthumous publication, are among the most candid that I have read. Consequently, I am inclined to believe Graham's contention that he had formulated his own conceptions on these matters independently of Hobson, Keynes, and Edison. In any case, conscious of the scourge of insufficient demand during business-cycle downturns, Graham believed that his commodity-reserve system would help smooth out the business cycle by ensuring a consistent minimum level of demand for his basket of “basic durable raw materials.”20 Unfortunately (or not, depending on one's opinion of the merits of Graham's economic prescriptions), Graham was too focused on his work at Newburger in 1921 to do much about his plan other than discuss it with his uncle, Maurice Gerard, who found it very intriguing.

…

Just as Graham would have anticipated, the average price impact was found to be both negative and statistically significant, but, from a long-term investment perspective, the duration of this negative price impact was less than sixty days.15 For the likes of Graham, Buffett, and others, a two-month-long price dip has little consequence because, as investors (not speculators), such a time frame is entirely insignificant. As value-investor-extraordinaire Charles Brandes wrote in 2004, “Any contemplated holding period shorter than a normal business cycle (typically 3 to 5 years) is speculation.”16 As well, contrary to what many assume about the world's most famous Graham acolyte, Warren Buffett, is similarly detached from the market's short-term movements. As acclaimed author and investor Robert Hagstrom observed, Buffett “has no need to watch a dozen computer screens at once; the minute-by-minute changes in the market are of no interest to him.”17 The problem with these minute-by-minute changes is that they are rarely anchored in events of long-term consequence.

…

Establishing that “ordinary consumption tends to fall short of production during a period of business expansion,”52 Graham observes that “credit extension”53 then becomes the most obvious (but hardly the most farsighted) means to “make up the difference.”54 Having witnessed both the heights of the 1920s credit boom and the depths of the 1930s Depression (during which he initially lost over two-thirds of his money), Graham was wary of a business cycle in which “each period of prosperity has been said to bear within itself the seeds of its own collapse.”55 Through government purchases/sales and storage/delivery, his proposed system was designed to necessitate stable pricing and demand for the fundamental inputs of production (raw materials).

Crisis Economics: A Crash Course in the Future of Finance
by Nouriel Roubini and Stephen Mihm
Published 10 May 2010

Copyright © Nouriel Roubini and Stephen Mihm, 2010 All rights reserved Library of Congress Cataloging-in-Publication Data Roubini, Nouriel. Crisis economics : a crash course in the future of finance / Nouriel Roubini and Stephen Mihm. p. cm. Includes bibliographical references and index. eISBN : 978-1-101-42742-2 1. Financial crises. 2. Business cycles. 3. Economics. I. Mihm, Stephen, 1968- II. Title. HB3722.R68 2010 338.5’42—dc22 2009053925 Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.

…

It took an enormous amount of regulatory forbearance and international crisis management, led by the United States and the IMF, to stop the banks from going under. The Not-So-Great Moderation By the mid-1980s Volcker had defeated inflation, and central bankers around the world reaffirmed their commitment to low inflation. At the same time, the ordinary business cycle of the advanced industrial nations became markedly less volatile: recessions came and went with fewer ill effects, and expansions lasted longer. In the United States, flirtations with disaster and financial crisis, like the stock market crash of 1987, did not metastasize into anything more destructive: the 1987 crash did not cause a recession, and the 1990-91 recession was relatively short and shallow, lasting only eight months.

…

And so the Great Moderation was born: an era of low inflation, high growth, and mild recessions. What accounted for the Great Moderation was anyone’s guess. Some economists argued that the climate of business and financial deregulation and technological innovation had created a more flexible and adaptable economic system, one that could more readily handle the ups and downs of the business cycle. Others suggested that growing globalization and free trade—and the rise of China and other emerging economies capable of producing ever-cheaper goods—would keep global inflation at bay even as global growth accelerated. Still others stressed that the decline of organized labor helped keep wage growth in line with productivity.

The Lights in the Tunnel
by Martin Ford
Published 28 May 2011

This book is available for purchase in paper and electronic formats at: www.TheLightsintheTunnel.com CONTENTS A Note to Kindle Users Introduction Chapter 1: The Tunnel The Mass Market Visualizing the Mass Market Automation Comes to the Tunnel A Reality Check Summarizing Chapter 2: Acceleration The Rich Get Richer World Computational Capability Grid and Cloud Computing Meltdown Diminishing Returns Offshoring and Drive-Through Banking Short Lived Jobs Traditional Jobs: The “Average” Lights in the Tunnel A Tale of Two Jobs “Software” Jobs and Artificial Intelligence Automation, Offshoring and Small Business “Hardware” Jobs and Robotics “Interface” Jobs The Next “Killer App” Military Robotics Robotics and Offshoring Nanotechnology and its Impact on Employment The Future of College Education Econometrics: Looking Backward The Luddite Fallacy A More Ambitious View of Future Technological Progress: The Singularity A War on Technology Chapter 3: Danger The Predictive Nature of Markets The 2008-2009 Recession Offshoring and Factory Migration Reconsidering Conventional Views about the Future The China Fallacy The Future of Manufacturing India and Offshoring Economic and National Security Implications for the United States Solutions Labor and Capital Intensive Industries: The Tipping Point The Average Worker and the Average Machine Capital Intensive Industries are “Free Riders” The Problem with Payroll Taxes The “Workerless” Payroll Tax “Progressive” Wage Deductions Defeating the Lobbyists A More Conventional View of the Future The Risk of Inaction Chapter 4: Transition The Basis of the Free Market Economy: Incentives Preserving the Market Recapturing Wages Positive Aspects of Jobs The Power of Inequality Where the Free Market Fails: Externalities Creating a Virtual Job Smoothing the Business Cycle and Reducing Economic Risk The Market Economy of the Future An International View Transitioning to the New Model Keynesian Grandchildren Transition in the Tunnel Chapter 5: The Green Light Attacking Poverty Fundamental Economic Constraints Removing the Constraints The Evolution toward Consumption The Green Light Appendix / Final Thoughts Are the ideas presented in this book WRONG?

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For example, if you just bought a lot of new automated machines for your factory, then you are stuck with them. You can’t just return them and get your money back if demand for your products suddenly starts to fall. For this reason, a business which sees rapidly falling demand usually has only one choice in order to survive: cut more jobs. We see this, of course, as part of the normal business cycle. Businesses routinely lay off workers in bad times and then rehire in good times. In the tunnel, we now see that the businesses are beginning to cut more and more jobs. They are becoming more desperate and, in many cases, they must eliminate even key employees that they formerly felt were crucial to their operations.

…

Facing this, individuals will take the obvious action: they will cut back on consumption, perhaps quite dramatically, and try to save more in anticipation of a very uncertain future. It is important to note that what we are talking about here is really not the same as what occurs in the normal business cycle. In a typical recession, many consumers will also cut back on spending as they worry about losing their jobs, and this will tend to deepen the downturn. However, this worry is predominantly a short-term concern because people realize that, in the long run, when the economy recovers, businesses will have to again begin hiring.

Men Without Work
by Nicholas Eberstadt
Published 4 Sep 2016

In other words, the U.S. economy currently is not nearly on track to return to its historic growth patterns. Why is this recovery so much more fitful than other postwar recoveries?3 Some economists suggest the reason has to do with the unusual nature of the Great Recession. Downturns born of major financial crises intrinsically require longer correction periods than business cycle downturns.4 Others theorize that the scale of recent technological innovation is unrepeatable or that we have entered into an age of “secular stagnation” with low “natural real interest rates” consistent with significantly reduced investment demand.5 What is incontestable is that the ten-year moving average for U.S. per capita economic growth is lower today than at any time since the Korean War and that this slowdown commenced in the decade before the 2008 crash.

…

We cannot hope to settle that question here, but we can review some of the evidence suggesting that the impact of such structural and macro-economic changes may have been more qualified than some believe. First, there is a remarkably steady decline in LFPRs for prime-age U.S. men over the past fifty years. This decline has now proceeded with nearly clocklike regularity, almost totally uninfluenced by the business cycle, for half a century (see figure 7.1). America suffered seven recessions between 1965 and 2015, but knowing when these recessions occurred gives us no additional information on the trajectory of the prime-age male LFPR decline. (If fact, it actually looks as if recessions may slightly slow the flight from work.)

…

Sociologists and economists once remarked on the curious and counterintuitive nature of this trajectory and presumed it would have to be reversed.3 Today they accept it as a fact of life.4 As Alan Kruger, Princeton economist and former chairman of the Council of Economic Advisers for President Obama, remarked in a speech in 2015, “According to CPS data, the monthly rate for transitioning from out of the labor force to back in the labor force is unrelated to the business cycle.”5 Second, unlike LFPRs, work rates for U.S. men (including prime-age men) fell in recessions and stabilized in recoveries. But work rates for women seem less affected—and in some recessions seem basically unaffected (see figure 7.2). Between 1965 and the late 1990s—over the course of five recessions—prime-age female work rates rose by a cumulative total of over thirty percentage points.

When the Money Runs Out: The End of Western Affluence
by Stephen D. King
Published 17 Jun 2013

Having seen living standards rise at a 1.5 per cent annual rate in the years leading up to the Panic, the newly unified nation saw living standards effectively stagnate all the way through to 1880. Meanwhile, the US economy, which had lived off the railroad boom, was suddenly looking extraordinarily vulnerable. The National Bureau of Economic Research estimates that the ‘contractionary phase’ of the business cycle, which began in October 1873, lasted until March 1879. At 65 months, this was longer than the contractionary phase of the Great Depression, a mere 43 months. Even the subsequent, powerful, recovery proved short-lived: a further 38-month contraction began in March 1882.6 The Panic, the ensuing economic stagnation and the persistence of deflation were all reflections of the now near-universal attachment of monetary systems to the Gold Standard, the nineteenth-century equivalent of inflation targeting.

…

Akerlof, ‘The Market for “Lemons”: Quality Uncertainty and the Market Mechanism’, Quarterly Journal of Economics, 84.3 (Aug. 1970): 488–500. 2. J. Wood and P. Berg, ‘Rebuilding Trust in Banks’, Gallup Business Journal, at http://businessjournal.gallup.com/content/148049/rebuilding-trust-banks.aspx#2 (accessed Jan. 2013). 3. B. Stevenson and J. Wolfers, ‘Trust in Public Institutions over the Business Cycle’, Federal Reserve Bank of San Francisco Working Paper Series 2011-11, San Francisco, Mar. 2011. 4. See Barclays, ‘Our History’, at http://www.barcap.com/about-barclays-capital/our-firm/our-history.html (accessed Jan. 2013). 5. See Barclays, ‘Our Culture’, at http://www.barcap.com/about-barclays-capital/our-firm/our-culture.html (accessed Jan. 2013). 6.

…

Ricardo, ‘Evidence on the Resumption of Cash Payments’, Testimony before a Committee of Parliament, 1819, in The Works and Correspondence of David Ricardo, ed. P. Sraffa, vol. 5: Speeches and Evidence (Cambridge University Press, Cambridge, 1952). 4. Senator John H. Reagan, 1890. 5. James Laurence Laughlin, 1886. 6. ‘US Business Cycle Expansions and Contractions’, National Bureau of Economic Research, Cambridge, MA, 2012. 7. J. Bacon, The Illustrated Atlas of Jewish Civilization (André Deutsch, London, 1990). 8. See, for example, A. Liptak, ‘Blocking Parts of Arizona Law, Justices Allow Its Centerpiece’, New York Times, 25 June 2012, at http://www.nytimes.com/2012/06/26/us/supreme-court-rejects-part-of-arizona-immigration-law.html?

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression
by Richard A. Posner
Published 30 Apr 2009

The lower interest rates will induce borrowing; and with more borrowing and lower prices, spending will soon find its way back to where it was before the shock. One reason this will happen is that not all consumers are workers, and those who are not, and whose incomes therefore are unimpaired, will buy more goods and services as prices fall. The flaw in this classical economic theory of the self-correcting business cycle is that not all prices are flexible; wages especially are not. This is not primarily because of union-negotiated or other employment contracts. Few private-sector employers in the United States are unionized, and few nonunionized workers have a wage guaranteed by contract. But even when wages are flexible, employers generally prefer, when demand for their product drops, laying off workers to reducing wages.

…

For many people in many of life's settings, the best predictive method is to assume that the future, especially the near future, will resemble the past, especially the recent past. I remember when the best method of forecasting tomorrow's weather was to assume it would be like today's. But it seems unlikely that such experts on the business cycle as the Federal Reserve's chairman, Ben Bernanke, are constrained to base their predictions on naive extrapolation. This makes his neglect, and that of other experts both inside and outside the government, of warning signs of a coming crash extremely puzzling. Real estate bubbles are common. The supply of "good" land is fixed in the short run, the housing stock is extremely durable and therefore does not expand rapidly when demand increases, and land and the improvements on it cannot be sold short.

…

Of course all three of these examples might be thought positive consequences of an economic downturn —and this is appropriate to note because my objective in this chapter is to try to cheer up the reader by pointing out that a depression can have good consequences as well as bad, even if the latter preponderate. To begin with, a depression backs up efforts to moderate the business cycle. The housing bubble could not expand indefinitely; leverage could not keep growing indefinitely. When the ratio of borrowed to equity capital reaches 35 to 1 —Bear Stearns' ratio when it collapsed (and UBS's reached 50 to 1) —a mere 3 percent fall in the value of the firm's assets will plunge the firm into insolvency.

Multicultural Cities: Toronto, New York, and Los Angeles
by Mohammed Abdul Qadeer
Published 10 Mar 2016

Immigrants and minorities form niches in mainstream jobs and businesses and spawn ethnic economies. Taxi services are often the entry niche for newly arriving immigrants. The construction industry is dominated by Italians. West Indian nurses form a niche in medical services, as do Jewish doctors. The city’s economy swings with the business cycles of the national economy. It has recovered steadily from the recession of 2008–9. Catastrophic events such as the terrorists attack in 2001 and “Superstorm” Sandy in 2012 shocked the local economy, but it bounced back quickly. 98 Multicultural Cities Table 5.2 Percentage of labour by industry Industry Toronto CMA (2006)* Manufacturing 13.5 2.4 11.3 5.4 3.7 3.5 16.6 13.5 17.6 9.4 13.4 6.8 14.4 24.8 16.1 7.7 10.3 11.4 Construction Trade, wholesale and retail Finance, insurance, real estate Education, health Entertainment, accommodation, arts, and food services New York City (2009)* Los Angeles County (2009)* Sources: For Toronto – Statistics Canada, Census 2006, Table, “ Profile of Labour Market Activity, Occupation, Education for Census Metropolitan Areas and Agglomerations.”

…

Similarity of ethnic niches in the three cities points to a parallelism of ethnic strategies and cultural resources among the respective groups. Just as culture and race matters, so does place. New York has been consistently getting more polarized in income and employment, with the middle class shrinking and lower and upper classes expanding through all phases of the business cycles of the 1990s and 2000s. Los Angeles has also experienced polarization, but its disparities have steadied in the 2000s, perhaps with its increasing role as the connecting point for the Pacific trade, particularly with China, and unionization drives for service workers.39 Manufacturing is still strong in Los Angeles.

…

For some groups it is possible to meet most of their everyday needs within their ethnic network. 10. Ethnic economies are fully embedded in urban economies. They are subject to the same labour, finance, public health, and taxation regulations, though accommodations are made to respond to cultural/religious differences. Similarly, they are subject to national and local business cycles, global trade patterns, and technological change. Yet the common ground of local and national economic order frames the opportunities and structures of ethnic economies and niches. 11. Ethnic economies are a relatively small part of urban economies. A majority of ethnics and immigrants work in mainstream establishments.

Big Debt Crises
by Ray Dalio
Published 9 Sep 2018

I found that by examining many cases of each type of economic phenomenon (e.g., business cycles, deleveragings) and plotting the averages of each, I could better visualize and examine the cause-effect relationships of each type. That led me to create templates or archetypal models of each type—e.g., the archetypal business cycle, the archetypal big debt cycle, the archetypal deflationary deleveraging, the archetypal inflationary deleveraging, etc. Then, by noting the differences of each case within a type (e.g., each business cycle in relation to the archetypal business cycle), I could see what caused the differences. By stitching these templates together, I gained a simplified yet deep understanding of all these cases.

…

Typically debt crises occur because debt and debt service costs rise faster than the incomes that are needed to service them, causing a deleveraging. While the central bank can alleviate typical debt crises by lowering real and nominal interest rates, severe debt crises (i.e., depressions) occur when this is no longer possible. Classically, a lot of short-term debt cycles (i.e., business cycles) add up to a long-term debt cycle, because each short-term cyclical high and each short-term cyclical low is higher in its debt-to-income ratio than the one before it, until the interest rate reductions that helped fuel the expansion in debt can no longer continue. The chart below shows the debt and debt service burden (both principal and interest) in the US since 1910.

…

The blue line depicts the arc of the long-term debt cycle in the form of the total debt of the economy divided by the total income of the economy as it passes through its various phases; the red line charts the total amount of debt service payments relative to the total amount of income. Bubbles are most likely to occur at the tops in the business cycle, balance of payments cycle, and/or long-term debt cycle. As a bubble nears its top, the economy is most vulnerable, but people are feeling the wealthiest and the most bullish. In the cases we studied, total debt-to-income levels averaged around 300 percent of GDP. To convey a few rough average numbers, below we show some key indications of what the archetypal bubble looks like: The Role of Monetary Policy In many cases, monetary policy helps inflate the bubble rather than constrain it.

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism
by Ha-Joon Chang
Published 26 Dec 2007

For one thing, being prudent does not mean that the government has to balance its books every year, as is preached to developing countries by the Bad Samaritans. The government budget may have to be balanced, but this needs to be achieved over a business cycle, rather than every year. The year is an extremely artificial unit of time in economic terms, and there is nothing sacred about it. Indeed, if we followed this logic, why not tell governments to balance its books every month or even every week? As Keynes’s central message had it, what is important is that, over the business cycle, the government acts as a counterweight to the behaviour of the private sector, engages in deficit spending during economic downturns and generates a budget surplus during economic upturns.

…

In an economic upturn, it should reduce its expenditure and increase taxes, so that it can prevent demand from outstripping supply. Reflecting this intellectual origin, until the 1970s, the main aim of macroeconomic policies was reducing the magnitude of the swings in the level of economic activity – known as the business cycle. But since the rise of neo-liberalism, and its ‘monetarist’ approach to macroeconomics, in the 1980s, the focus of macroeconomic policies has radically changed. The ‘monetarists’ are called as such because they believe that prices rise when too much money is chasing after a given quantity of goods and services.

…

If the country succeeds in accelerating its growth, future generations will be rewarded with higher standards of living than would have been possible without such government deficit spending. Despite all this, the IMF is obsessed with developing country governments balancing the books every year, regardless of business cycles or longer-term development strategy. So it imposes budget balancing conditions, or even the requirement to run a surplus on countries in macroeconomic crisis that could actually benefit from deficit spending by the government. For example, when Korea signed an agreement with the IMF in December 1997 in the wake of a currency crisis, it was required to generate budget surplus equivalent to 1% of GDP.

Everything Is Obvious: *Once You Know the Answer
by Duncan J. Watts
Published 28 Mar 2011

To take a single example, albeit an important one, the economy is composed of many thousands of firms and millions of individuals all making decisions about what to buy, what to sell, and what to invest in. The end result of all this activity is what economists call the business cycle—in effect, a time series of aggregate economic activity that seems to exhibit periodic ups and downs. Understanding the dynamics of the business cycle is one of the central problems of macroeconomics, in no small part because it affects how policy makers deal with events like recessions. Yet the mathematical models that economists rely on do not attempt to represent the vast complexity of the economy at all.

…

Rather, they specify a single “representative firm” and ask how that firm would rationally allocate its resources given certain information about the rest of the economy. Roughly speaking, the response of that firm is then interpreted as the response of the economy as a whole.9 By ignoring the interactions between thousands or millions of individual actors, the representative agent simplifies the analysis of business cycles enormously. It assumes, in effect, that as long as economists have a good model of how individuals behave, they effectively have a good model for how the economy behaves as well. In eliminating the complexity, however, the representative-agent approach effectively ignores the crux of the micro-macro problem—the very core of what makes macroeconomic phenomena “macro” in the first place.

…

“Behavioral Decision Research: A Constructive Processing Perspective.” Annual Review of Psychology 43 (1):87–131. Perrottet, Charles M., 1996. “Scenarios for the Future.” Management Review 85 (1):43–46. Perrow, Charles. 1984. Normal Accidents. Princeton, NJ: Princeton University Press. Plosser, Charles I. 1989. “Understanding Real Business Cycles.” The Journal of Economic Perspectives 3 (3):51–77. Polgreen, Philip M. Yiling Chen, David M. Pennock, and Forrest D. Nelson. 2008. “Using Internet Searches for Influenza Surveillance.” Clinical Infectious Diseases 47 (11):1443–48. Pollack, Andrew. 2010. “Awaiting the Genome Payoff.” New York Times, June 14.

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity
by Ha-Joon Chang
Published 4 Jul 2007

For one thing, being prudent does not mean that the government has to balance its books every year, as is preached to developing countries by the Bad Samaritans. The government budget may have to be balanced, but this needs to be achieved over a business cycle, rather than every year. The year is an extremely artificial unit of time in economic terms, and there is nothing sacred about it. Indeed, if we followed this logic, why not tell governments to balance its books every month or even every week? As Keynes’s central message had it, what is important is that, over the business cycle, the government acts as a counterweight to the behaviour of the private sector, engages in deficit spending during economic downturns and generates a budget surplus during economic upturns.

…

In an economic upturn, it should reduce its expenditure and increase taxes, so that it can prevent demand from outstripping supply. Reflecting this intellectual origin, until the 1970s, the main aim of macroeconomic policies was reducing the magnitude of the swings in the level of economic activity – known as the business cycle. But since the rise of neo-liberalism, and its ‘monetarist’ approach to macroeconomics, in the 1980s, the focus of macroeconomic policies has radically changed. The ‘monetarists’ are called as such because they believe that prices rise when too much money is chasing after a given quantity of goods and services.

…

If the country succeeds in accelerating its growth, future generations will be rewarded with higher standards of living than would have been possible without such government deficit spending. Despite all this, the IMF is obsessed with developing country governments balancing the books every year, regardless of business cycles or longer-term development strategy. So it imposes budget balancing conditions, or even the requirement to run a surplus on countries in macroeconomic crisis that could actually benefit from deficit spending by the government. For example, when Korea signed an agreement with the IMF in December 1997 in the wake of a currency crisis, it was required to generate budget surplus equivalent to 1% of GDP.

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth
by Michael Jacobs and Mariana Mazzucato
Published 31 Jul 2016

At the same time, the discipline of economics has had to face serious questions about its understanding of how modern economies work. What made the financial crisis such a shock—in two senses—was not simply that very few economists had predicted its coming. It was that over the previous decade the mainstream view was that policy-making had essentially solved the fundamental problem of the business cycle: major depressions, it was believed, should now be a thing of the past. And economic policy since the crisis has been no more successful. The orthodox prescription of ‘fiscal austerity’—cutting public spending in an attempt to reduce public deficits and debt—has not restored Western economies to health, and economic policy has signally failed to deal with the deep-lying and long-term weaknesses which beset them.

…

The private sector does not ‘create wealth’ while taxpayer-funded public services ‘consume’ it. The state does not simply ‘regulate’ private economic activity. Rather, economic output is co-produced by the interaction of public and private actors—and both are shaped by, and in turn help to shape, wider social and environmental conditions. Keynes’ analysis of the business cycle was crucial in this regard.51 His key insight was that private investment was both too volatile and too procyclical. It reinforces its own tendencies both to boom and slump. Government investment is thus needed not just to stabilise aggregate demand when spending is too low, but also to stimulate the ‘animal spirits’ of the business sector, which invests only when it is confident of future areas of growth.

…

They also agreed to fiscal rules that set ceilings on government deficits and debt as a proportion of gross domestic product (GDP). As these limits risked being exceeded during any downturn as a result of the operation of automatic stabilisers, the aim was for governments to balance budgets over the course of the business cycle—surpluses in good times would provide the policy space to run small deficits in recessions. In sum, orthodox theory places the government on the same footing as private firms and households, whose ability to spend is constrained by their income and borrowing and by financial markets’ view of their creditworthiness.

Rigged Money: Beating Wall Street at Its Own Game
by Lee Munson
Published 6 Dec 2011

These aren’t the big swinging speculators running their Individual Retirement Account (IRA) on “the E Trade.” They are usually self-described dividend investors looking for a solid investment. cyclical play A way to describe an investment that is directly tied to the business cycle, which, contrary to what many people thought during the late 1990s, cannot be beat. The whole point of a business cycle is that there is a beginning, middle, and end. There’s a point where it makes more money, it increases, and then it declines. There’s a distinctive difference between the bottom and the top. If you want a dividend that’s safe, I would not suggest a cyclical company.

…

If people were to keep shares in companies, paying a consistent amount in dividends per share four times a year would probably convince them to stick around. Graham didn’t think this was a good idea. First, in order to pay the same amount each quarter, you would have to hold back enough money to keep it up in the future. Nobody can beat a business cycle, and that means having extra cash around when profits are not as high. Cash just sits there, earning little interest in comparison to investing it. More importantly, cash sitting in the corporation’s account is not as satisfying to a shareholder who wants it in his or her own bank account. To keep the savage beasts calm, you make them focus on the constant payout each quarter.

…

My father had seen ups and downs, so I had his perspective that things would recover. My buddy who went with me on the downsizing trips went back to college, as did I. Today he is a very successful mortgage broker in Southern California. He never left the business, and that year helped him understand how to survive during lean times. In the end the lesson learned was that a business cycle can’t be beat, and when this company tried, it ended in disaster. You see, the reason why the firm was going down was the rapid expansion of offices the prior year. When things slowed, and they went from 60 to zero pretty fast, the owners didn’t cut the staff quickly enough. Fast forward to 2008, when essentially the same thing happened, only on a larger scale.

After the New Economy: The Binge . . . And the Hangover That Won't Go Away
by Doug Henwood
Published 9 May 2005

Bill Gates's fantasies of the frictionless economy—spun out, it's said, with the assistance of thirteen ghostwriters—^were the latest incarnation of an old elite desire to put workers and the ugly things that sometimes come with them out of sight. We've been hearing about postindustrial society 2 Introduction for at least thirty years; if it had come about, would we have to worry about global warming? Dreams of an end to the business cycle often flower at the end of long booms; long-term stock market investors could take them as reliable sell signals. Office foosball machines didn't really change the nature of work, and they've gone the way of Casual Fridays. Class divisions never disappeared; only 401 (k)s did. Sure, poverty fell and incomes rose after years of stagnation and decHne, but those developments now look Hke the lucky by-products of an unsustainable bubble.

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In August 1981, Reagan fired the striking air traffic controllers, breaking a long taboo against replacing strikers—and organized labor did nothing to fight back. Unemployment rose to near 11%—the highest level by far since 1941. Despite the savage slump, long-term interest rates kept rising into 1982; apparendy, Volcker's austerity program had not convinced the creditor class that inflation wouldn't return when the business cycle turned up. Everything changed in August 1982. Mexico announced that it couldn't pay its foreign debts. At almost the same minute, the U.S. stock market bottomed and began the long buU run that would last for eighteen years. Volcker couldn't aUow Mexico to "blow," as he said; Mexico's crisis marked the climax of his squeeze, and he had to ease.

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Thankfully, there are signs that many of the world's people, even a few Americans, are getting annoyed with it. Conclusion What comes after the New Economy? Of course, there's always some new economy. But the intoxicating miracles of the late 1990s—20% annual stock returns, the democratization of ownership and work, fantasies of the end of the business cycle—are gone. Barring a not-at-all-urdikely environmental catastrophe or some presently unimaginable poHtical upheaval, we may see another fantastic boom ten or twenty years from now that produces fantasies similar to those of the late 1990s; certainly that's the historical pattern. But Gen Xers are Ukely to be drawing Social Security checks when that happens, assuming Social Security still exists.

Plenitude: The New Economics of True Wealth
by Juliet B. Schor
Published 12 May 2010

See also Lancaster (1966). 102 people are devoting less unpaid labor time to community work: See, for example, Putnam (2000). On the exception of seniors, see Goss (1999). 104 The neuropsychiatrist Peter Whybrow . . . The filmmaker John de Graaf: Whybrow (2005) and De Graaf, Wann, and Naylor (2001). 104 competing sources of data collected at different points in the business cycle: Studies that rely on time diaries do not correct for business cycle effects, which are strong. The time-diary studies are from a mixture of strong and medium growth and recession years. 104 Employees with low educational attainment have suffered: Data on differences in working-hours trends by education is from Jacobs and Gerson (2005). 104 But all sources show . . . hours of market work have risen: Time-diary researchers have disputed the finding of growth of working hours.

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My original findings highlighted the growth of annual hours among those with jobs, particularly after correcting for then-rising structural unemployment and underemployment. There has been controversy among researchers about trends in hours, both because there are competing sources of data collected at different points in the business cycle and because experiences by education have diverged. Employees with low educational attainment have suffered more under- and unemployment, and those with high education are more overworked. And of course hours fell sharply during the recession that began in 2008, as they always do in a downturn.

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Review of Environmental Economics and Policy 3 (1): 4-21. Healthcare in Malaysia. 2009. Wikipedia [database online]. Available from http://en.wikipedia.org/wiki/Healthcare_in_Malaysia (accessed August 31, 2009). Helfand, Jessica, Akbar Sadeghi, and David Talan. 2007. Employment dynamics: Small and large firms over the business cycle. Monthly Labor Review (March). Available from http://www.bls.gov/opub/mlr/2007/03/art3full.pdf (accessed September 6, 2009). Hertwich, Edgar G. 2005. Consumption and the rebound effect. Journal of Industrial Ecology 9 (1-2): 85-98. Hertwich, Edgar G., and Glen P. Peters. 2009. Carbon footprint of nations: A global, trade-linked analysis.

The Knowledge Economy
by Roberto Mangabeira Unger
Published 19 Mar 2019

Under this view, we imagine both supply and demand as homogenous and continuous quantities, facilitating their mathematical representation. We can then distinguish the mathematical analysis of their reciprocal adjustment from the explanation of what causes each of them to expand or contract. We can assign these causal inquiries to separate branches of economics, especially the theory of economic growth and the study of the business cycle, or more generally (if such a discipline existed) of economic crisis. I suggest a different way of thinking about supply and demand and of inclusive vanguardism. This way of thinking makes explicit some of the assumptions underlying my approach to the knowledge economy and to its futures. In this book I cannot hope to demonstrate the superiority of this view, only to show how it allows us to make better sense of many aspects of economic history that have remained unexplained.

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From 2007 to 2009 the United States and other advanced economies underwent a financial crisis, followed by a sharp decline in real economic activity. If this disturbance was not as serious as the economic collapse with which Keynes and his contemporaries dealt in the 1930s, it nevertheless exceeded the dimension of the standard “business cycle” of the time. And although it evoked the standard response of fiscal stimulus and expansionary monetary policy (the latter, contrary to the spirit of Keynes’s prescriptions, even more than the former), it was soon recognized as a breakdown different in character and causation, if not in consequence, from the one that had faced Keynes.

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We can generate it only from the combination of a political-economic program with a set of conjectures and theories about the likely effects of different policies and arrangements in a particular situation. Target redistributive entitlements as closely as possible to their needy and intended beneficiaries. But the experience of European social democrats and American progressives in power has suggested the opposite: to withstand the pressure of downward movements in political-business cycles, a redistributive agenda must benefit ordinary working families rather than an insular group of the very poor. Nothing in pure economic analysis, in the mode of post-marginalist economics, recommends the targeting approach, only a set of commonsensical prejudices. Practical experience discredits them.

The Next Shift: The Fall of Industry and the Rise of Health Care in Rust Belt America
by Gabriel Winant
Published 23 Mar 2021

Working-class people were supposed to form heterosexual nuclear families, have kids, hold down a factory job full-time and accumulate seniority if a man or marry a factory worker if a woman, buy a house and a car, go on strike during contractually specified episodes, go to the hospital when sick, and retire with a pension. Collective security depended on these collective behaviors. And while business cycles went up and down and structural pressures on employers mounted, the near-constant stimulus of Cold War military expenditure kept the organized core of the economy somewhat insulated, allowing intermittent but real progress through this life course for a large, select group.28 Now the new public-private welfare state constituted organized industrial workers into actuarial pools synced to this life-course sequence, securing them collectively because they advanced through the world en bloc temporally—warping the fabric of time around themselves.

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Heaps of slag—the waste byproduct of the smelting process—accumulated on hillsides, glowing and steaming. Tens of thousands of men moved around, busy about a vast complexity of tasks. Anne Yurcon lived in Homestead, uphill from the mill. “People always used to ask me if the noise from the trains bothered us,” she remembered. “That meant the men were working.” The whole business cycle could be measured out in this way, in fires and smokestack emissions, in work schedules and the level of business at the establishments on the mill town’s main street.10 Map 1.1  Steelmaking in the Mon Valley What happened within this vast complex? To begin, coke-grade coal was baked in great ovens.

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Black women were driven instead into domestic work: 42 percent of employed Black women in 1950 worked as domestics, next to 5 percent of employed white women.18 All these patterns of employment, however, orbited around the predominant place of manufacturing in general and steel in particular. The region’s labor markets were warped by the industrial giant at the center. What happened to steel happened eventually to everyone. The early tremors for that industry in the 1950s foretold not just the crisis of industrial work, but the transformation of all work. Steel and the Business Cycle While capacity in steel expanded steadily in the 1940s and 1950s, demand slackened after the end of the Korean War. The crisis that eventually overtook the industry began in a slow-moving form in this context. Several problems, each manageable on their own, began to interact with increasing intensity.

Analysis of Financial Time Series
by Ruey S. Tsay
Published 14 Oct 2001

The ACF of rt is then a mixture of two exponential decays. Yet if φ12 + 4φ2 < 0, then ω1 and ω2 are complex numbers (called a complex conjugate pair), and the plot of ACF of rt would show a picture of damping sine and cosine waves. In business and economic applications, complex characteristic roots are important. They give rise to the behavior of business cycles. It is then common for economic time series models to have complex-valued characteristic roots. For an AR(2) model in Eq. (2.10) with a pair of complex characteristic roots, the average length of the stochastic cycles is k= 360◦ , √ cos−1 [φ1 /(2 −φ2 )] where the cosine inverse is stated in degrees.

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The first factor (1 + 0.52B) shows an exponentially decaying feature of the GNP growth rate. Focusing on the second-order factor 1 − 0.87B − (−0.27)B 2 = 0, we have φ12 + 4φ2 = 0.872 + 4(−0.27) = −0.3231 < 0. Therefore, the second factor of the AR(3) model confirms the existence of stochastic business cycles in the quarterly growth rate of U.S. real GNP. This is reasonable as the U.S. economy went through 35 SIMPLE AUTOREGRESSIVE MODELS expansion and contraction periods. The average length of the stochastic cycles is approximately k= 360◦ √ = 10.83 quarters, cos−1 [φ1 /(2 −φ2 )] which is about 3 years.

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The data file “qunemrate.dat” contains the U.S. quarterly unemployment rate, seasonally adjusted, from 1948 to the second quarter of 1991. Consider the change series yt = xt − xt−1 , where xt is the quarterly unemployment rate. 78 LINEAR TIME SERIES ANALYSIS AND ITS APPLICATIONS Build an AR model for the yt series. Does the fitted model suggest the existence of business cycles? 11. The quarterly gross domestic product implicit price deflator is often used as a measure of inflation. The file “gdpipd.dat” contains the data for U.S. from the first quarter of 1947 to the last quarter of 2000. The data are seasonally adjusted and equal to 100 for year 1996. Build an ARIMA model for the series and check the validity of the fitted model.

The Data Detective: Ten Easy Rules to Make Sense of Statistics
by Tim Harford
Published 2 Feb 2021

Over the course of the 1920s, Keynes’s attempts to forecast the business cycle had led him to trail the market as a whole by about 20 percent. That is not a disaster, but it is certainly an indication that all is not well. None of this helped Keynes see the great crash of 1929, but it did help him react to it. He had already been pondering his limitations as an investor, and wondering whether a different approach might pay off. When the crash hit, Keynes shrugged and adjusted. By the early 1930s, Keynes had abandoned business-cycle forecasting entirely. The greatest economist in the world had decided that he just couldn’t do it well enough to make money.

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See also choice research Bell, Vanessa, 256–57 Bem, Daryl, 111, 113–14, 119–23 benefits of statistical analysis, 9 Berti, Gasparo, 172 Bevacqua, Graciela, 194–95, 212 Beyth, Ruth, 248–49, 251, 254 biases biased assimilation, 35–36 confirmation bias, 33 current offense bias, 169 and motivated reasoning, 27–29, 32–36, 38, 131, 268 negativity bias, 95–99 non-response bias, 146–47 novelty bias, 95–99, 113, 114, 122 optimism bias, 96 and power of doubt, 13 publication bias, 113–16, 118–23, 125–27 racial bias in criminal justice, 176–79 in sampling, 135–38, 142–45, 147–51 selection bias, 2, 245–46 survivorship bias, 109–10, 112–13, 122–26 systematic bias in algorithms, 166 and value of statistical knowledge, 17 big data and certification of researchers, 182 and criminal justice, 176–79 and excessive credulity in data, 164–67 and found data, 149, 151, 152, 154 and Google Flu Trends, 153–57 historical perspective on, 171–75 influence in today’s world, 183 limitations and misuse of, 159–63, 170–71 proliferation of, 157–59 and teacher evaluations, 163–64 See also algorithms Big Data (Cukier and Mayer-Schönberger), 148, 157 “Big Duck” graphics, 216–18, 217, 229–30 Big Issue, The, 226n “Billion Pound-O-Gram, The” (infographic), 223 billionaires, 78–80 binge drinking, 75 Bird, Sheila, 68 bird’s-eye view of data, 61–64, 203, 221, 265 BizzFit, 108 Black Swan, The (Taleb), 101 Blastland, Michael, 10, 68, 93 blogs, 76 Bloomberg TV, 89 body count metrics, 58 Boijmans Museum, 20 Boon, Gerard, 19, 30–31 border wall debate, 93–94 Borges, Jorge Luis, 118 Boyle, Robert, 172–75 brain physiology, 270 Bredius, Abraham, 19–23, 29–32, 35, 43–45, 78, 242, 262 Bretton Woods conference, 262 Brettschneider, Brian, 224 Brexit, 71, 277 British Army, 213–14, 220–21 British Election Study, 145–46 British Medical Journal, 6, 67 British Treasury, 256–57 Broward County Sheriff’s Office, 176 Brown, Derren, 115 Brown, Zack “Danger,” 108 Buchanan, Larry, 229, 232 budget deficits, 188, 192–93, 195 Buffett, Warren, 259 Bureau of Economic Analysis, 190, 205 Bureau of Labor Statistics, 190, 205, 212 business-cycle forecasting, 258–59 business writing, 123–24 Butoyi, Imelda, 62–63 Cairo, Alberto, 227 Cambridge Analytica, 158 Cambridge University, 162. See also King’s College, Cambridge Cameron, David, 146 camouflage, 218–19 campaign finance, 274–75 Campbell, Donald T., 59 Campbell Collaboration, 134 Canada, 196–97, 209, 211 cancer diagnoses and research, 3–6, 24, 97, 241, 248, 279 Capital in the Twenty-First Century (Piketty), 83 capital punishment, 35–36 Caravaggio, Michelangelo, 30–31 carbon emissions, 272–73 Carter, Jimmy, 188 casualty statistics, 58, 231–37, 234, 235 categorization of statistical data, 68–70 causation vs. correlation, 15, 64, 156–57, 275 Census Bureau, 190, 205 census data, 147–48, 196–99, 205–6 Centers for Disease Control and Prevention (CDC), 153, 154, 155 Centre for Evidence-Based Medicine, 128 certification of researchers, 182 Chalmers, Iain, 133 Chambers, David, 259 charts, 215–16, 218n, 224, 227–29, 232–36, 232, 234, 235.

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See also cynicism and skepticism about statistics Dow Jones Industrial Average, 243 Draeger’s supermarket, 106 Dressel, Julia, 178 drugs and drug trials, 61, 126, 129–30, 139–40 Du Bois, W. E. B., 206 Duhigg, Charles, 159, 161–62, 163 Eco, Umberto, 1 economic data and statistics and budget deficits, 188, 192–93, 195 and business-cycle forecasting, 258–59 and choice experiment, 106 debt data, 10, 79, 79n, 95n, 100, 192–95, 222–23, 255, 261–62 and forecasting, 250 and Greek debt crisis, 192–95, 211 gross domestic product data, 94 growth measures, 200–201 income measures, 141 labor statistics, 11, 68–69, 141, 189n, 207, 218n and perspective on data, 59–62 and poverty, 59–60, 79, 91, 98, 99–100 wealth and income inequality, 62–64, 76–84, 85, 229–31 Economist, The, 89 education levels, 34–35, 38, 163–64 Edwards, Kari, 12–13, 33 elections, 55, 144–47, 164–65 Elliott, Andrew, 94 ELSTAT (Greek statistical agency), 192–93, 195 emotional responses to data and cognitive reflection, 38–42 and curiosity, 265 and data visualizations, 225, 232, 237 and denialism, 25, 28, 36, 38–39, 40 and errors in judgment, 78 and Fisher’s failings, 242 and influence of expertise, 32–36 and interpretation of statistics, 22–27 manipulation of emotions, 19–23, 29–32, 42–46 and motivated reasoning, 27–29, 32–36, 38, 131, 268 and open-mindedness, 248–49 and personal experience, 48–49 and self-deception, 23–27, 262–63 and social consequences of beliefs, 36–38 Empire Strikes Back, The (film), 19 employment/unemployment data, 11, 68–69, 189n, 207, 218n Energy Information Administration, 190, 205 England, 67.

Start It Up: Why Running Your Own Business Is Easier Than You Think
by Luke Johnson
Published 31 Aug 2011

Society needs chancers if it is to keep moving – and it must throw money at them from time to time. Such tendencies will lead to regular bouts of excess and then wreckage, but, like so much else at the beginning of one’s entrepreneurial journey, you can’t worry about that now. You must begin regardless. Now, to understand the business cycle is to better understand how the parts of capitalism fit together, so I’ll examine business cycles in greater detail later on. Let’s just say today is a better time to start a business than tomorrow, no matter how today looks. John Maynard Keynes put it well: ‘The thought of ultimate loss which overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death.’

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It suffers from all the weaknesses of an ex-monopoly now facing ferocious competition and a terrible economy. BA cabin crew typically earn much more than staff at rival airlines – and BA has a huge pension burden that its competitors do not. BA has a high-cost model, and has come to depend on juicy-margin passengers in first and business class. That income stream is heavily dependent on the business cycle to an extent that lower-cost airlines are not. BA still charges significantly more than no-frills operators, and justifies this by calling itself a ‘full-service’ airline even though my experience is that its service levels are no better than those of low-cost operators. In any climate, customers seek value for money regardless of the ticket price – and customers will desert an expensive offering for a cheaper one if the quality is indistinguishable.

The Next 100 Years: A Forecast for the 21st Century
by George Friedman
Published 30 Jul 2008

But when this cycle climaxes, the United States will be smashed by demography, energy, and innovation crises. It is worth pausing to consider the financial crisis in 2008. For the most part, it was a routine culmination of a business cycle. During an aggressive upsurge in an economy, interest rates are necessarily low. Conservative investors seek to increase yield without increasing risk. Financial institutions are first and foremost marketing organizations, designed to devise products satisfying demand. As the business cycle moves to climax, financial institutions must become more aggressive in crafting these products, frequently increasing the hidden risk in the product.

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Similarly, when East Asia's economy imploded in 1997, it came as a surprise to many, since the economies had been growing so fast. China has expanded extraordinarily for the last thirty years. The idea that such growth rates can be sustained indefinitely or permanently violates basic principles of economics. At some point the business cycle, culling weak business, must rear its ugly head—and it will. At some point a simple lack of skilled labor will halt continued growth. There are structural limits to growth, and China is reaching them. CHINA'S POLITICAL CRISIS Japan solved its problem with a generation of low growth. It had the political and social discipline to do this without unrest.

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Only the government can do that, and it does it by guaranteeing the debts, using the state's sovereign taxing power, and utilizing the Federal Reserve's ability to print money to bail out the system. In that sense, the 2008 crisis was not materially different from previous crises. While the underlying economy will go through a recession, recessions are normal and common parts of the business cycle. But at the same time, we are seeing an important harbinger of the more distant future. The decline in housing prices has many reasons, but lurking in back of it is a demographic reality. As global population growth declines, the historic assumption that land and other real estate will always rise in price due to greater demand becomes suspect.

The Global Minotaur
by Yanis Varoufakis and Paul Mason
Published 4 Jul 2015

POSTCRIPT TO THE NEW EDITION NOTES RECOMMENDED READING SELECT BIBLIOGRAPHY INDEX Abbreviations AC alternating current ACE aeronautic–computer–electronics complex AIG American Insurance Group ATM automated telling machine CDO collateralized debt obligation CDS credit default swap CEO chief executive officer DC direct current ECB European Central Bank ECSC European Coal and Steel Community EFSF European Financial Stability Facility EIB European Investment Bank EMH Efficient Market Hypothesis ERAB Economic Recovery Advisory Board EU European Union FDIC Federal Deposit Insurance Corporation GDP gross domestic product GM General Motors GSRM global surplus recycling mechanism IBRD International Bank for Reconstruction and Development ICU International Currency Union IMF International Monetary Fund LTCM Long-Term Capital Management (hedge fund) MIE military–industrial establishment NAFTA North American Free Trade Agreement NATO North Atlantic Treaty Organization OECD Organisation for Economic Co-operation and Development OEEC Organisation for European Economic Co-operation OMT outright monetary operations OPEC Organization of the Petroleum Exporting Countries RBCT Real Business Cycle Theory RBS Royal Bank of Scotland REH Rational Expectations Hypothesis RMB renminbi – Chinese currency SME small and medium-sized enterprise SPV Special Purpose Vehicle TARP Troubled Asset Relief Program For Danae Stratou, my global partner Preface to the new edition This book originally aimed at pressing a useful metaphor into the service of elucidating a troubled world; a world that could no longer be understood properly by means of the paradigms that dominated our thinking before the Crash of 2008.

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Any fair-minded investigator of these episodes must, many believe, conclude that the economic theories that dominated the thinking of influential people (in the banking sector, the hedge funds, the Fed, the European Central Bank (ECB) – everywhere) were no more than thinly veiled forms of intellectual fraud, which provided the ‘scientific’ fig leaves behind which Wall Street tried to conceal the truth about its ‘financial innovations’. They came with impressive names, like the Efficient Market Hypothesis (EMH), the Rational Expectations Hypothesis (REH) and Real Business Cycle Theory (RBCT). In truth, these were no more than impressively marketed theories whose mathematical complexity succeeded for too long in hiding their feebleness. Three toxic theories underpinning pre-2008 establishment thinking EMH: No one can systematically make money by second-guessing the market.

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In some cases, like British Petroleum, the advisers to the government were also the underwriters of the issue, and disaster following a stock market crash prior to the scheduled initial public offering was averted by the government guaranteeing the price of the shares. 9. Recall the three theories that were discussed in chapter 1: Efficient Market Hypothesis, Rational Expectations Hypothesis and Real Business Cycle Theory. 10. This book is not the place to enter into the proof in any detail. If interested, please consult Y. Varoufakis, J. Halevi and N. Theocarakis (2011) Modern Political Economics: Making sense of the post-2008 world, London and New York: Routledge. 11. In more technical language, the formulae used to assemble the CDOs assumed that the correlation coefficient between the probability of default across a CDO’s different tranches or slices was constant, small and knowable. 12.

Finding Alphas: A Quantitative Approach to Building Trading Strategies
by Igor Tulchinsky
Published 30 Sep 2019

Published 2020 by John Wiley & Sons, Ltd. 196 Finding Alphas RECOVERY • Management change • Mergers & acquisitions • Postbankruptcy reorganization Figure 25.1 EXPANSION • Capital restructuring • Corporate refinancing • Management change • Mergers & acquisitions PEAK • • • • • Capital restructuring Corporate refinancing Deleveraging Mergers & acquisitions Spin-offs & split-offs RECESSION • Capital restructuring • Corporate refinancing • Distressed asset • Shareholder activism • Spin-offs & split-offs Corporate events during phases of the business cycle diversification to a typical hedge fund’s overall portfolio. A corporate event is generally unique to the specific organization and unrelated to broad market events, helping to reduce a portfolio’s market dependency. Another important advantage of an event-driven strategy is that it is an all-season strategy.

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In every phase of the business and economic cycle, companies are pursuing ways to unlock shareholder value, so there is always some type of corporate event happening. Merger arbitrage events are quite frequent when the economy expands, for example, and distressed-strategy events are more common when the economy contracts. Figure 25.1 lists corporate events that are more frequent in various phases of the business cycle. MERGER ARBITRAGE Merger, or risk, arbitrage is probably the best-known event-driven investment strategy. In a merger, two companies mutually agree to join together, which often involves an exchange of shares. In an acquisition, there is a clear-cut buyer (the acquirer) and seller (the target).

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Published 2020 by John Wiley & Sons, Ltd. 292Index price effects 190 price targets 184 thought process 186–187 uses of 182–190 annualized Sharpe ratios 97 annual return 35 approximation, to normal distribution 91 APT see arbitrage pricing theory arbitrage capital structure 204–205 index-linked 223–230 index-rebalancing 203–204 mergers 196–199 statistical 10–11, 69–70 arbitrage pricing theory (APT) 95, 157 AsymBoost 125 ATR see average true range automated searches 111–120 backtesting 116–117 batch statistics 117–118 depth 116 diversification 118–119 efficiency 111–113 input data 113–114 intermediate variables 115 manual preparation 119 noise. 113 optimization 112, 115–116 scale 111–113 search spaces 114–116 sensitivity and significance 119 unitless ratios 113–114 automation 269 availability bias 81 average daily trading volume (ADV) 239 average true range (ATR) 136 avoidance of overfitting 74–75, 269–270 axes of triple-axis plan 85–86 back office digitization 8 backtesting 13–14, 69–76 automated searches 116–117 cross-validation 75 drawdowns 107 importance of 70–71 out-of-sample tests 74 overfitting 72–75 samples selection 74–75 simulation 71–72 statistical arbitrage 69–70 WebSim 33–41 backwardation 248 balance sheets 143 band-pass filters 128 batch statistics 117–118 behavioral bias 80–82 behavioral economics 11–12, 46, 138, 155–156, 171–172 BE/ME see book equity to market equity betas see risk factors bias 12, 19, 45, 77–82 analyst reports 190–192 availability 81 behavioral 80–82 confirmation 80–81 conservatism 155–156 data mining 79–80 formulation 80 forward-looking 72 herding 81–82, 190–191 positive 190 selection 117–118 systemic 77–80 variance trade-off 129–130 bid-ask spread 208–212 big data 46–47, 79–80 categorization of news 163 expectedness 164 full text analysis 164 news analysis 159–166 Index293 novelty analysis 161–162 relevance analysis 162 sentiment analysis 160–161 social media 165–166 book equity to market equity (BE/ME) 96, 97–99 bootstrapping 107 business cycle 196 Butterworth filters 128 C++ 12 calibration 12, 13–14 call transcripts 181, 187–188 capacity, exchange-traded funds 234–235 capital asset pricing model (CAPM) 10, 95 capital raising 227–228 capital structure arbitrage 204–205 CAPM see capital asset pricing model carry trade 248 carve-outs 200–202 cash flow statements 144–145, 150–152 categorization, of news 163 cauterization problems 121 CDSs see credit default swaps challenges, exchange-traded funds 239–240 “cigar butt investing” 202–203 clamping 54 classification problems 121 CNNs see convolutional neural networks Commitments of Traders (COT) report 244–245 completion of mergers 199 computer adoption 7–9 confirmation bias 80–81 Confusion of Confusions 7 conglomeration 197 conservatism bias 155–156 construction step-by-step 5 see also design contango 247–248 control of turnover 53–55, 59–60 convolutional neural networks (CNNs) 125–126 corporate governance 146 correlation 28–29, 61–68 of alpha value 66 density distributions 67 generalized 64–66 macroeconomic 153 Pearson coefficients 62–64, 90 pools 66 profit and loss 61–62 Spearman’s rank 90 temporal-based 63–64, 65 costs of carry 247–248 exchange-traded funds 232 of exit 19, 21 of trades 50–52 COT report see Commitments of Traders report covariance 62 see also correlation coverage drop 191–192 credit default swaps (CDSs) 204–205 crossing effect 52–53 cross-validation 75 CRSP U.S.

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
by Kevin Phillips
Published 31 Mar 2008

Some twentieth-century scholars, especially before World War II, explained economic or business cycles as an unfolding progression: First came normal expansion; next, some catalyst, an unusual event or a fear able to trigger a crisis (or panic). This flash point then led to economic recession or contraction, after which came revival of economic activity. Prosperity, by nurturing excess, led to crises, although economists usually disagreed on what and how. Europeans, in particular, embraced this weighty theory—la crise in French, die Krise in German. A crisis, wrote French business-cycle theorist Jean Lescure for the International Encyclopedia of the Social Sciences, “may be defined as a grave and sudden disturbance of economic equilibrium.”25 Economic historian Charles Kindleberger, in his classic work Manias, Panics, and Crashes, took a related view, often discounted during three decades of free-market orthodoxy, fatuous insistence on efficient and rational stock behavior, and homage to the ups and downs of the nation’s all-explaining money supply.

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Turgid as this may sound, a lot of people are missing something awfully big. These pages will not revisit the academic wars of the mid- and late twentieth century, which rival Keynesians on one side and monetarists on the other effectively controlled, partly smothering alternative interpretations of panics, crashes, and business cycles, including those that tied financial crises to innovative, excessive, and unstable private debt. Small matter now who prevailed back in 1937 or 1979. What matters nearly a decade into the new century is that recent circumstances—the 2007 global freeze-up of speculative and overextended credit markets—provide considerable affirmation of the maverick viewpoints centered on financial crises, private debt, and credit excesses.

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Derivatives, even though mere fifteen- to twenty-year-old conceptual adolescents, were, well . . . as safe as houses. “Democratization of capital” had allowed “We the People” to end-run around yesteryear’s elite market riggers. Bubbles did not really exist, being merely extensions of rational enthusiasm, and business cycles no longer had primitive time limitations. This gradual investiture of U.S. financial markets as centers of integrity and rational behavior, however vital to their success and popular appeal, should not be confused with the larger transformation of American politics, economics, and culture that has suffused each of the nation’s three capitalist-conservative heydays—the late-nineteenth-century Gilded Age, the Roaring Twenties, and the crisis-spangled boom that began in 1982 (and that, depending on one’s calculus, either ended in the 2000 crash or double-bubbled into 2007-8).

Value of Everything: An Antidote to Chaos The
by Mariana Mazzucato
Published 25 Apr 2018

These gains may come from, for example, economies of scale, provision of insurance and general risksharing. Becker's ideas encouraged many others to pursue similar investigations. Attempts have also been made to forge stronger links between macroeconomic patterns (the whole economy, for instance inflation, unemployment and business cycles) and microeconomic decisions made by people and firms. And, as we will see, other work has looked at the need to include non-priced goods (such as care) into GDP. But despite the critiques, marginal utility theory prevails and is highly influential. The narrow equilibrium view that we will all benefit from perfect competition has influenced - and continues to influence -government policies and those of powerful multilateral bodies such as the International Monetary Fund and the World Bank: how, with perfect competition, individuals will supposedly maximize their preferences and companies their profits so we will all benefit.

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This is a state in which forces in the economy, such as supply and demand, are in balance and there is no incentive to change them, even though the total output of the economy is low and wages and employment are depressed. Keynes used this idea to develop a theory of the macroeconomy - the economy as a whole - in which government spending could stabilize the business cycle when business was investing too little, and even raise the economy's output. In order to lift the economy out of the depression, governments needed information to measure how their policies were working. Up until then, they had flown mostly blind: they had no need for detailed statistics because the economy was supposed to be self-regulating.

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Fourth, employees, who may have been induced to leave secure jobs by the promise of equity in a risky venture, can realize the value of that equity - or at least see the possibility of doing so now that there is some liquidity in the company's stock. This, indeed, was the primary motivation for Microsoft's IPO in 1986, having awarded stock options to its employees since 1982.17 To restate: investments in early-stage businesses are risky and most will fail. The volatility of returns to VC across the business cycle reveals the perils.18 Nonetheless, many venture capitalists have found themselves among the super-rich as a result of the success of high-tech firms in Silicon Valley. How has this happened? They have taken risks, of course -although mostly with other people's money - which deserve to be rewarded.

The Corona Crash: How the Pandemic Will Change Capitalism
by Grace Blakeley
Published 14 Oct 2020

Along with the increase in debt, the continued increase in asset prices driven by quantitative easing exacerbated pre-existing inequalities and generated a reaction against globalisation that threatened to bring the whole system crumbling down. With incomes low, savings drained and debt levels high, even an ordinary turn in the business cycle was bound to mean great financial hardship for families throughout the Global North. This was the troubled world upon which the novel coronavirus descended in the first months of 2020. 2 Into State Monopoly Capitalism In the last week of March 2020, the world’s leading central banks pledged to ‘do whatever it takes’ to bailout the corporate economy and prevent the bubble in the corporate bond market from bursting.

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They frequently complain about moral hazard and loose monetary policy, blaming the overactivity of the state for the emergence of a form of ‘crony capitalism’ characterised by market centralisation, complex regulation and low productivity, and arguing for a return to a purer, more competitive, freer version of capitalism. These arguments are generally pitted against those of social democrats, who respond that state intervention is necessary to mitigate the ups and downs of the business cycle – to protect workers from the caprices of capitalist accumulation. Banks, businesses and investors must be bailed out because otherwise the entire economic system will collapse, bringing civilisation down with it.22 Both arguments have some merit. Excessive state intervention has distorted the operation of free market capitalism, helping to transform it into a financialised, monopolistic variant.

The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era
by Gary Gerstle
Published 14 Oct 2022

These laws would bring a stability to the stock market that it had never previously enjoyed.6 The Roosevelt administration also embraced a vernacular form of Keynesianism in 1935 and 1936. Keynesian theory, so-called because the Cambridge economist John Maynard Keynes was its architect, postulated that expenditures well beyond government revenues were a positive good during the trough of business cycles, as were the deficits they generated. Such deficit spending put money in the hands of consumers that they would not otherwise have had, thereby stimulating them to buy goods. Money in the pockets of the masses could come in various forms: unemployment insurance, old-age pension checks, public employment, efforts to strengthen labor’s ability to wrest larger rather than smaller wage increases from their employers, and low interest rates on borrowed money for homes and cars.

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But Johnson was right in reading into Eisenhower’s silence on domestic politics a repudiation of Taft. Indeed, Eisenhower’s actions in office would soon reveal that he had acquiesced to the core elements of the New Deal. He believed in using Keynesian fiscal and monetary tools to smooth out the highs and lows of the business cycle. The historic contract that the UAW had achieved with America’s major car manufacturers in 1950, the Treaty of Detroit, did not trouble him.58 To the contrary, he accepted that strong unions were necessary to moderate the power of corporations and spread the affluence of American capitalism through the social order.

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Bitter and often violent strikes were convulsing centers of northern industry, with battles spreading from manufacturing sites and railroad depots through city streets, destroying property and sometimes life itself. The trigger for these confrontations was often a financial crisis or a trough in the business cycle, causing layoffs and wage cuts. But the deeper issue was the growing conviction among American workers that the freedom promised to them by the American Revolution and reaffirmed by the Civil War had produced only counterfeit liberty—thus, the growing appeal in working-class ranks of various forms of radicalism, including socialism, and the increasing resort to strikes and armed confrontations.13 The turn toward insurgency and violence terrified elite and middle-class groups in Europe and America.

Hedge Fund Market Wizards
by Jack D. Schwager
Published 24 Apr 2012

In inflationary deleveragings, monetary policy is ineffective in creating credit because increased money growth goes into other currencies and inflation hedge assets because investors fear that their lending will be paid back with money of depreciated value. 3. Business cycle—The business cycle refers to fluctuations in economic activity. Dalio explains that “In the ‘business cycle,’ the availability and cost of credit are driven by central bankers, while in the ‘long wave cycle,’ the availability and cost of credit are driven by factors that are largely beyond central banks’ control.” In the standard business cycle, the central bank can boost a lagging economy by lowering interest rates. In the deleveraging phase of the long wave cycle, central banks can’t exert any influence by lowering rates because rates are already at or near zero.

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Productivity growth—Real per capita GDP in the United States has increased at an average rate of near 2 percent over the past 100 years as a result of productivity gains, but has fluctuated widely around this trend based on the prevailing long-term and business cycles. 2. Long-term credit expansion/deleveraging cycle—Initially, the availability of credit expands spending beyond income levels. As Dalio explains, [This process] is self-reinforcing because rising spending generates rising incomes and rising net worths, which raise borrowers’ capacity to borrow, which allows more buying and spending. . . . The up-wave in the cycle typically goes on for decades, with variations in it primarily due to central banks tightening and easing credit (which makes business cycles). Although self-reinforcing, the credit expansion phase ultimately reaches a point where it can no longer be extended.

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See Platt, Michael Blue Ridge Trading Brazilian interest-rate trade Breakouts Bridgewater. See also Dalio, Ray All Weather Fund culture at Principles Pure Alpha fund trading processes and system Bubbles: Colm O’Shea on dot-com financial bubble of 2005–2007 (see also Subprime mortgages/bonds) gold housing predicting turnaround Buffett, Warren Burry, Michael Business cycle Call option. See Options Canadian Natural Resources Capital One Cap rate Carry currencies Casino (film) Casino games. See Gambling Catalyst theory Category-based thinking Celanese Chinese coal market Chipotle Citigroup Clark, Steve Claugus, Thomas Collateralized debt obligations (CDOs) Commissions Commodity Trading Advisors (CTAs).

This Is Service Design Doing: Applying Service Design Thinking in the Real World: A Practitioners' Handbook
by Marc Stickdorn , Markus Edgar Hormess , Adam Lawrence and Jakob Schneider
Published 12 Jan 2018

How can we make it easier for these people to cooperate and create new value together, so that each department sees the results as its own and is invested in their success? And how can we help them to orchestrate experiences across their silos, working together to create real satisfaction? Comment “As described by Schumpeter in 1927, the economic business cycle has four phases: brain activity, adoption curve, routine, and crises. When the cycles lasted 60 years, these phases occurred without people noticing. Now that they last six months, knowing how to work on several “brain activity” phases to create knowledge is fundamental. In a service-dominant logic worldview, these brain activity phases are the main reason why organizations should adopt service design

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It is often closely linked to generating a unique selling proposition (USP), and the innovation might be in terms of creating unique offerings – but it might also be in the internal processes that enable those offerings or even in the business model of the organization. Whichever of these applies, the need for innovation is driven by a changing and super-connected (business) world, an immense shortening of business cycles, and a general ubiquity of technology and information which makes it easier than ever to copy. If an offering has value and is easy to reproduce, then it will be copied directly or indirectly, legally or illegally by people who have not had the development costs and can offer it cheaper. Even if they offer it at the same price, the result is the same – commoditization.

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INDEX A abductive thinking 161 Abrell, Thomas 246–251 Action step (TTM) 278–279 actors in ecosystem maps 61–62 in journey maps 46 in prototyping 67–69, 217, 219 in stakeholder maps 60 in value-network maps 61 Adaptive Path (case study) 146–148 adaptive triangle (agile) 341 adoption curve phase (economic business cycle) 10 agencies (stakeholder terminology) 64 Agile Manifesto 281 agile method 281, 284, 341 Airbus (case study) 246–251 Almenberg, Erik 256 American Institute of Architects 300 Ana Couto Branding (case study) 384–386 analogies for ideation 182–183 Andersson, Sophie 203–205, 484–486 The App Business (case study) 142–146 Arbetsförmedlingen (case study) 484–486 architectural process 298–305 architecture. environment, spaces, and architecture associations for ideation 182–183 assumption-based tools 40, 50, 482 ATO (case study) 259–261 audience in prototyping 66–67, 217–219 Australian telco company (case study) 424–425 Austrian secondary schools (case study) 480–484 autoethnography (data collection) 119 B backstage processes/actions 15, 47, 54–56, 75 Baraka, Mama 265 bar camp/unconference 481 basic factor (Kano model) 11, 174 Baupiloten (company) 301 Beck, Kent 281 behavioral change, Transtheoretical Model of (TTM) 278–279 belief systems, change and 277–278 Benny Hill sorting 184 bias confirmation 107 focus groups 123 prototyper 219–220 researcher 110 sampling 103 ugly baby 343 Biolchini, Clarissa 384–386 Björkqvist, Therese 256 black boxing approach 353 Blomkvist, Johan 210, 220, 226 bodystorming 181, 241, 333 boom-wow-Wow-WOW-BOOOM 48–49 Boscariol, Ivan 396 boundary objects 41, 43 Bowman, Linda 447–451 Boxberg, Dorothea von 262 brain activity phase (economic business cycle) 10 brainstorming 180, 333 brainwriting 180–181, 333 Breman, Anton 484–486 British Design Council 19, 86 Brolund, Per 203–205 Buck, Rainer 308 budgeting 358–360 building physical spaces about 434 connections 438 division of the space 435–436 flexibility 436–437, 440 furnishing considerations 437–438 inspiration 436, 438–440 laying out the process 439 low and high tech 438 scars 439 selecting your canvas 434 sound considerations 437 space considerations 434 walls 434–435 building stage (architecture) 302–303 build-measure-learn cycles 343 business experiments 74 business lead (role) 342 Business Model Canvas 74, 76, 239, 318–319, 482 Business Origami 74, 179, 238 business value 67, 74, 231, 237–239 C cardboard prototyping 234, 335 cards for ideation sessions 182–183 Carlander, Kristina 212, 218–219, 223, 225, 229 Carlson, Jan 57 Carroll, Dave 8–9 Carr, Valerie 196–199 case studies embedding service design in organizations 478–503 facilitation workshops 420–425 ideation 188–205 implementation 306–325 making space for service design 442–451 prototyping 244–267 research 134–153 service design process and management 376–387 CBi China Bridge (case study) 447–451 challenges for organizations empowered customers 6, 8–9 need for innovation 10–11 reacting to 11 silos 7–10 change lead (role) 342 change management about 274–275 beliefs and emotions 277–278 cost considerations 272 key tactics of change 278–279 knowing how people change 275–276 reducing fear of change 469 understanding what will change 276–277 change management process 279 Chang, Soo Ren 12 channels of communication 47, 78 channels of distribution 78 Chaos Report 281 Cid, Danilo 384 Clatworthy, Simon 19, 83, 98, 107, 337, 342, 349, 357, 367, 455, 457, 470 clients (stakeholder group) 64 clustering ideas 183–185 cluster sampling 104 Coca-Cola Hellenic Business Services Organization (case study) 495–498 co-creation architecture and 298, 301, 303 audience 218 change management and 279 co-creative principle 25 co-creative workshops 107, 117, 125–126, 391, 394 establishing proficiency in 468 facilitation and 391, 394 guerilla 359 ideation case studies 190–196, 397 leading through 468 onboarding and communication with 366 participation and 279 physical spaces case study 447–451 prototyping case studies 244–267 reducing fear of change and failutre through 469 in research 113 space and 441 teams for 219–220, 348, 397 codifying data 113–114 co-facilitation and facilitator role 395–396 collaboration 27–28, 252–255, 259–261 collaborative (principle) 27–28 color-chain warm-up 417, 419 commandments of service design 32–33 communicative prototyping 213 concept owner (role) 219 confirmation bias 107 confirmatory research 100 conflict resolution 366 Congdon, Stuart 13 consent in facilitator role 392–393 consultants (stakeholder group) 64, 347, 353 Contemplation step (TTM) 278–279 content reviews 367 contextual interviews (data collection) 121–122 contextual prototyping 66–67, 217, 221–223, 246–251 convenience sampling 103 convergence in design process 85–86, 167–168, 329 conversion funnel 47 core activities of service design core patterns 85–90 ideation 91, 93 implementation 91–92 planning 349–352 prototyping 91, 93 research 91–92 visual representation of 91–92 core (service) design team (stakeholder group) 64, 342, 462 cost structure (Business Model Canvas) 77, 79 covert research 106 Cowoki (company) 299–300 creation stage (architecture) 301 crises phase (economic business cycle) 10 critique sessions 229, 412 cross-disciplinary language, service design as 22 crowdfunding 317–318 cultural probes (data collection) 124–125 Currano, Becky 166 current-state journey maps 50, 149–153, 332 current-state system maps 58, 332–333 current.works (case study) 142–145 Currie, Laurie 7, 11 customer actions (service blueprints) 54–55 customer journeys about 44–57 data visualization, synthesis, and analysis using 129–130, 228 generic stages of 112 customers defined 63 empowered 6, 8–9 Moments of Truth 57 perspective for journey maps 46, 51 stakeholders and 59 touchpoints with 57 what they want 3–4 customer segments (Business Model Canvas) 76–78 customer service, service design and 24 D daily stand-up 362 Danze (case study) 193–195 data codification 113–114 data collection methods about 105 co-creative workshops 107, 117, 125–126 data triangulation 107–109 desk research 107, 117–119 indexing 110, 113 method triangulation 107–109 non-participant approaches 107, 117, 123–125 participant approaches 107, 117, 120–123 researcher triangulation 107–110 research methods 105–107 self-ethnographic approaches 107, 117, 119–120 data triangulation 107–109 data visualization, synthesis, and analysis about 127, 228 customer journeys 129–130, 111 jobs to be done 113, 131, 228 journey maps 129–130, 111 key insights 113, 131, 228 personas 111, 128–129, 228 research process 111–114 research reports 113, 132–133 research walls 111, 128, 228 stakeholder maps 228 system maps 113, 130 user stories 113, 132, 228 Davis, Sheryl 148 deadlines, impossible 408 De Becker, Jurgen 313–316 decision making 160–162, 185, 334, 356 decision matrix 185 definition phase (product lifecycle) 291 deliverables (outputs) 165, 354–357 Designit (case study) 381–383 Designit Oslo (case study) 252–255 design lead (role) 342 design sprints about 473–476 dealing with constraints 340 ideation and 474 implementation and 475 Itaú case study 384–386 in organizations 475–476 planned iterations 345, 348 process templates 374–375 prototyping and 474 research and 473–474 design team composition 64, 342–344, 462–464 DesignThinkers Group (case study) 495–498 Design Thinking Center 439–440 desk research 107, 117–119, 224 desktop system maps 74, 179, 238 desktop walkthrough 233–234, 335, 482 Dessauer-Siegers, Ozlem 149–153 Determination step (TTM) 278–279 Deutsche Telekom (case study) 302, 444–446, 471–472, 491–494 DiClemente, Carlo 278–279 differences in design processes 88 digital artifacts and software props for 217 prototyping 67, 72–73, 216, 231, 235–237 research into 101 direct experience (prototyping) 227 director (role) 394 divergence in design process 85–86, 167–168, 329 Doberman (case study) 256–258 documentation 169–173, 356–358 Double Diamond 314–315 Dovelius, Johan 256–258 dragon’s den session 413 dramatic arcs 47–49 Dream Space Map 300–301 Drew, Cat 139–141 Drummond, Sarah 196–199, 457, 459, 468 Durstewitz, Markus 246–251 E early user feedback 282 economic business cycle 10 ecosystem maps 58, 61–63 ecosystems integrating into existing 272 prototypes of 67, 74, 231, 237–239 Edelweiss Bike Travel (case study) 308–312 Edgewood Center for Children and Families (case study) 146–148 Edman, Thomas 257 embedding service design in organizations design sprints 473–476 establishing proficiency 467–472 getting started 455–461 jamming concept 465–466 scaling up 462–466 embedding service design in organizations case studies about 478–479 building up service design knowledge across projects 499–503 creating customer-centric culture 495–498 including in nationwide high school curricula 480–484 increasing national service design awareness and expertise 487–490 integrating in a multinational organization 491–494 introducing in a governmental organization 484–486 emergent sampling 103 emotional journeys 46 emotions, change and 277–278 empathy building with bodystorming 181 building with personas 41, 128 data visualization and 111 flow of 356 practicing 468 using toward stakeholders 278 empathy maps 122, 128 employees 46, 51, 64, 272 empowered customers 6, 8–9 Engqvist, Helena 484 environments, spaces, and architecture about 67, 71, 231 architecture in implementation 274, 298–305 assessing what to make or build 216 defining 217 methods for 234 planning considerations 221–223 room considerations when facilitating workshops 408–409 E.ON (case study) 136–138 Epic dramatic arc 49 Eriksson, Martin 289 evaluative prototyping 213, 335 evidencing principle 25–26 Ewerman, Daniel 484–486 excitement factor (Kano model) 10, 174 Expedition Mondial (case study) 203–205 experience-centered journey maps 51–53 experience prototyping 225, 227 Experio Lab (case study) 256–258 explorative prototyping 212–213, 225, 335 exploratory research 100 extended (service) design team 64, 343, 462–463 extreme case sampling 103 F facilitation lead (role) 342 facilitation workshops about 391 building the team 397 case studies 420–425 co-creation and 107, 117, 125–126, 391, 394 creating safe space 399–404 facilitation methods for 400, 417–419 key concepts in 392–393 key facilitation techniques 407–415 planning the work 398 purpose and expectations 397–398 styles and roles of 394–396 success factors in 397–406 work modes in teams 404–406 facilitation workshops case studies about 420–421 energizing power of the unfamiliar 422–423 pivot and focus 424–425 facilitation workshops methods color-chain warm-up 417, 419 red and green feedback 418 three-brain warm-up 417, 419 “Yes, and ...” warm-up 400, 418 facilitation workshops techniques changing status 413–414 doing, not talking 415 feedback 412–413 growing as facilitators 415 post-it or lose it 410–411 room considerations 408–409 space, distance, and positioning 411–412 timing considerations 408, 410 tools and props 409 visualization 409–410 warm-ups 400, 407, 417–419, 482 facilitator (role) about 219, 392 adopting 394–395 aiming for slow transitions 288 co-facilitation and 395–396 consent of participants and 392–393 neutrality in 393 status of 393, 413–414 team members in 396 failure dealing with in prototyping 229 fail first concept 404 reducing fear of 469 feasibility prototypes 214–215 feedback 282, 412–413, 418 Ferguson, Chris 7, 165 fidelity of prototypes 65–66, 220–222, 259–261 first-order concept (raw data) 38, 109 Fjord (case study) 259–261 Fjord Evolution (case study) 259–261 focus groups (data collection) 123 focus of journey maps 51–53 forced iterations 350 Forum Theater 393, 395 Frackenpohl, Minka 298–305 Franz, Barbara 262–263 frontline staff 64 frontstage processes/actions 15, 47, 54–55 Frost, Chris 144 future-state journey maps 50, 149–153, 216 future-state system maps 58 G Garica, Marc 200–202 Gastspiel (case study) 308–312 Gately, Lisa 313–316 Gates, Melissa 322–324 Genesys (case study) 313–316 Global Service Jam 415, 465–466 Google (case study) 499–503 Gottschalk, Thomas 264, 266 groan zone 167–168 Gross, Ted 157 Guilford, Joy Paul 85 H Habermas, Jürgen 110 Hanhan, Musa 12 Hartmann, Marie 252–255 Hawthorne effect 107 Hegeman, Jamin 85–86, 91, 146–148, 335, 339, 353, 357–358 Helmbrecht, Anke 109, 128, 471–472 Hemingway, Ernest 401 Herzberg’s theory on motivators and hygiene factors 4 Hill, Charles 214 Hjert, Sally 256 holistic principle 25–28 Hoogenraad, Renatus 402, 404, 407–409 hostages, prototypes as 220 Houde Stephanie 214 Houle, David 450 “How might we ...?”

Walk Away
by Douglas E. French
Published 1 Mar 2011

No one is asked for their tax returns and pay stubs to qualify for an auto loan. But there was no bubble in the price of cars despite the low financing rates. Cars are consumer goods. Homes, on the other hand, when considered with the land and infrastructure that is required are higher-order goods. Austrian Business Cycle Theory dictates that people, as they earn money, spend some on consumption and keep some in cash balances, while the rest is saved or invested in capital or production. For most people, this means setting aside a portion of their income by buying stocks, bonds, or bank certificates of deposit or savings accounts.

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Index A | B | C | D | E F | G | H | I | J K | L | M | N | O P | R | S | T | U V | W | Z 13 Bankers, 51 60 Minutes, 1 A Acorn, 33 Advances In Behavioral Economics, 69 American Individualism, 20 Architect’s Small House Service Bureau, 20 Are Home Prices The Next Bubble, 36 Ariely, Dan, 72 Aristotle, 46 Assets and the Poor, 32 Atlantic, The, 50 Austrian Business Cycle Theory, 66 Austrian Economics: An Anthology, 6 B Babcock, Fredrick, 26 George Babbitt, 26 Bank of America, 11, 16, 17, 49, 56 Barnes, Alyson, 8 Barron’s, 42 Bernanke, Ben, 36, 39 Better Homes in America Movement, 20 Beyond Greed and Fear, 71 Blackstone Group, 8 Bloomberg News, 8 Bourgeois Utopias, 298 Building for Babbitt, 20 Building Suburbia, 11 Building the Dream, 21 Bureaucracy, 75 Bush, George W., 36 C Caldwell, Phyllis, 50 Carmon, Ziv, 72 Casey, Doug, 60 CBS, 1 Cisneros, Henry, 33 CNBC, 3, 16 congressional loan conduit, 31 chart Conquer the Crash, 60 Courson, John, 10 Cutaia, Susan and Anthony, 39, 41 D De Coster, Karen, 5 Discriminating Risk, 31, 54 Duebel, Achim, 22 E Edelman, Ric, 42 Einhorn, David, 56 Elliott Wave Theorist, 60 Empowerment Network, The, 32 Ethics of liberty, The, 46, 54 Ethics of Money Production, The, 61 Exotic Preferences, 70 Expanding the Opportunities, 32 Equity Office Properties, 8 F Fannie Mae Bank of America, 16–17 CEO James Johnson, 37 conventional mortgages, 31 expanded government role, 52 FDR created, 28 HUD, 30 industry centralization, 34 locking out borrowers, 59 loosened loan criteria, 33 losses, 13 no incentive to negotiate, 49 Rothbard view, 48 underwater houses, 76–77 Fair Housing Act, 30 FDIC, 35, 39, 48 Federal Home Loan Banking System, 22 Federal Housing Administration, 22, 23, 29 Federal Reserve, 4, 5, 35, 36, 39, 42 Financial Times, 53 FIREA, 32 First American Core Logic, 3 Fishman, Robert, 28, 29 For a New Liberty, 54 Freddie Mac bond losses, 17 congressional authorization, 31 entrepreneurial risk, 56 expanded government role, 52 industry centralization, 34 loosened loan criteria, 33 Mortgage Electronic Registration System, 13 mortgages back to tenders, 16 Rothbard view, 48 G Geithner, Tim, 53, 57 Genesove, David, 69 Ginnie Mae, 30–31 Goodman, Laurie, 49 Goodman, Peter S., 36, 37, 39 Government National Mortgage Asssociation, 3, 52 Grant’s Interest Rate Observer, 46 Great Depression, 4, 26, 52 Greenspan, Alan, 35 Gross, Bill, 52 Guiso, Luigi, 45 H Hagerty, James R., 49 Hayden, Dolores, 22, 28 history of home values, 2 chart Home Depot, 5 Home Modernization Bureau, 20 Hoover, Herbert, 4, 20, 21, 36 HOPE, 32 Housing Advisory Council, 26 Hudson, Kris, 9 Hülsmann, Jörg Guido, 61, 62 Hutchinson, Janet, 20, 27–28 I Indiviglio, Daniel, 50 J Johnson, James, 37 Johnston, Joseph F., 8 journal, Association for Financial Counseling, 41 journal of Financial Planning, 41, 42 journal of Markets & Morality, 8 K Kemp, Jack, 32–33 Kudlow, Larry, 16 Kwak, James, 52 L La Valle, Nye, 14 Langone, Ken, 5 Las Vegas, 3, 49, 50, 57, 71, 79 Las Vegas Review journal, 50 Legal Studies Discussion Paper, 1 Levitin, Adam, 12 Levitt, William, 20 Lewis, Sinclair, 26 LewRockwell.com, 5 Lira, Gonzalo, 12–14 Lowenstein, George, 70 Lowenstein, Roger, 11, 62 Luth, Don, 62 M Macerich Co., 9 Market For Liberty, The, 56 Marketing and Financing Home Ownership, 19 Mauldin, John, 14 Mayer, Christopher, 69 McCarthy, Jonathan, 36 Miami Beach, 3 Mind of the Market, The, 71 Mises, Ludwig von, 6, 75 Moffett, James, 26 Morgan Stanley, 8, 9 Morgenson, Gretchen, 16 MSNBC, 16 Murin, Joseph, 3, 5 Murphy, Larry, 50 N Naked Capitalism, 14 National Association of Real Estate Boards, 20 National Association of Realtors, 31 National Homeownership Strategy, 33–34 Natural law and the fiduciary duties, 8 New Deal, 23 New York Times, iv, 16, 51 O Obama, Barack Hussein, 14 OFHEO, 32 Otis, James, iii Own Your Own Home, 4, 19, 20 P Past Due, 36 Paulson Jr., Henry M., 10 Peach, Richard W., 36 Phoenix, 3, 51 PIMCO, 52, 53 Pines, Michael, 16 Pinto, Edward, 33 Powell, Michael, 51 Power and Market, 57 Prechter, Robert, 60 Predictably Irrational, 72 Prelec, Dražen, 70 private property, iii, 24–25, 27–28, 47 Pruitt, A.

The Making of a World City: London 1991 to 2021
by Greg Clark
Published 31 Dec 2014

London’s civil society, political leadership and commercial stakeholders all fostered an unprecedented global reach and cosmopolitan identity. In doing so, they have reaffirmed the city’s open and organic character, in which change occurs in incremental, unexpected and exciting ways. In 2015, with the Olympics now a fond memory and a new global business cycle well under way, there is a consensus that London is once again moving full steam ahead. But with a new cycle comes new challenges. London’s historic strengths, and its progress since London: World City, will not, on their own, be sufficient to guarantee success in the medium-term future. Success has brought with it a new set of tasks, the unintended consequences of getting other things right.

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In a climate of severely constrained public finance and debt finance, different financing tools are being explored – from municipal bonds to tax increments, value capture techniques, special investment funds, public land leverage and user-fee tolls. Partnerships with institutional investors, sovereign wealth funds, niche fund managers and syndicated investment clubs are under negotiation in cities everywhere. Finally, the new business cycle has brought into clarity the reality of demographic change that is profoundly shaping cities’ revenue capabilities and service delivery demands. As well as increased mobility, especially of younger knowledge workers and aspirational immigrants, cities are confronted with dramatically extended life expectancies often coupled with low birth rates.

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Ambitious metropolitan plans in Sydney and Brisbane reflect city and state government confidence that they will remain safe places of retreat for foreign funds, and can manage the cost and planning pressures of internationalisation. 132 London today and in the future Insights from benchmarks about short- and long-term city success Comparative urban benchmarks indicate that globalisation has created a more open – if not even – playing field whereby BRIC economies and others are becoming competitive with the developed world. This means that cities anywhere on the globe can achieve success over multiple business cycles if they fulfil particular criteria, or will fail if they cannot meet them. A shortfall in provision in any one major area is now considered a barrier to stable success. As the World Cities Survey stated, “to matter as a world city you need to score well on all measures; you need a broad base of appeal … [a location] where the ideas and values that define the global agenda and shape the world are settled” (Knight Frank and Citigroup, 2010).

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
by Richard Bookstaber
Published 1 May 2017

Journal of the Atmospheric Sciences 20, no. 2: 130–41. doi: 10.1175/1520-0469(1963)020<0130:DNF>2.0.CO;2. Lowenstein, Roger. 2000. When Genius Failed: The Rise and Fall of Long-Term Capital Management. New York: Random House. Lucas, Robert, Jr. 1977. “Understanding Business Cycles.” Carnegie-Rochester Conference Series on Public Policy 5: 7–29. doi: 10.1016/0167-2231(77)90002-1. ———. 1981. Studies in Business-Cycle Theory. Cambridge, MA: MIT Press. ———. 2009. “In Defense of the Dismal Science.” The Economist, August 6. http://www.economist.com/node/14165405. ———. 2011. “What Economists Do.” Journal of Applied Economics 14, no. 1: 1–4.

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This hypothesis, wrote Lucas, will most likely be useful in situations in which the probabilities of interest concern a fairly well defined recurrent event, situations of “risk” [where] … behavior may be explainable in terms of economic theory.… In cases of uncertainty, economic reasoning will be of no value.… Insofar as business cycles can be viewed as repeated instances of essentially similar events, it will be reasonable to treat agents as reacting to cyclical changes as “risk,” or to assume their expectations are rational, that they have fairly stable arrangements for collecting and processing information, and that they utilize this information in forecasting the future in a stable way, free of systemic and easily correctable biases.5 Humans are not ergodic, however.

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Simply declaring that such events can occur, or noting that one did occur, ignores the essential dynamics that we must understand and be able to examine if we are to do more than point and shout when a crisis seems to have come out of the blue. Lucas has written, “In general, I believe that one who claims to understand the principles of flight can reasonably be expected to be able to make a flying machine, and that understanding business cycles means the ability to make them too, in roughly the same sense.”5 Put another way, if you want to understand crises, you have to develop a system that can create one. And to create one, you want to note and address these points: • The dynamics might be computationally irreducible, so follow the paths rather than try to find a mathematical shortcut

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe
by Greg Ip
Published 12 Oct 2015

Still, he concluded, since the Great Depression, the federal government had erected firewalls between the financial system and the real economy where ordinary people worked and invested: the vast federal budget, deposit insurance, and, most important, an activist Federal Reserve: “It is now nearly inconceivable that there would be no active lender of last resort in time of crisis.” The next panelist, Hyman Minsky, a professor at Washington University in St. Louis, for decades had flogged an iconoclastic theory of business cycles that fellow scholars had largely ignored. Since the 1960s, he said, the authorities had staved off another depression by reacting to every crisis with some combination of government borrowing and Federal Reserve lending. But each success, he warned, simply compounded the behavior that made the system crisis-prone.

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In 2002 economists Mark Watson and James Stock came up with a grander label. They fed a wealth of data into their computer models and identified a remarkable decline in the volatility of growth, inflation, and interest rates since 1984, dubbing this period “the Great Moderation.” Theories abounded as to why the business cycle had been tamed: some said it was good luck, including fewer oil price shocks. Some credited better business practice, including tighter control of inventories. Ben Bernanke, an economist steeped in the theory and history of monetary policy who joined the Fed in 2002, credited one factor above all: the Fed had become far more adept at nipping inflation in the bud.

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Everything we do to make ourselves feel safer brings with it the inherent danger of amplifying our appetite for risk taking, the possibility that we’ll treat something dangerous as less dangerous, and the potential for panic when we discover we are wrong. The world’s twin financial crises were the product of this pursuit of safety. By defeating inflation, the Federal Reserve ushered in the Great Moderation, an era of subdued business cycles that made it safer to buy homes and take on debt with the help of financial innovations that made risk more manageable. Europe’s leaders sought to abolish the currency crises and political tensions that threatened their unity by introducing a single currency. Both the United States and Europe were so successful that they unleashed massive booms in borrowing that ended in financial catastrophe.

The Entrepreneurial State: Debunking Public vs. Private Sector Myths
by Mariana Mazzucato
Published 1 Jan 2011

Wall Street Journal, 28 September. Available online at http://online.wsj.com/article/SB10001424052970204831304576596833595375002.html (accessed 31 October 2012). Tassey, G. 2012. ‘Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy’. Economic Analysis Office working paper, US National Institute of Standards and Technology (NIST), February. Available online at http://www.nist.gov/director/planning/upload/beyond-business-cycle.pdf (accessed 29 January 2013). Telegraph. 2010. ‘David Cameron Pledges Greenest Government Ever’. Video, 14 May. Available online at http://www.telegraph.co.uk/news/newsvideo/uk-politics-video/7723996/David-Cameron-pledges-greenest-governmentever.html (accessed 2 May 2011).

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If you work them into the surly, obstinate, terrified mood, of which domestic animals, wrongly handled, are so capable, the nation’s burdens will not get carried to market; and in the end public opinion will veer their way… (Keynes 1938, 607; emphasis added) This view, of business not as tigers and lions, but as pussycats means that the State is not only important for the usual Keynesian countercyclical reasons – stepping in when demand and investment is too low – but also at any time in the business cycle to play the role of real tigers. Nowhere is this truer than in the world of innovation – where uncertainty is so high. Indeed, the green revolution that is taking off in the world, only happens to coincide with a crisis environment (and in fact the government’s relevant investments reach much farther back in time).

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While the State needs to take risks, it should not be simply absorbing (or even ‘mitigating’) the risk of the private sector, but taking the kind of risks that the private sector is not willing to take, and also reaping returns from that risk taking. Reaping the returns is crucial, because the innovation cycle can thus be sustained over time (with returns from the current round funding the next round – as well as the inevitable losses along the way) and be less susceptible to political and business cycles. Public policies should focus on the specific role the public sector plays, within and between sectors and institutions, in order to allow things to happen that otherwise would not have – exactly as Keynes argued in The End of Laissez Faire (1926). This is not only about the important countercyclical role that public sector spending should have (and unfortunately is not having today due to the austerity ideology), but also about the types of questions that must be posed to each individual policy instrument: e.g. do R&D tax credits make R&D happen that would otherwise not have?

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies
by Erik Brynjolfsson and Andrew McAfee
Published 20 Jan 2014

However, unlike the steam engine or electricity, second machine age technologies continue to improve at a remarkably rapid exponential pace, replicating their power with digital perfection and creating even more opportunities for combinatorial innovation. The path won’t be smooth—for one thing, we haven’t banished the business cycle—but the fundamentals are in place for bounty that vastly exceeds anything we’ve ever seen before. * * * * The Rule of 70 (or, more precisely, the rule of 69.3 percent) is based on the following equation: (1 + x)y = 2 where x is the rate of growth and y is the number of years. Taking the natural logarithm of both sides gives y ln (1 + x) = ln 2.

…

Henry Southgate, Many Thoughts of Many Minds: Being a Treasury of Reference Consisting of Selections from the Writings of the Most Celebrated Authors . . . (Griffin, Bohn, and Company, 1862), p. 451. 2. Paul R. Krugman, The Age of Diminished Expectations: U.S. Economic Policy in the 1990s (Cambridge, MA: MIT Press, 1997), p. 11. 3. Joseph Alois Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (Philadelphia, NJ: Porcupine Press, 1982), p. 86. 4. Robert J. Gordon, Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds, Working Paper (National Bureau of Economic Research, August 2012), http://www.nber.org/papers/w18315. 5.

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Holmstrom and P. Milgrom, “Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design,” Journal of Law, Economics & Organization 7, no. 24 (1991). 11. Joseph Alois Schumpeter, The Theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle (Piscataway, NJ: Transaction Publishers, 1934). 12. Ibid., p. 66. 13. Press Release, “U.S. Job Growth Driven Entirely by Startups, According to Kauffman Foundation Study,” Reuters, July 7, 2010, http://www.reuters.com/article/2010/07/07/idUS165927+07-Jul-2010+MW20100707. 14. John Haltiwanger et al., “Business Dynamics Statistics Briefing: Job Creation, Worker Churning, and Wages at Young Businesses,” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, November 1, 2012), http://papers.ssrn.com/abstract=2184328. 15.

The Weightless World: Strategies for Managing the Digital Economy
by Diane Coyle
Published 29 Oct 1998

In addition, contracting-out of some activities by big business has been a widespread phenomenon, so large numbers of people have found themselves working for different employers under worse terms and conditions. Fear of Flexibility 101 The risk of unemployment The danger of redundancy depends very much on the business cycle. The number of redundancies rises during a recession and falls during a recovery. As discussed in Chapter 2, all industrial economies see a lot of turnover in jobs, so the level of layoffs during a given period is always quite high. The ups and downs during the business cycle are less pronounced than the variations in new hires, however. So the unemployment rate will rise during a downturn partly because there are more redundancies but more because there are fewer new jobs created.

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One detailed study of job turnover patterns in American manufacturing5 finds that recessions are marked by a sharp increase in average job destruction rates and little change in job creation rates, meaning that job turnover rises during recessions too. The variation in job destruction over the business cycle is more pronounced among bigger and older firms, which helps explain why the news of thousands of job cuts by a big company tends to make the head- Where Have All The Jobs Gone? 35 lines. Smaller and younger firms display a much weaker pattern of boom and bust. These facts suggest that a recession is a period of faster industrial restructuring, rather than simply an economy-wide reaction to a common shock such as higher oil prices or a surprise increase in interest rates.

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Other members of the European Exchange Rate Mechanism had to follow suit if the currency links were to survive. They chose to do this rather than accept an official devaluation which would have cost less in terms of jobs but more loss of face and credibility. For two years from 1990 to 1992 they struggled with the consequences of high interest rates during a downturn in the business cycle. Britain and Italy dropped out, and other countries later adopted wider bands of fluctuation against the Deutschmark in one of the most dramatic currency crises for well over a decade. European countries paid a high price in mistaken response to the German policy — massive unemployment was the alternative to a profound loss of the credibility of their interest and exchange rate policy.

The Great Depression: A Diary
by Benjamin Roth , James Ledbetter and Daniel B. Roth
Published 21 Jul 2009

The more I hear of these things the more difficult does the whole problem of investment become. Real estate is surrounded with many perils as shown during the past few years. Investment in securities is even more difficult. It requires a knowledge of intricate corporate affairs, of accounting, of business cycles and also the ability to follow the trend of national and international economic and political affairs. Even bonds are full of risk because large corporations put out so many issues that it is difficult even for the expert to determine which is a first mortgage. The recent history of corporate reorganization and bankruptcy shows that bondholders fared badly.

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DECEMBER 23, 1937 I just finished reading a book by [Morrell Walker] Gaines on the Art of Investment (1922). I found it very instructive. Gaines first tries to show the difference between speculation and investment. He believes that certain safeguards can be built up against risk—that by study and hard work the intelligent investor can determine the business cycle we are in—can arrange to switch from common stocks to short-term bonds when speculation is rife—from short-term bonds or treasury bonds to long-term bonds after prosperity has broken and the downward swing has started—to sell the long-term bonds and switch to common stocks again when the bottom has been reached and signs of upturn begin to appear.

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The difficulty diminishes with the distance. If a good security is bought below value, the investor need not be much concerned with the daily ups and downs of the market. Eventually the market will come up to him and recognize the value of the security. This means recognizing the long swings in the business cycle. It means switching to high-grade common stocks in time of depression when they sell below value—and switching again to bonds in time of prosperity when common stocks are selling at a premium and speculation is rife. When prices are high, that is the time to guard against depreciation. When prices are low that is the time for action with liquid capital.

Against the Gods: The Remarkable Story of Risk
by Peter L. Bernstein
Published 23 Aug 1996

These investment managers defined the risk in the NiftyFifty, not as the risk of overpaying, but as the risk of not owning them: the growth prospects seemed so certain that the future level of earnings and dividends would, in God's good time, always justify whatever price they paid. They considered the risk of paying too much to be minuscule compared with the risk of buying shares, even at a low price, in companies like Union Carbide or General Motors, whose fortunes were uncertain because of their exposure to business cycles and competition. This view reached such an extreme point that investors ended up by placing the same total market value on small companies like International Flavors and Fragrances, with sales of only $138 million, as they placed on a less glamorous business like U.S. Steel, with sales of $5 billion.

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According to the mainstream economists of the nineteenth century, the future stands still while buyers and sellers contemplate the opportunities open to them. The focus was on whether one opportunity was superior to another. The possibility of loss was not a consideration. Consequently the distractions of uncertainty and the business cycle did not appear in the script. Instead, these economists spent their time analyzing the psychological and subjective factors that motivate people to pay such-and-such an amount for a loaf of bread or for a bottle of port-or for a tenth bottle of port. The idea that someone might not have the money to buy even one bottle of port was unthinkable.

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Over the next 23 years, the prices of U.S. goods and services fell almost uninterruptedly by some 40%, creating much hardship throughout western Europe and North America. Did this devastating experience cause Jevons to question whether the economic system might be inherently stable at optimal levels of output and employment, as Ricardo and his followers had promised? Not in the least. Instead, he came up with a theory of business cycles based on the influence of sunspots on weather, of weather on harvests, and of harvests on prices, wages, and the level of employment. For Jevons, the trouble with the economy was in heaven and earth, not in its philosophy. Theories of how people make decisions and choices seem to have become detached from everyday life in the real world.

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by George R. Tyler
Published 15 Jul 2013

First, as economist John Schmidt has noted, employers offset higher wage bills with savings from reduced labor turnover and improved productivity, plus small price hikes.64 The second factor is that economists have come to learn that other factors dwarf the influence of minimum wages in determining whether low-wage jobs are being created or lost. Here’s how economists Neumark and Wascher explain it: “The influence of modest changes in the minimum wage on the national economy is undoubtedly small relative to business cycle fluctuations and other macroeconomic shocks…. Even the largest estimates of disemployment effects pale in comparison with movements in unemployment over the business cycle or with the monthly gross rates of job flow in the US economy.”65 Even so, fretful about potential unemployment, particularly among youth, officials in northern Europe have tinkered with minimum wage offsets for many years.

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Bewley, Why Wages Don’t Fall During a Recession (Cambridge, MA: Harvard University Press, 1999). 34 Robert J. Gordon, “Okun’s Law, Productivity Innovations, and Conundrums in Business Cycle Dating,” American Economic Association meetings, Jan. 4, 2010, 22. 35 Harold Meyerson, “The Unshared Recovery,” Washington Post, Sept. 6, 2010. 36 Catherine Rampell, “Majority of Jobs Added in the Recovery Pay Low Wages, Study Finds,” New York Times, Aug 31, 2012. The data was developed by the National Employment Law Project. 37 Robert J. Gordon, “Okun’s Law, Productivity Innovations, and Conundrums in Business Cycle Dating,” 22. 38 Richard Sennett, The Corrosion of Character (New York: W.W. Norton, 1998). 39 As quoted by Kevin Phillips, Wealth and Democracy (New York: Broadway Books, 2003), 148. 40 David Brooks, “The Great Seduction,” New York Times, June 10, 2008. 41 Robert J.

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It’s right there in Faust: the creation of paper money is mere alchemy.23 History has proven Hazlitt, Samuelson, and Goethe right and Friedman wrong.24 Second, as mentioned, conservatives like Hayek believe that central banks are too easily captured by the business community, with monetary policies adopted for political ends. As Acemoglu and Johnson explained, “… clever politicians can use central banks to manipulate the business cycle, boosting output growth, and cutting unemployment ahead of elections.”25 Such manipulation has become common since Nixon departed the gold standard, and has favored Republican politicians, leaving Democrats to fume. For example, a 2007 study by a former colleague of mine, James K. Galbraith, along with Olivier Giovannoni and Ann J.

Debtor Nation: The History of America in Red Ink (Politics and Society in Modern America)
by Louis Hyman
Published 3 Jan 2011

As discussed earlier, most mortgages before the FHA loans were short-term (three to five year) loans on which the borrowers paid only interest until the end of the term, when either the loan was renewed or the principal paid back.72 The FHA financing plan, with its twenty-year mortgages, offered escape from this pernicious cycle. Extending the mortgage over many business cycles would stabilize the supply of mortgage money. Investors, already committed to the lengthy terms, could no longer be scared away from investing. By amortizing payments, the massive need to refinance the principal at the end of twenty years would be gone. Borrowers would be capable of meeting their monthly obligations without the fear that when the mortgage came due, they would lose their house if they were unable to find additional financing.

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The lack of regulation, they believed, “exposed large groups of consumers to abusive practices.”7 Following the Russell Sage Foundation’s success in regulating the small loan field, Nugent and Henderson imagined that regulation of installment credit would help the consumer. In 1939 when Nugent had become head of the Department of Remedial Loans at the Russell Sage Foundation, he published his landmark, Consumer Credit and Economic Stability, which similarly argued that installment credit exacerbated the swings of the business cycle and could be best controlled with regulation of contract lengths and down payments. Nugent believed that the Federal Reserve, with its “extensive facilities for collection and interpretation of statistical data concerning business conditions and consumer credit movements,” would be the best choice to regulate installment credit.8 Under their guidance, in 1940 the Russell Sage Foundation published, The English HirePurchase Act:,1938: A Measure to Regulate Installment Selling, whose introduction called for the creation of a government agency given “direct control over instalment [sic] merchants” to redress the abuses of the installment credit system modeled on the British intervention of 1938.9 As Americans anticipated the return to war, economists and government officials contemplated the consequences of such a decision for the economy.

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During this charge campaign, Tearno was happy to report, The Wallace Company increased their accounts from 7,500 to 35,000.90 Both customers and retailers alike assumed that slack industrial times like those of the early 1950s in Schenectady, could not last and credit could help retailers and consumers weather the ups and downs of the business cycle. While Tearno encouraged customers to borrow more money, the Wallace Company still imposed limits and hardly any of the accounts exceeded $90. 152 CHAPTER FIVE Though Tearno enthusiastically promoted the revolving credit, limits still existed.91 The limits at the heart of the revolving budget plan ultimately produced a contradiction that undermined its profitability.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor
by John Kay
Published 24 May 2004

Most theories ofboom and bust-the business cycle-base their explanation on mistakes by firms or households, or on market imperfections. Perhaps there are speculative bubbles, or excess inventories; perhaps prices and wages fail to respond to supply and demand. But Chicago is unwilling to believe that markets make mistakes or fail to succeed in balancing supply and demand. Real business-cycle theory dismisses market imperfections and assumes "rational expectations" -consumers and businesses behave as if they had access to all available knowledge and infinite calculating power. Real business-cycle theory takes the assumptions of rationality in business decisions to the same extremes as Becker's description of family life. 14 The Chicago School also recognizes the merits of the market system as a pluralist process of experiment and discovery.

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Klein USA 1980 Econometrics Tjalling C. Koopmans USA Simon Kuznets USA 1975 Optimization modeling 1971 Empirical studies of economic growth Wassily Leontief USA 1973 Input-output analysis Appendix { 359} Name Country Year Subject Arthur Lewis UK 1979 Development economics Robert E. Lucas Jr. USA 1995 Real business cycle theory Harry M. Markowitz USA 1990 Finance theory Daniel L. McFadden USA 2000 Econometrics James E. Meade UK 1977 Trade theory Robert C. Merton USA 1997 Finance theory Merton H. Miller USA 1990 Finance theory James A. Mirrlees UK 1996 Asymmetric information Franco Modigliani USA 1985 Macroeconomics and finance theory Robert A.

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{index} • • • • • • • • • • • • • • • • • • • • • • • • • • accountability central planning, 108-16 disciplined pluralism, 117, 124,314 accounting rules/standards, 99, 158,224-25 adaptation, 213-14,240,246,250, 343 definition of, 214,347 mechanisms of, 216-17,255 and rationality, 217-21,229,231,347-48 and self-interest, 217,252,256,343 See also cooperation adverse selection, 238-42, 349 advertising, 225-27, 229, 255 Africa, 281,282-84 agriculture, 77, 81, 84 central planning, 105-6, 112-13 development of, 54, 69, 76 green revolution, 268, 279 Sweden (case study), 305 AGRprogram (U.K.), 111-12 airline industry, 123, 151-52, 194 Akerlof, George, 207, 223, 327, 330, 357 Allais, Maurice, 234-35, 357 altruism, 217, 252, 255 Amazon.com, 218, 273 American business model (ABM), 11, 17, 311-22 and contracts, 352 and corporations, 79,322, 342-44 and economic policy-making, 334-3 7 inadequacies of, 319 and income distribution, 203, 320-22 in]apan, 63-64 in New Zealand, 62 philosophy of, 343 and property rights, 318-19 reality vs. caricature of, 20-21 and regulation, 87 and self-interest, 315-18, 342, 343-44 supportfor, 104,203,313,355 ancient Greece, 55, 78, 146 antitrust laws, 76,87-88, 138,268,313,334 intellectual property, 273 AOL,83, 123 Apple, 119-20, 122,261,273 architecture, 311-12 Argentina,33,58,59-62, 139,285,288,344 Arkwright, Richard, 273 Arrow, Kenneth, 100, 127, 179, 181,318, 335,357 Arrow-Debreu model, 100, 134, 179, 181-83, 194,197,201-8,259,314 and economic rents, 295 function of, 208, 330-31 limitations of, 205,232 and property rights, 318,319 Asia economic development, 16, 62-68,279 market crisis (1997), 16, 53, 150-51,237 rich states, 31, 32,66 assets, 172, 175 assignment (resource allocation), 93-104 coordination of, 173-83 See also central planning ATMs (bank cash machines), 351 auctions, 95, 101-2, 143,227-29 Australia, 47, 51, 67, 68,285 cost ofliving, 48, 49 cuisine changes, 75-76 electricity auction, 227-28 "Austrian economics," 199 authority dangers of unchecked, 109-14 delegation of, 117, 124 Axelrod, Robert, 254 Babbage, Charles, 266-67 balance of payments, 177 bank notes, 100, 165-66 banks,55,69, 165-67,303 cash machines, 351 bargaining theory, 289-90, 294-95, 300, 353 Becker, Gary, 199-201,256,286,302,324, 328,333,335,338,358 behavioral economics, 220-21,235,324,333, 339 Bell Laboratories, 268 Berkshire Hathaway, 298 Berlin, Isaiah, 190, 191 Berlin Wall, 29, 30 Black, Fischer, 160 Black-Scholes model, 159, 160-61 Blanchard, Olivier, 338 blocking coalition, 294-95 Blodget, Henry, 218,229 blood donation, 257-58 bonds, 150, 167-69 bookkeeping, 55,175-78 brands,20, 74,89,296,319,352 Braque,Georges,85-86,89,90,293 Britain. See United Kingdom brokers, 147 Buchanan, James, 251,358 Buchholz, Todd, 189 Buffett, Warren, 12, 171,298-99,300,317 Bush, George W., 100, 156, 200, 335, 337 business-cycle theory, 200 California blackouts, 101, 127, 128 Canada,31,32,58,67 capital, 55, 79, 123, 124 intangible, 171-72 and living standards, 27-28 selling/ buying risks, 169-70,244 supply/demand for, 163-67 capitalism, 10, 21, 78 future of, 340-55 See also market economy Cardoso, Fernando, 285-86 { 412} Index Carlson, Chester, 117 Carrefour SA, 5, 8, 79 cash machines, 351 cell phones, 261-62, 351 central banks, 166-68 central planning, 105-14,200,333-34 adaptive behavior, 214-15 British electricity, 110-12, 141-42, 171, 214 coordination failures, 127, 173-74 decision-making scale, 18, 19, 106-9, 110, 112-14 development economics, 277-79,281 drawbacks/failures, 108, 110, 112-14, 127, 288,306-7 General Electric, 116-17 Hayek on, 198 incentive compatibility, 97-100, 199 market spontaneity vs., 19-21 Marxist, 17 Chain, Ernst, 267 chaos theory, 131 Chicago School, 199-201,205,207,210,217, 324,335 China, 36, 151,214,215 central planning, 105-14 economic development, 16-17,62-63,66, 67,288 Chubais, Anatoly, 288,319 Clark,Jim, 122-23 climate, 51, 55,90 Coase, Ronald, 205,358 Coca-Cola, 88-89, 137, 225-26, 298 economic rent, 292-93, 294, 296 trademark, 224, 272 Cohen, Jonathan, 218 colonization, 56-62, 67, 284, 355 commensurability, 187-93 communism, collapse of, 287, 306.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money
by Steven Drobny
Published 18 Mar 2010

It’s easy to replicate and model portfolios with leveraged government bond positions or bond option positions, and the most interesting thing about this kind of leverage is that historically, it adds value to portfolios. It’s like receiving free insurance because the bond risk premium is positive. If you buy a portfolio of government bonds and fund it by borrowing cash, if there is an upward sloping yield curve on average, over the business cycle or over any long period of time, that portfolio will make money. Hence you are buying insurance that, on average, makes you money. It is an incredibly interesting idea because normally insurance costs you money. In 2007, we were looking at all kinds of things to hedge an equity portfolio in a bad event.

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But at that stage many investors thought it was a better idea to take a mispriced risk premium—much too low both by logical standards and historical standards—and leverage it multiple times, creating an illiquid product that would incur leveraged losses should something go awry. As an investment strategy, it did not look very clever. Even if you believed we were in a new world without business cycles or defaults, some credit products had already been priced for such a world, leaving you with little upside and enormous downside. So you had to be short these, either outright or spread against other risky assets where pricing was more reasonable. We had trades on where we were buying protection against losses on tranches of credit indices.

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Energy should do well, as should general consumer conglomerates, the latter of which can adjust prices to keep up with inflation. Real estate could do well, but because it is the bubble that just burst, it is unlikely to outperform. The Nasdaq is a great example of how a sector can underperform for the several consecutive business cycles that follow a bubble bursting. Shorting the currency of inflationary countries would be an obvious trade as economic history clearly shows that sustained high inflation erodes currency values. It does not have to be hyperinflation either, just sustained high inflation. Assuming endowments are allowed to have large currency biases, I would diversify away from the G3.

The Death of Money: The Coming Collapse of the International Monetary System
by James Rickards
Published 7 Apr 2014

By increasing the costs of waiting and reducing the costs of moving ahead, Bernanke would tip the scales in favor of immediate investment and help the economy grow through the jobs and incomes that go with such investment. Bernanke would be the master planner who pushes capitalists back into the investment game. He showed his hand when he wrote, “It would not be difficult to recast our example of the . . . economy in an equilibrium business cycle mold. As given, the economy . . . is best thought of as being run by a central planner.” Bernanke’s logic is deeply flawed because it supposes that the agency that reduces uncertainty does not also add to uncertainty by its conduct. When the Fed offers forward guidance on interest rates, how certain can investors be that it will not change its mind?

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Estonia in particular has become a high-tech hub centered on its most successful company, Skype, which has more than four hundred employees in a worker-friendly campus near Tallinn. The New York Times published a story on Latvia in 2013 that accurately captured the trajectory of steep collapse and strong recovery that used to be typical of business cycles but is now mostly avoided by Western governments at the expense of long-term growth: When a credit-fueled economic boom turned to bust in this tiny Baltic nation in 2008, Didzis Krumins, who ran a small architectural company, fired his staff . . . and then shut down the business. He watched in dismay as Latvia’s misery deepened under a harsh austerity drive that scythed wages, jobs and state financing for schools and hospitals.

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It was a depression, exactly as Keynes had defined it, “a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse.” There was no cyclical recovery because the problems in the economy were not cyclical; they were structural. This depression should be expected to continue indefinitely in the absence of structural changes. Fed forecasters and most private analysts use models based on credit and business cycles from the seventy-odd years since the end of the Second World War. Those baselines do not include any depressions. One must reach back eighty years, to the 1933–36 period, a recovery within a depression, to find a comparable phase. The Great Depression ended in 1940 with structural changes: the economy was put on a war footing.

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

The empirical evidence has proved no kinder to real business cycle theory than it was to the original rational expectations theory. One of the advantages of the second-generation models was that they could easily be “calibrated” and run on computers. But when this was done, they had great difficulty generating the sort of booms and recessions that many countries have experienced over the past ten or twenty years. The only way the models could mimic the actual data was by invoking implausibly large productivity shocks. In the face of such difficulties, some supporters of real business cycle theory resorted to saying that it was too subtle to be judged by standard statistical methods—an argument that smacked of desperation.

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The young economist quickly abandoned the moderately left-wing views he had formed during the Great War, adopting a laissez-faire outlook similar to that of von Mises. Many of his fellow students would gather at the Kaffee Landmann to discuss Marxism and psychoanalysis, but Hayek found these fashionable disciplines “more unsatisfactory the more I studied them.” During the 1920s, Hayek worked on the causes of business cycles, formulating the view that slumps were the inevitable result of prior booms, during which growth had become “unbalanced,” with investment in industrial capacity outstripping the supply of savings in the economy. Recessions, in this view, were a way of restoring the balance between savings and investment.

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“I sat by him in hall last night and lunched with him at Piero’s today. We get on very well in private life. But what rubbish his theory is.” Keynes won the great debate. Even before he wrote The General Theory of Employment, Interest and Money, which was published in 1936, most British economists had dismissed Hayek’s theory of the business cycle, which failed to provide much guidance about how to end the Depression. Despite being bested by Keynes, Hayek greatly enjoyed his time in England. Endowed with the fastidious habits and elaborate manners of prewar Vienna, he fell in love with an educated British society that shared many of the same traits.

The Euro: How a Common Currency Threatens the Future of Europe
by Joseph E. Stiglitz and Alex Hyde-White
Published 24 Oct 2016

For instance, in the absence of good risk markets (where one can buy insurance for all the risks that one confronts at reasonable prices), reducing trade barriers often leads to greater risk; the greater risk induces firms to shift production to activities that yield lower returns but are safer, and the net effect is that everyone can be worse off, in marked contrast with situations where risk markets are perfect.35 Other examples of second-best economics have played an important role in the failure of Europe: Free mobility of capital might make sense if there were perfect information. Money would then flow from low-return uses to high-return uses. When a country goes into a recession, money would flow in, to help it out. Capital flows would be countercyclical—increasing in weak times, diminishing in good times, offsetting the business cycle and helping to stabilize the economy. The actual evidence is to the contrary. And the reason is that capital markets are rife with imperfections. Every banker knows that you don’t lend to someone who needs the money. That’s why capital market integration has often been associated with an increase in economic volatility—the flows are pro-cyclical and exacerbate economic fluctuations.

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It just means that simplistic rules, such as those embedded in the convergence criteria, are indeed simplistic and do not provide a basis of good policy. It may be necessary to impose some constraints, but the constraints have to be carefully and thoughtfully designed—for example, taking into account the state of the business cycle and the uses to which the funds are being put. For instance, rather than focusing on the deficit, the designers of the euro should have focused on structural deficit—what the deficit would have been had the country been at full employment. As it is, the convergence criteria not only prevented a country from responding to a downturn but created a built-in mechanism for deepening it.

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Today the world is in this precise situation, with a deficiency of aggregate demand leading to slow growth and some 200 million unemployed around the world. This deficiency of aggregate demand is the cause of what many have referred to as global secular stagnation. (The term secular just means that it is long-term as opposed to cyclical, temporary slow growth that is part of recurrent business cycles.) The jobs “gap” has increased enormously since the onset of the Great Recession, with some 60 million fewer jobs in existence than what would have been expected if there had been no crisis.45 There is another reason that surpluses are particularly problematic. Typically, it is easier for the surplus country to deal with its surplus than it is for the deficit country to do something about its deficit.

Slowdown: The End of the Great Acceleration―and Why It’s Good for the Planet, the Economy, and Our Lives
by Danny Dorling and Kirsten McClure
Published 18 May 2020

Yet, even in these early years of CO2 emissions growth, there was the occasional period, of twelve months or a little more, when the total emitted was a little less than the year or years before. Human activity was now key to the change in CO2 emission levels; volcanoes no longer mattered greatly. Because worldwide human economic activity began to fluctuate wildly, those pollution levels were not always rising steadily. Business cycles, troughs, and peaks were especially important in determining when emissions grew most quickly, or more slowly, and those trends depended in turn on the growth of debt, trade, and new technology. Chapter 3 of this book began by considering more recent debt—housing, automobile, and student debt.

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Global fuel/industry CO2 emissions, 1750–1910. (Drawn from data adapted from the Global Carbon Project, “Supplemental Data of Global Carbon Budget 2018” [version 1.0], Global Carbon Project, https://doi.org/10.18160/gcp-2018.) Table 2. Major recessions in the United States before 1929 Source: Victor Zarnowitz, Business Cycles: Theory, History, Indicators, and Forecasting (Chicago: University of Chicago Press, 1996). WAR AND DISEASE CHANGE EVERYTHING From 1910 to 1960 the trend in CO2 emissions from industrial and fossil fuel activities was at first erratic and then, from 1946 onward, remarkably steady, always rising outside of periods of war.

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America’s military-industrial complex was just taking its current shape, and so the United States managed to sustain both its military manufacturing and its emissions, while at the same time creating a huge industrial base for its increasingly affluent and equitable home market of consumers, as well as for export to a world in which it was the greatest military power. Production dipped briefly in 1948, in the year before the U.S. business cycle was approaching its October 1949 trough.12 Then the American economy began to grow again. The United States was, at this time, all-important to the production of global emissions. It was not worldwide practices that mattered; it was the business practices of the United States. Table 3. World annual population growth, 1951–60 (and U.S. share) Source: Angus Maddison Estimates: http://www.ggdc.net/maddison/oriindex.htm.

Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least
by Antti Ilmanen
Published 24 Feb 2022

The last line scales bonds to the realized volatility of equities. Bond yields tend to rise amid higher inflation, faster economic growth, and tighter monetary policy, thereby causing capital losses to bonds. Inflation history was discussed above in Box 4.1. The growth outlook is related to cyclical conditions, where business cycle troughs often coincide with low rates and steep yield curves, and business cycle peaks with high rates and inverted curves (see Figure 4.10 where negative term spreads often precede shaded recessions). These patterns partly reflect the Fed's attempt to act countercyclically, easing policy to cushion recessions and tightening policy amid overheating.

…

Indeed, it is true that correlations within equity markets (across stocks, sectors, countries) are higher during sharp market falls (e.g. Chua-Kritzman-Page (2009) and Leibowitz-Bova-Hammond (2010)).11 However, Asness-Israelov-Liew (2011) shows that international diversification still works when evaluating more persistent market declines. Major economies have sufficiently different business cycles, and even the main bubbles (e.g. Japan 1990, US 2000, China 2007) occurred at different times. Arguably, multiyear diversifying ability is more important for long-horizon investors than smoothing out the worst months. To guard against the pitfalls of diversification, it makes sense to protect portfolios against left-tail events through tail hedging strategies, constraints on liquidity and leverage, as well as drawdown control rules.

…

My most careful readers may also notice that in this new book, I switch the last style “volatility” to mean defensive investing. In my first book, “volatility” style referred to option-based volatility selling, while the defensive style was covered elsewhere. 6 Equity markets are often seen to give exposure to long-run economic growth and to business cycle risk, so I stick with this practice. Yet, Box 4.2 argues that the empirical links between economic growth and equity market returns are surprisingly tenuous. 7 One challenge is the time alignment between financial market returns and macroeconomic series. Should we align returns contemporaneously (before the macro news are known), or use previous quarter's macro news (to capture the market reaction to the published macro announcements), or use future macro developments (since asset prices tend to be forward-looking)?

Servant Economy: Where America's Elite Is Sending the Middle Class
by Jeff Faux
Published 16 May 2012

Markets will eventually recover, and nudged on by a few marginal changes in policy or a change of the party in control of Congress or the White House, you and your family will soon be back on your rightful track to perpetual prosperity. The overwhelming evidence, however, is to the contrary. The economic problem at least 80 percent of Americans now face is not simply a severe business cycle, it is a profound and historic decline in their economic and political bargaining power. Since, as this book will also argue, the governing class is constitutionally unwilling to make the necessary concessions to restore that bargaining power, a substantial drop in living standards over the next dozen decades is predictable.

…

The first leg was the acceptance of Keynesian economics. The second was a permanently high level of military spending. The third was the global dominance of the dollar. Let us examine each of these in turn. The wartime demonstration of Keynes’s thesis gradually persuaded the governing class that the economy could be managed to even out business cycles and maximize growth. As economist Arthur Okun explained to Congress in 1970, recessions are actually preventable—they are more like airplane crashes than hurricanes. A resentful Richard Nixon believed that one reason he had lost the 1960 election to John Kennedy was that President Eisenhower had reacted too slowly to the economic downturn that had begun in 1959.

…

By 2000, it was 67.4 hours.1 For a while, the average total household income continued to rise because families sent more members out to work, and thus the total family worked longer hours. Thirty years after wages started to flatten, the typical American household was working about 570 hours a year more than it had been working in 1979. The extra work came to more than fourteen weeks a year.2 Even so, from 2000 to 2007, household incomes failed to rise between the peaks of a business cycle for the first time in the post–World War II era. The next year, they fell a record 3.5 percent. By and large, economists were even slower than the American people to see the dramatic falloff in incomes. At first, they denied that it could be happening. When the statistics finally confirmed the trends, the conventional wisdom was that it could only be a temporary problem.

Better, Stronger, Faster: The Myth of American Decline . . . And the Rise of a New Economy
by Daniel Gross
Published 7 May 2012

Our balance sheets, bank accounts, egos, and psyches simply weren’t prepared for the depth and degree of shrinkage. Or for the slowness of the recovery. As Kenneth Rogoff and Carmen Reinhart document in This Time Is Different, not all recessions are created equal. Economies recover relatively quickly from downturns that are natural outcomes of the business cycle. Having produced too much or too exuberantly, companies idle capacity until inventories are worked down, and then reopen factories when demand rises again. By contrast, contractions precipitated by financial crises last longer, are slower to dissipate, and can retard economic growth for a decade.

…

As American companies went into survival mode and slashed jobs and investment, foreign capital continued to stream in from all over. In the post-bust era the United States has retained its title as the world’s leading destination for foreign direct investment. Foreign direct investment (FDI), which totaled $1.7 trillion in the decade from 2001 through 2010, fluctuates with the business cycle. It hit a low of $64 billion in 2003, surged to a historical peak of $328 billion in 2008, and then collapsed to $134.7 billion in 2009. In 2010 FDI rose to $194.5 billion, and it was $155 billion through the first three quarters of 2011. I’m not referring to the investment that arrives when, say, the Chinese Central Bank buys U.S. government bonds, or tourists spend on hotels and restaurants, or a London-based hedge fund buys shares of IBM.

…

I also spent a week in the fall of 2011 at the Hoover Institution, collecting thoughts and writing, and wondering why I shouldn’t move to northern California. Thanks to David Brady and Mandy Macalla for their patience and support. Sloan Harris, my agent at ICM, has represented me for more than a decade and a half, and has the gray hairs to prove it. Through several paradigm shifts and business cycles he has maintained an even keel and helped me negotiate New York’s publishing world with good humor, patience, and wisdom. Thanks too to his assistant, Kristyn Keene. At the Free Press, Dominick Anfuso believed in this book from the beginning. It was a pleasure to work with him again. Sydney Tanigawa helped shepherd the book through production, Judith Hoover copyedited the manuscript, and Eric Fuentecilla designed the cover.

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
by Gillian Tett
Published 11 May 2009

It was a powerful role, including the oversight of New York commercial banks, and Corrigan, a forceful, burly character with a gravelly voice, was not afraid to express his views bluntly. By 1991, he had already worked at the Fed for a couple of decades, serving as special assistant for a period to the legendary Paul Volcker, and he had seen the financial system suffer through several business cycles and bouts of panic. He had cut his teeth handling the Herstatt Bank crisis of 1974, when the failure of a small German group had rocked the Euromarket, and had confronted the Latin American debt crisis, the collapse of Continental Illinois National Bank, and the failure of Drexel Burnham Lambert.

…

Morgan had offered the first BISTRO notes in late 1997, the bank had had access to extensive data about all the loans it was repackaging. So had the investors, as the bank had deliberately named all of the 307 companies whose loans were included in the deal. In addition, many of these companies had been in business for decades, so extensive data was available on how they had performed over many business cycles. That gave J.P. Morgan’s statisticians—and investors—great confidence about predicting the likelihood of defaults. The mortgage world was a good deal different. For one thing, mortgages were generally dumped into pools of debt that were entirely anonymous, since when banks sold bundles of mortgage loans to outside investors, they almost never revealed the names and credit histories of the borrowers.

…

For one thing, mortgages were generally dumped into pools of debt that were entirely anonymous, since when banks sold bundles of mortgage loans to outside investors, they almost never revealed the names and credit histories of the borrowers. Investors had to rely on data from the lender itself about the default risks of the borrowers or the judgments of ratings agencies. Worse, when Duhon went looking for data to track mortgage defaults over several business cycles, she discovered it was in short supply. In the second half of the twentieth century, while America’s corporate world had suffered several booms and recessions, the housing market had followed a steady path of growth. Some specific regions had suffered downturns. Prices in the Texas property market, for example, fell during the savings and loan debacle of the late 1980s.

Pity the Billionaire: The Unexpected Resurgence of the American Right
by Thomas Frank
Published 16 Aug 2011

In 2008, the country’s financial system suffered an epic breakdown, largely the result—as nearly every credible observer agrees—of the decades-long effort to roll back bank supervision and encourage financial experimentation. The banks’ stumble quickly plunged the nation and the world into the worst recession since the thirties. This was no ordinary business-cycle downturn. Millions of Americans, and a large number of their banks, became insolvent in a matter of weeks. Sixteen trillion dollars in household wealth was incinerated on the pyre Wall Street had kindled. And yet, as I write this, the most effective political response to these events is a campaign to roll back regulation, to strip government employees of the right to collectively bargain, and to clamp down on federal spending.

…

If simplicity is what you’re looking for, the answers are almost too easy these days: Our leaders have been chasing the free-market dream for thirty-some years now, and for every step closer they’ve brought us, the more inequality has grown, the more financial bubbles have blossomed and burst, the more political corruption has metastasized, the harsher the business cycle has become. One caused the other; that’s the “simple” answer.* But the latest Right doesn’t so much simplify reality as idealize it. They’re in a place where beliefs don’t really have consequences, where premises are not to be checked, only repeated in a louder voice. It is as though the frightening news of recent years has driven them into a defensiveness so extreme that they feel they must either deify the system that failed or lose it altogether.

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Blackwell, Ken Blankenship, Don Bloomberg news Blow, Charles Blumenthal, Sidney Boehner, John bond traders Bonus Army bonuses Bork, Robert Boston Tea Party BP spill Brinkley, Alan “Brother, Can You Spare a Dime?” (Harburg) Brown, Scott Bryan, William Jennings budget, balancing Bunch, Will Bunzel, John Burns, Jennifer Bush, George W. Beck and crisis and bailouts and regulation and tax cuts and wiretapping and business cycle business leaders. See also big business; small business Atlas Shrugged and crash of 2008 and Depression and as job creators Cain, Herman California campaign contributions Canseco, Francisco cap-and-trade proposal capitalism. See also free market Atlas Shrugged and crisis of 2008–9 and Depression and Right’s defense of utopian Capitalism (Beck) Capra, Frank Carender, Keli Carnegie, Dale Cato Institute Cheney, Dick Chicago, University of Chicago Board of Trade children’s literature Chile Chomsky, Noam Chrysler Churchill, Winston CIA Citibank Cleaver, Emanuel Clinton, Bill Clinton, Hillary Cloward, Richard CNBC coal miners Code Red rally Codevilla, Angelo collateralized debt obligations colleges and universities Commodity Futures Modernization Act communism Community Reinvestment Act (1977) compromise Conservative Action Project ConservativeHQ (website) Conservative Political Action Conference conservatives.

Thinking in Systems: A Primer
by Meadows. Donella and Diana Wright
Published 3 Dec 2008

Put in another reinforcing loop, as speculators buy and sell shares in the auto and auto-supply companies based on their recent performance, so that an upsurge in production produces an upsurge in stock price, and vice versa. That very large system, with interconnected industries responding to each other through delays, entraining each other in their oscillations, and being amplified by multipliers and speculators, is the primary cause of business cycles. Those cycles don’t come from presidents, although presidents can do much to ease or intensify the optimism of the upturns and the pain of the downturns. Economies are extremely complex systems; they are full of balancing feedback loops with delays, and they are inherently oscillatory.5 Jay W.

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Tourists flock to places like Waikiki or Zermatt and then complain that those places have been ruined by all the tourists. Farmers produce surpluses of wheat, butter, or cheese, and prices plummet. Fishermen overfish and destroy their own livelihood. Corporations collectively make investment decisions that cause business-cycle downturns. Poor people have more babies than they can support. Why? Because of what World Bank economist Herman Daly calls the “invisible foot” or what Nobel Prize–winning economist Herbert Simon calls bounded rationality.10 Bounded rationality means that people make quite reasonable decisions based on the information they have.

…

If the system is chronically stagnant, parameter changes rarely kick-start it. If it’s wildly variable, they usually don’t stabilize it. If it’s growing out of control, they don’t slow it down. Whatever cap we put on campaign contributions, it doesn’t clean up politics. The Fed’s fiddling with the interest rate hasn’t made business cycles go away. (We always forget that during upturns, and are shocked, shocked by the downturns.) After decades of the strictest air pollution standards in the world, Los Angeles air is less dirty, but it isn’t clean. Spending more on police doesn’t make crime go away. Since I’m about to get into some examples where parameters are leverage points, let me stick in a big caveat here.

The Secret War Between Downloading and Uploading: Tales of the Computer as Culture Machine
by Peter Lunenfeld
Published 31 Mar 2011

The post-1989 period contained a multitude of features, but one unifying construct was the belief that after the fall of the Berlin Wall and then the Soviet Union itself, not just Communism, but all the countervailing forces against market capitalism were vanquished, and not just for the moment but literally for all time. The Market with a capital M was the grail at the end of Francis Fukayama’s treatise The End of History.2 The Market was the solution for all questions, the Market would bring peace and prosperity, and would free itself from the tyranny of the business cycle, evolving into an entirely invisible, frictionless, perpetual motion machine that would take the name of the New Economy (again with capital letters).3 This immediate post-1989 period coincided with the most utopian phase of the culture machine: the euphoria of the World Wide Web’s first Wild, Wild West phase.

…

Certainly there were the occasional glitches in the system, as when antiglobalization protesters disrupted world trade gatherings in places like Milan and Seattle, but for the most part the trend lines (as business forecasters like to call them) soared upward into an ever-bluer sky. With Communism dispatched, no other ideology could challenge the market—a market that now, through the addition of the simulation and participation modes of the culture machine, was claimed to be 98 BESPOKE FUTURES impervious to the dislocations of earlier business cycles. But this period was shorter lived than even the Seattle protesters expected it to be. The NASDAQ, a U.S. market heavy on high-technology firms, was the most important index for the New Economy. It crested in March 2000, and within a year had lost more than half its value, vaporizing trillions in paper profits.

…

When they went bankrupt after their own technological fever dream, they left two legacies—one short-lived, and the other vastly more important. The first legacy involved the defrauded and angry shareholders. They are, for all but a few financial histories, the forgotten victims of bad timing in the business cycle. The other legacy of that stock bubble was a continent connected by rail, with excess capacity along with the means to build the world’s largest unified network of producers and consumers. The original entrepreneurs and investors in railroads may have lost millions, but the United States as a whole benefited immeasurably from their efforts.

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton
by Colin Read
Published 16 Jul 2012

These former participants of what was known as the “Kiel School” had exposed Marshak to an approach to economics that was developed by some reform-oriented economists in the Kiel Institute of World Economics from 1914 until the rise of fascism forced them to seek refuge elsewhere. These scholars, and others, were reunited at the New School, where they continued their research into economic growth and the business cycle. This approach to economic growth was timely, for many reasons. The world was experiencing the first global depression in the 1930s and only economic growth could offer any salvation. Moreover, economics was at this point moving away from the classical simplistic and static models of individual markets and was recognizing the need to model economics and finance within a richer general equilibrium, multi-sector approach that changed dynamically over time.

…

However, with the help of Treynor’s journal, along with his frequent talks at meetings that included academicians, some of Black’s arguments began to be published. He was slowly building for himself a reputation, but from outside the traditional ivory tower. He did Arthur D. Little’s work during the day, but, in a particular flourish of intellectual energy in 1969, he was producing unique ideas in macroeconomics, finance, and business cycle theory at every other available moment. Black had some brilliant ideas. However, he needed polish, some academic rigor, and academic legitimacy in order to bring his unconventional ideas to the pure academic market. This transition would be difficult, though. While a lay reader might imagine that the ivory tower is the ultimate last bastion of liberal thought, innovation, progressivity, and the marketplace for ideas, often the opposite is true.

…

As a seasoned analyst and financial strategist, he exuded a sense of soft-spoken confidence, consistent with a theory of life that content is measured by words and not by flamboyance. He was also unusual in the breadth of his interests. He was always seeking links and recognized that financial markets also depend on macroeconomic policy, insurance innovations, tax policy, the business cycle, and even the theory of organizations. He retained the broad interests of a particularly eclectic academic, but he also had the confidence to recognize the limitations of his own theories.3 He worried that the Black-Scholes formula would be misapplied if people did not recognize that, in the real world, a stock price could jump much more than anticipated by the Markov process, and that real-world volatility could be wider at the tails than predicted by the log-normal distribution.

Deaths of Despair and the Future of Capitalism
by Anne Case and Angus Deaton
Published 17 Mar 2020

People who had worked hard to hold on to a middle-class life were suddenly without a job, without a place to live, and without the means to continue their own or their children’s education. Banks stopped lending, and millions of small businesses went bankrupt. There have been many studies of how mortality varies over the business cycle, whether more people die in bad times—as we might at first expect—or during economic booms, when times are good. Perhaps the first study to look at the question was published as long ago as 1922, by the sociologist and statistician William Ogburn and sociologist and demographer Dorothy Thomas;13 Thomas was the first woman to be a professor at the Wharton School of the University of Pennsylvania.

…

Perhaps the first study to look at the question was published as long ago as 1922, by the sociologist and statistician William Ogburn and sociologist and demographer Dorothy Thomas;13 Thomas was the first woman to be a professor at the Wharton School of the University of Pennsylvania. Ogburn and Thomas discovered, to their surprise, that the good economic times were bad times for mortality. Their conclusion has been replicated many times since, including in work for the United States on national and state-level business cycles before the Great Recession.14 Much the same happens in other rich countries, with slumps better for mortality than booms, though not every study confirms the pattern. While it is true that suicides are higher in bad times, as was true in the Great Depression—remember the famous images of bankrupt ex-millionaires jumping out of skyscrapers in 1929—there are other mechanisms at work.

…

Allen, 2017, The Industrial Revolution: A very short introduction, Oxford University Press. Chapter 1: The Calm before the Storm 1. Quoted in Paul Farmer, 1999, Infections and inequalities: The modern plagues, University of California Press, 202. 2. William F. Ogburn and Dorothy S. Thomas, 1922, “The influence of the business cycle on certain social conditions,” Journal of the American Statistical Association, 18(139), 324–40; Christopher J. Ruhm, 2000, “Are recessions good for your health?,” Quarterly Journal of Economics, 115(2), 617–50. 3. John Komlos and Benjamin E. Lauderdale, 2007, “Underperformance in affluence: The remarkable relative decline in U.S. heights in the second half of the 20th century,” Social Science Quarterly, 88, 283–305, https://doi.org/10.1111/j.1540-6237.2007.00458.x.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown
by Philip Mirowski
Published 24 Jun 2013

And worse, while the authorities dithered, the Ghoulish Creatures of the Right had gotten back up, dusted themselves off, and discovered renewed strength. Economists such as Ken Rogoff and Carmen Reinhart had the audacity to stand up at INET and treat the contemporary world crisis as just another ho-hum business cycle: nothing untoward or unprecedented had happened here. Thus doctrines concocted at the American Enterprise Institute and the Cato Institute began their slow seepage back into respectability. The INET crowd kept trying to wake up from—what?—neoclassical microeconomics, rational expectations, the efficient markets hypothesis, Black-Scholes, the Coase theorem, faux-Keynesian macroeconomics, optimality, public choice theory, baroque fiduciary mathematics, the end of history—what exactly?

…

Anyway, you ask too much of the DSGE model—the purposes that motivate us orthodox macroeconomists rarely intersect with the issues you rabble think we should address: “Prediction need not always be the criterion of success of an economic model . . . By nature, a financial crisis is an unpredictable event . . . The basic real business cycle model was not designed for the purpose of understanding financial crises.” While he sneers at everyone else’s epistemic criteria and explanatory demands, it is significant that Williamson never once feels impelled to make explicit his own nonnegotiable litmus test for legitimate purposes in construction of models.

…

You claim there are big political divisions within macro, and that DSGE describes only neoliberal fantasies of self-regulating markets; but the “freshwater/saltwater” divide is just an illusion. The orthodoxy comes equipped with DSGE models to conform to all ideologies. We even have some versions of the model here and there that mention banks and credit.96 All those carping complaints are baseless, and mired in an outdated impression of real business-cycle theory back in the 1980s. This option, while commonplace, is utterly unavailing. Some of the orthodox are beginning to notice this.97 A philosophically grounded economist would point out that the canonical DSGE assumes its canonical outlandish format in order to “save” its microfoundations, viz., the nonnegotiable prescription that macro and neoclassical microeconomics constitute one big unified theory.

Owning the Earth: The Transforming History of Land Ownership
by Andro Linklater
Published 12 Nov 2013

His 1930s Harvard economics class should not have been surprised, therefore, when the professor declared in his heavily accented English, “Chentlemen! A depression iss for capitalism like a good cold douche.” Not only was the 1929 financial crash a natural corrective to the inflationary decade before it, but the business cycle and entrepreneurial activity would in time naturally take advantage of the availability of cheaper goods and labor to bring about economic recovery. Thus, Schumpeter’s advice during the Depression, backed by two fellow Austrian economists, the upper-class Ludwig von Mises and his protegé, Friederich Hayek, sounded uncannily like an eighteenth-century physiocrat counseling the heir to the French throne, “Do nothing.”

…

The state of the Austro-Hungarian Empire confirmed von Mises’s unwavering belief that economics came before democracy. But the idea originated with his mentor, Carl Menger, the founder of the Austrian School, who argued that in its “natural” state, an ordered economy would be self-generating and, over time, self-adjusting, with no need for government interference—the business cycle, elaborated later by his students, was one of Menger’s original concepts. Even the crisis of overproduction would solve itself by the inevitable formation of cartels and price-fixing agreements within the different business sectors, independently of any official intervention. One of the most powerful examples Menger presented of this spontaneous growth of order was the way that money, meaning paper and credit as well as cash, generated itself once traders agreed on a medium, such as bills of exchange and promissory notes, to take the place of barter.

…

With its aristocratic agenda excised, however, Hayek’s thesis looked like a return to eighteenth-century laissez-faire economics. The market was expected to take care of itself, and the crisis of overproduction would be sidelined by a combination of supply-side economics to stimulate consumption, an aggressive takeover culture to reduce competition, and the business cycle’s creative destruction of weaklings. In effect, an Austrian cuckoo had laid its egg in the private property nest. The difference was not immediately apparent during the postwar years. Social democratic governments in Europe and Scandinavia developed more or less planned economies that nineteenth-century Prussian economists would have recognized, nationalizing strategic industries such as railroads and steel production, and providing universal health care systems, old-age pensions, and social care.

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt
by Kwasi Kwarteng
Published 12 May 2014

‘Sterilization’ means that, if for example a country has a trade surplus, its central bank may sell bonds to banks to absorb the funds derived from the surplus; in simple terms, the bank would be mopping up the liquidity arising out of the high level of exports. The gold imports were the basis of ‘a very considerable expansion’ of credit and loans.2 More generally, the 1920s were remembered as a decade of prosperity. Wesley Mitchell, a noted American expert on business cycles, noticed that by ‘the middle of the 1920’s the intense disorder ended’. As he fondly remembered, ‘Budgets were balanced and currencies restored to a gold basis.’3 Mitchell pithily summarized the tensions in international finance which had tipped the world into depression: in ‘Great Britain resumption was made at too high a parity; Germany depended on huge borrowings; the United States combined foolish foreign loans with an increase of the tariff and unbridled speculation in stocks and urban real estate’.4 He was unequivocal in blaming the ‘critical error’ made by the Federal Reserve in the ‘summer of 1927’ when it ‘took the momentous step of forcing a regime of cheap money’.

…

He acknowledged that this period had ‘increasingly emphasized an enlarging role for Government in our economic life’. This involvement had been ‘greatly extended in the 1940s when the emergency of World War II led to direct controls over wages, prices and the distribution of goods ranging from sugar to steel’. Yet he believed that government’s powers were ultimately limited: ‘The idea that the business cycle can be altogether abolished seems as fanciful as the notion that the law of supply and demand can be repealed.’34 Despite his attachment to free markets, Martin was enough of a traditional paternalist in his approach to the economy to preach the virtues of ‘moderation’ and ‘prudence’. Government, in his conception, was not something apart from society.

…

But ‘between 1966 and 1975, as the government engaged in runaway spending . . . the average annual money growth rate rose to 5.8 percent’.33 Increased government spending was also accompanied by increased lending by the commercial banks which, having been ‘encouraged by government policies, [were] caught up in the go-go craze, both at home and abroad’. Simon also complained about the high level of company indebtedness, caused by the irresponsibility of politicians who ‘were telling them [US companies] that the business cycle was dead, that the government could now keep the economy expanding indefinitely’. In sum, he concluded, it was not just ‘federal government that was on an inflationary spending binge’. The binge had ‘extended to the populace at large’.34 In Simon’s robust analysis the difficulties of the 1970s had been a natural consequence of the ‘suicidal policies of the past’.

Crashed: How a Decade of Financial Crises Changed the World
by Adam Tooze
Published 31 Jul 2018

As America’s home prices almost doubled in the ten years leading to 2006, this raised household wealth by $6.5 trillion, delivering a giant boost not just to the United States but to the world economy.2 As US consumer spending surged toward $10 trillion, it added $937 billion to global demand between 2000 and 2007.3 Fluctuations on such huge scales can clearly help account for a business-cycle downturn in 2007. But to explain how this could trigger a financial crisis, with bank failures spreading panic and a credit crunch across the world, there is one crucial thing to add: Real estate is not only the largest single form of wealth, it is also the most important form of collateral for borrowing.4 It is mortgage debt that both amplifies the broader economic cycle and links the house price cycle to the financial crisis.5 Between the 1990s and the outbreak of the crisis in 2007, American housing finance was turned into a dynamic and destabilizing force by a fourfold transformation—the securitization of mortgages, their incorporation into expansive and high-risk strategies of banking growth, the mobilization of new funding sources and internationalization.

…

I One unexpected but symptomatic manifestation was Larry Summers’s minatory speech at the IMF in November 2013.8 His subject was the recovery and its deeply disappointing pace. American policy makers might congratulate themselves that they were leading the Europeans out of the recession and they were right to do so. Since 2010 Europe’s economic record had been even worse. But America’s own recovery was the slowest on record. On the “plucking model” of business cycles, after a downward shock as severe as that in 2008, one might have expected the rebound to be vigorous. In 2009–2010 the recovery had started strongly, but since then economic growth had relapsed to a depressing extent. Where was the “bounce”? What was wrong? Growth Disappointing: Potential GDP Estimates of 2007 and 2013 Compared to Actual GDP (2013 Dollars) Source: Taken from L.

…

Summers, “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound,” Business Economics 49, no. 2 (2014): 65–74. Data: CBO. The conventional view was that the United States was suffering from the aftereffects of an exceptionally severe financial crisis. This was no ordinary business cycle. It would take time for markets and balance sheets to recover.9 It was precisely to avoid such hangovers that economists like Reinhart and Rogoff argued for financial restraint. If you avoided the credit bubble and the excessive upswing, you might avoid the bust. Keynesians like Krugman insisted that this was all very well, but the recovery had been needlessly slowed by the premature shift to austerity.

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse
by Mohamed A. El-Erian
Published 26 Jan 2016

Their actions were greatly admired. And their accomplishments were celebrated. From seeing them as the deliverers of multi-year prosperity to promoting Chairman Greenspan as the “maestro” who had not only consolidated the Volcker victory over the dreaded enemy of inflation but also overcome the fluctuation of the business cycles, there was little if any questioning of the dominant narrative that advocated the supremacy, effectiveness, and wisdom of central banks. Looking back at this era with the benefit of hindsight, however, one sees it was only a partially warranted golden age. Part of the golden phenomenon was warranted by the central banks’ multi-decade conquering of inflation.

…

And when it stopped, it did so in an abrupt and incredibly damaging manner. CHAPTER 6 CASCADING FAILURES “Everyone has a plan until they get punched in the mouth.” —MIKE TYSON “These are days when the improbable can become the inevitable.” —JIM DWYER Rather than mark a decisive victory over the vagaries of the business cycle, the golden age of central banking ended up underpinning an historic period of excessive and irresponsible risk taking. The economic and financial chaos that followed was so intense as to totally discredit the concept of great economic moderation and of sophisticated risk management by the private sector.

…

I particularly remember being bemused when someone from the official sector dismissed it as “idiotic” back in 2009. Despite the enormity of the ongoing economic dislocations, many were still hostage to the conventional cyclical mindsets that had served policy making well for many decades—that is, the notion that advanced economies follow business cycles around a rather robust and stable path. As such, they wrongly believed that the sharp downturn in 2008–09 would be followed by an elastic-band-like rebound. The reaction I received in official circles to the concept of the new normal in the advanced world grew even more skeptical when I suggested that, in formulating their policy responses, these countries would be well advised to study and learn from the experience of emerging countries.

The Inner Lives of Markets: How People Shape Them—And They Shape Us
by Tim Sullivan
Published 6 Jun 2016

Generations of economists that followed—collectively referred to by economic historian Heilbroner as “the worldly philosophers”—extended Smith’s ideas. These early economists aimed to tackle big questions about how the economy worked (and whether it could be made to work better), weighing in on such important matters as market function (and dysfunction), the origin of value, business cycles, and unemployment. It was set in motion by Smith and carried on for one hundred years thereafter by the classical economists—David Ricardo, Thomas Malthus, Karl Marx, Vilfredo Pareto, among others. It was continued for nearly one hundred years more by neoclassical economists like Thorstein Veblen, John Maynard Keynes, and an enduring hero of free-market proponents, Joseph Schumpeter.

…

These same tools would transform Radford’s narrative of POW camp economics into a concise set of mathematical equations. It was an enterprise that was characterized by at least a bit of hubris: that with sufficiently well-conceived models and thoughtful application, the field could illuminate the inner workings of the economy, avoid another Great Depression, and defeat the business cycle. (Things had looked pretty promising up until around 2008.) There’s still hubris enough to go around in the economics profession today: the overstrong interpretation of mathematical models as predictive tools, in particular, is part of what’s driving our grand experimentation with markets, with uncertain outcome.

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Status, which is a function of who and what you associate with, is a notion that has traditionally been more the domain of sociologists than economists, and one that we will not delve into in any detail in this book. 5. George Akerlof, “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of Economics 84, no. 3 (1970): 488–500. 6. In a roundabout way, thinking about business cycles and unemployment is what led Akerlof to the market for used cars in particular as a setting for his lemons model. The market forces that drive unemployment to zero in standard models should also dampen the ups and downs of used car sales: if a used car is anywhere near substitutable for a new one, then as new car demand (and prices) go up during booms, at least some buyers should switch to shopping for a used one, thus tamping down new car demand.

Rebel Cities: From the Right to the City to the Urban Revolution
by David Harvey
Published 3 Apr 2012

Hence the crisis-prone character of urban and other forms of p hysical infrastructural investments (transcontinental railroads and highways, dams, and the like) . The cyclical character of such investments has been well documented for the nineteenth century in the meticulous work of Brinley Th omas (see Figure 3 ).20 But the theory of construction business cycles became neglected after 1 945 or so, in part because state-led Keynesian-style interventions were deemed effective in flattening them out. Robert B uilding activity per capita in � ·a.. " I.J .... .. ""' , , I I "' � I.J " '0 "' 20 � 10 . I ,-1 'J 20 25 � US, 1 8 1 0 - 1 950 ( 1 9 1 3 dollars per capita) 40 0 c: the 60 1 830 1 850 1 890 1 870 1910 1 930 1 950 Sale of public lands in t h e US (millions of ac res) , 1 800- 1 930 15 5 0 20 1810 1 830 1 850 1 870 1 890 1910 1 930 Different rhythms of investment in the built environment in relation to GNP ( U S ) and GDP (Britain), 1 860 - 1 970 16 12 �. ,./ _., ; Britain 8 4 , 1� ... /�, ,...... \ ) ,,_'-'\.of'.,..../ '-, ...,

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./ '-, ...,. \ \ I I \ ," I I I I v' \/ o �----�r--.--��-.--,---.---�--.---.---.---r--1 850 1 870 1 890 1910 1 930 1 950 1 970 Year Sc111 n:t: Figure 3 after Brmlcy 71wmm, .M igro1hon and Economic Growth: :\ Study o( Grc:al Camf,,dgc:, c,,mbri,lgc Um1•cr5il)• Prc1os Long-Run Business Cycles in the US Rritam and tht Adanti.: Economy, and the UK 44 R E B E L C I T I ES G ottlieb, in a deta iled study of many local building cycles (published in 1 976), identifi ed long swings in residential building cycles, with an average periodicity of 1 9 .7 years and a standard deviation of five years.

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The one group of economists who have long seen the significance of how "real estate values and construction have peaked shortly before major depres ­ sions" and "played a major role in creating the boom and the subsequent 1 70 5. 6. 7. 8. 9. 1 0. NOTES TO PAG ES 30 TO 36 bust" are followers of Henry George, but unfortunately they are also totally ignored by mainstream economists. See Fred Foldvary, " Real Estate and Business Cycles: Henry George's Theory of the Trade Cycle;' paper presented at the Lafayette College Henry George Conference, June 1 3, 1 99 1 . Graham Turner, The Credit Cru nch : Housing Bu bbles, Globalisation and the Worldwide Economic Crisis, London: Pluto, 2008; D avid Harvey, The Condition of Postmodernity, Oxford: Basil Blackwell, 1 989: 1 45-6, 1 69.

Wars, Guns, and Votes: Democracy in Dangerous Places
by Paul Collier
Published 9 Feb 2010

“The last year will be politics,” the president had explained to her, and, as I have just described, so it had proved. However, it might nevertheless be that all the election effect showed was a variant of the political business cycle. The political business cycle was the game that rich-country politicians used to play with their own electorates, pumping money into the economy just before an election: whoever won would then have to clean up the mess in the next couple of years. Damaging as the political business cycle was, it did not mean that democracy was worse than autocracy. It just showed that it wasn’t perfect. So the election results in themselves did not say anything about whether, if your society needed reform, democracy was better or worse than autocracy.

The Unbanking of America: How the New Middle Class Survives
by Lisa Servon
Published 10 Jan 2017

In contrast to typical cardholders in 1989, their counterparts in 1995 were more likely to be single, to rent instead of owning a home, and to hold a position at work with less seniority. Certain factors made these new borrowers riskier than traditional ones. Newer cardholders had a substantially higher debt-to-income ratio, so even small drops in income could lead to financial distress. New borrowers were also more likely to hold unskilled jobs with wages dependent on the business cycle. Card companies began offering these customers more credit, and they went out and spent that money. But they didn’t pay it all back: in just six years, between 1989 and 1995, the median outstanding credit card balance rose by more than 50 percent. Only a few hundred years after Thomas Aquinas called lending with interest immoral, we had a fully legal system in which firms routinely charged double- and triple-digit interest rates.

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INSIDE THE INNOVATORS 143 This moment is notable: Brett King, Breaking Banks: The Innovators, Rogues, and Strategists Rebooting Banking (Singapore: John Wiley & Sons, 2014), p. xv. Creative destruction, a term: Joseph Alois Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (London: Transaction Publishers, 1934). 144 Dave Birch, a director at: King, Breaking Banks, p. 42. Mobile phones have already: “The Future of Money,” 60 Minutes, CBS News, November 22, 2015. http://www.cbsnews.com/news/future-of-money-kenya-m-pesa-60-minutes/ 146 Smartphone use grew: Personal correspondence with Mike Mondelli, April 8, 2016. 163 interest rate of 36 percent: There’s a broader movement supporting the 36 percent rate.

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“Report Shows Millennials Turn to Payday Loans.” Loans.org, June 21, 2013. Schectman, Joel. “The South Bronx Is a Banking Wasteland.” New York Daily News, March 10, 2009. Schumpeter, Joseph Alois. The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. London: Transaction Publishers, 1934. Seigel Bernand, Tara. “Make a Resolution to Budget? Here Are Some Apps to Help.” New York Times, January 3, 2014. Servon, Lisa. “What Good Are Payday Loans?” The New Yorker, February 13, 2014. Shin, Laura. “Why McDonald’s Employee Budget Has Everyone up in Arms.”

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America
by Danielle Dimartino Booth
Published 14 Feb 2017

The food was darn good and so cheap some people even bought dinner to take home to the spouse and kids. Some habits are hard to break. I usually ate a bowl of soup (50 cents, crackers included) at my desk, my eyes glued to the Wall Street Journal live feed on my computer. The Fed’s permanent meal subsidy never failed to remind me it was an entity that operated outside the business cycle. It’s not that Wall Street didn’t have its fair share of perks; it’s that perks came and went. In the aftermath of the dot-com bust, our travel was downgraded from the Four Seasons to the Marriott. Entertainment budgets were slashed. And one day, to no one’s surprise, we received an e-mail informing us that the cafeteria would no longer be subsidized.

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Rosenblum believed Yellen’s rigid approach was not in keeping with the Fed’s ethos. Her attitude toward Friedman was a slap in the face not just to Rosenblum, but to the Fed’s culture as he knew it, his life’s work. Rosenblum had joined the Chicago Fed in August 1970, when the Fed was under the disastrous leadership of Burns, who had written a definitive book on business cycles. Pressured by President Richard Nixon, Burns would institute policies that resulted in double-digit inflation. Rosenblum had studied under economist Robert E. Weintraub, a Milton Friedman student who often complained about the ineptitude of the Fed. “I joined to bring new ideas to the institution,” Rosenblum said.

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Sometimes, as an added bonus, the Fed would even give trading desks advance notice. How awesome was that, traders must have thought, the ability to position their books to profit before the fact, a license to front-run the Fed! Greenspan’s actions ushered in the period of prosperity later dubbed the Great Moderation, the slaying of capitalism’s volatile business cycle of creation and destruction. Fewer bankruptcies, fewer disruptions in markets, steadier sailing. Though Rosenblum became a passionate defender of the Great Moderation, something continued to vex him. With hindsight, the causes of the 1987 crash became obvious. The Fed’s army of economists had missed them.

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present
by Jeff Madrick
Published 11 Jun 2012

Reagan’s defenders claim that after the 1982 recession, growth was strong. But no economist measures the rate of growth from the bottom of a recession. It must be measured over the course of a full business cycle, and thus measured, it was in fact mediocre. All the while, the unemployment rate remained historically high, suppressing the growth of wages. This would remain true until the mid-1990s. Wage growth slowed again in the 2000s, despite, and perhaps because of, a new round of tax cuts. Most important, adjusted for the business cycle, productivity, the source of a rising standard of living, under Reagan or George H. W. Bush did not resume the rapid average rate of growth of a hundred years of American industrial history.

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The serious and rather pompous Burns, born in the Ukraine in 1904 but brought to the United States by his parents, was by then one of the Republicans’ leading economic advisers, invariably on a short list of those whose advice was sought. He had studied and then taught at Columbia and had become an expert in business cycles. The economy sank into a serious recession in 1957 and 1958, and Burns, back at Columbia, urged Nixon to get Eisenhower to stimulate the economy by cutting taxes. Otherwise, Burns thought, the unemployment rate could again be high just as Nixon was launching his presidential campaign in 1960.

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The most damaging long-term change in the economy, in fact, was not inflationary expectations but the slowdown in the rate of growth of productivity, not yet noticed, even by the astute Schultze, though he suspected it before most others. If businesses could not produce much more per worker, they could not give the same raises as in the past without raising prices to maintain profit margins. In the recent past, productivity increased at an average 3 percent a year, adjusted for the ups and downs of business cycles, and now it was increasing at only 1 percent a year—a momentous fall-off if continued over the long run. And America was indeed about to embark on just that—a long period of slow productivity growth. Schultze, however, did not yet think the low productivity growth rate was permanent, but he had come to believe that pushing the unemployment rate even to 5.5 percent, when most Democrats still believed 4 percent was possible, might now have been inflationary.

Energy and Civilization: A History
by Vaclav Smil
Published 11 May 2017

In turn, the introduction of these new sources and prime movers elicits clusters of gradual improvements and fundamental technical innovations. Schumpeter’s (1939) classic account of business cycles in industrializing Western countries showed the unmistakable correlation between new energy sources and prime movers, on the one hand, and accelerated investment on the other (box 7.4, fig. 7.8). Box 7.4 Business cycles and energy The first well-documented upswing (1787–1814) coincides with the spreading extraction of coal and with the initial introduction of stationary steam engines. The second expansion wave (1843–1869) was clearly driven by the diffusion of mobile steam engines (railroads and steamships) and by advances in iron metallurgy.

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Plotted from data in numerous references cited in the book’s sections dealing with transportation. Figure 7.8 Comparison of the onsets of major energy eras (identified by principal fuels and prime movers) with innovation clusters according to Mensch (1979) and with Schumpeter’s (1939) long waves of Western business cycles. I have extended both waves to the year 2000. Figure 7.9 Saint Peter’s Basilica completed in 1626 (Corbis). Figure 7.10 Brazil’s largest megalopolis, São Paulo, photographed in 2013. Megacities are the foremost examples of global uniformity imposed by high levels of fuel and electricity use (Corbis).

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The third one, clustered around 1937, includes the gas turbine, jet engine, fluorescent lights, radar, and nuclear energy. Figure 7.8 Comparison of the onsets of major energy eras (identified by principal fuels and prime movers) with innovation clusters according to Mensch (1979) and with Schumpeter’s (1939) long waves of Western business cycles. I have extended both waves to the year 2000. Subsequent extensions of these long cycles work quite well. The postwar economic upswing was associated with the global substitution of hydrocarbons for coal, with the worldwide rise in electricity generation (including by nuclear fission), and with mass car ownership and extensive energy subsidies in agriculture.

Hawai'I Becalmed: Economic Lessons of the 1990s
by Christopher Grandy
Published 30 Sep 2002

There was then a brief period of low job growth in 1996–1997and then another 14 months of job losses. This was unprecedented in the state’s history. Some of the job losses involved structural change, such as the closing of several remaining sugar plantations and mills. These were among the most difficult losses to adjust to. It was not simply a matter of the business cycle moving down and up again. Observers had known for decades that sugar and pineapple were disappearing. Still, as some of the last plantations and mills closed—such as those in Hamakua on the Big Island and on O‘ahu—the long-anticipated demise shocked residents. Even more important in terms of sheer numbers, construction jobs began to evaporate, starting in October 1991.

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In Hawai‘i’s case this means that expenditures cannot exceed revenue plus the current general fund balance.7 The other constraint is that growth in expenditures in any year cannot exceed the average rate of growth in the economy (measured by personal income over the previous three years).8 These two features affect the economy differently at different stages of the business cycle. As the economy expands in a boom period, revenues tend to grow rapidly. The same would happen to expenditures except that the expenditure ceiling is based on the previous three years’ growth in personal income. The expanding economy means, therefore, that expenditures are held back by the lower growth rates of previous years.

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions
by Joshua Rosenbaum , Joshua Pearl and Joseph R. Perella
Published 18 May 2009

Hence, the selected multiple range is typically tighter than that implied by simply taking the high and low multiples for the universe. As part of this exercise, the banker must also determine which period financial data is most relevant for calculating the trading multiples. Depending on the sector, point in the business cycle, and comfort with consensus estimates, the comparable companies may be trading on the basis of LTM, one-year forward, or even two-year forward financials. As shown in the illustrative example in Exhibit 1.34, the target has three closest comparables that trade in the range of approximately 6.0x to 7.0x 2008E EBITDA, versus a high/low range of 5.0x to 8.0x, a mean of 6.5x and a median of 6.4x.

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As a general rule, the most recent transactions (i.e., those that have occurred within the previous two to three years) are the most relevant as they likely took place under similar market conditions to the contemplated transaction. In some cases, however, older transactions may be appropriate to evaluate if they occurred during a similar point in the target’s business cycle or macroeconomic environment. Under normal market conditions, transaction comps tend to provide a higher multiple range than trading comps for two principal reasons. First, buyers generally pay a “control premium” when purchasing another company. In return for this premium, the acquirer receives the right to control decisions regarding the target’s business and its underlying cash flows.

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As discussed in Step IV, it is critical to project FCF to a point in the future where the target’s financial performance reaches a steady state or normalized level. For mature companies in established industries, five years is often sufficient for allowing a company to reach its steady state. A five-year projection period typically spans at least one business cycle and allows sufficient time for the successful realization of in-process or planned initiatives. In situations where the target is in the early stages of rapid growth, however, it may be more appropriate to build a longer-term projection model (e.g., ten years or more) to allow the target to reach a steady state level of cash flow.

A Brief History of Neoliberalism
by David Harvey
Published 2 Jan 1995

What all of these various state forms had in common was an acceptance that the state should focus on full employment, economic growth, and the welfare of its citizens, and that state power should be freely deployed, alongside of or, if necessary, intervening in or even substituting for market processes to achieve these ends. Fiscal and monetary policies usually dubbed ‘Keynesian’ were widely deployed to dampen business cycles and to ensure reasonably full employment. A ‘class compromise’ between capital and labour was generally advocated as the key guarantor of domestic peace and tranquillity. States actively intervened in industrial policy and moved to set standards for the social wage by constructing a variety of welfare systems (health care, education, and the like).

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In the advanced capitalist countries, redistributive politics (including some degree of political integration of working-class trade union power and support for collective bargaining), controls over the free mobility of capital (some degree of financial repression through capital controls in particular), expanded public expenditures and welfare state-building, active state interventions in the economy, and some degree of planning of development went hand in hand with relatively high rates of growth. The business cycle was successfully controlled through the application of Keynesian fiscal and monetary policies. A social and moral economy (sometimes supported by a strong sense of national identity) was fostered through the activities of an interventionist state. The state in effect became a force field that internalized class relations.

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Neoliberal doctrine was therefore deeply opposed to state interventionist theories, such as those of John Maynard Keynes, which rose to prominence in the 1930s in response to the Great Depression. Many policy-makers after the Second World War looked to Keynesian theory to guide them as they sought to keep the business cycle and recessions under control. The neoliberals were even more fiercely opposed to theories of centralized state planning, such as those advanced by Oscar Lange working close to the Marxist tradition. State decisions, they argued, were bound to be politically biased depending upon the strength of the interest groups involved (such as unions, environmentalists, or trade lobbies).

Average Is Over: Powering America Beyond the Age of the Great Stagnation
by Tyler Cowen
Published 11 Sep 2013

It refers to the percentage of people—other than the very young and old—who in fact have jobs. You can see clearly in the chart that it has been going down for some time. Human labor suddenly doesn’t appear so indispensable, does it? Labor force participation depends on numerous factors, including the business cycle, savings, availability of benefits, and lifecycle and gender considerations. But let’s focus on how intelligent machines are likely to make a big difference across the next few decades. And to do that, let’s look at the development of one small subsector in the age of the computer. © Federal Reserve Bank of Saint Louis (Redrawn by Daniel Lagin) I remember the very early days of computer chess, when I was a kid playing in tournaments in the 1970s.

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Computer programs do especially well in chess because it is a totally regularized environment where the right answer can be ascertained, at least in principle, by pure calculation. And a lot of those calculations are within the range of current hardware, even on a PC or an iPhone. Chess is relatively easy in comparison to enterprises that need to judge the business cycle or evaluate a person’s character. Chess programs can try to find “the best move” without having to calculate the psychology or likely response of the opponent; in this regard chess is unlike the more strategic and psychological game of poker. In poker, the very best players are still humans, because the computers don’t know how to psych out the opponent, bluff, or read the “tells” from the guy sitting across the table.

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See also China; India Asimov, Isaac, 10–11 Asperger’s syndrome, 142 Atlantic magazine, 200 ATMs, 117–18 Australia, 20 autism, 141–43 automation, 91–92, 111–13, 117 automobiles, driverless, 8 autonomy (humans), 116 Autor, David H., 37, 164 Babbage, Charles, 6 Banerjee, Abhijit, 222 BBC, 144 Becker, Gary, 226–27 behavioral economics, 75–76, 99, 105, 110, 149, 227 Belle (chess program), 46 benefit costs, 36, 59, 113 Benjamin, Joel, 47 Berlin, Germany, 246 Berra, Yogi, 229 biases, cognitive, 99–100 Bierce, Ambrose, 134 “Big Data,” 185, 221 Black, Fischer, 203 blogs, 180–81 Bonaparte, Napoleon, 148 Borjas, George, 162 “bots,” 144–45 “brain emulation,” 137–38. See also artificial intelligence (AI) branes, 214 Brazil, 20 Breedlove, Philip M., 20 Bresnahan, Timothy F., 33 Brookings Institution, 53 Brooklyn, New York, 172, 240 Brownian motion, 203 Brynjolfsson, Erik, 6, 33 Burks, John, 62 business cycles, 45 business negotiations, 73, 158 California, 8, 241 Campbell, Howard, 246 Canada, 20, 171, 177 Candidates Match, 156 Capablanca, Jose Raoul, 150 capital flows, 166 capitalism, 258 careers, 41–44, 119–25, 126, 202 Carlsen, Magnus, 104, 156, 189 Carr, Nicholas, 153–54 Caterpillar, 38 cell phone service, 118 CEOs, 100 Chen, Yingheng, 79 chess and cheating, 146–51 Chess Olympiad, 147, 189 computer’s influence on quality of play, 106–8 and decision making, 98–99, 101–2, 104–5, 129 early computer chess, 7, 46–47, 67–70 and face-to-face instruction, 195 and gender issues, 31, 106–8 and globalization of competition, 168 and intuition, 68–70, 72, 97, 99, 101, 105–6, 109–10, 114–15 machine and human styles contrasted, 75–76, 77–86 machine vs. machine matches, 70–75 as model for education, 185–88, 191–92, 202–3 and opening books, 83–85, 86–87, 107, 135, 203 and player ratings, 120 simplicity of rules, 48–49 spectator interest in, 156–57 See also Freestyle chess Chess Tiger (chess program), 78 children and wealth inequality, 249 China chess players from, 108, 189 and demographic trends, 230 and geographic trends, 177 and global competition, 171 and labor competition, 5, 163–64, 167, 169–70 and political trends, 252 and scientific specialization, 216 choice.

Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity
by Paul Ely Beckerman and Andrés Solimano
Published 30 Apr 2002

Wealth-holders have been able to move resources with increasing ease between on- and offshore placements, as perceptions and realities of relative rates of return and bank safety evolve. As in other economies, this activity has imparted an additional dimension of vulnerability to financial activities. In 1994 and 1995, Ecuador experienced a round of inflows followed by outflows (see section C below), which intensified the business cycle. Meanwhile, Ecuadoran financial institutions have continued to do business with foreign banks, coming to rely heavily on external funds for trade and working-capital credit. During 26 CRISIS AND DOLLARIZATION IN ECUADOR 1998 many of these lines were withdrawn—again, at a moment when their withdrawal was especially inconvenient both for banks and for the balance of payments (see Part 4).

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This was so in spite of the fact that Chile attempted just about every imaginable exchange-rate system (including the gold standard) during the period. Furthermore, for a large group of emerging economies, a study found that emerging markets are highly vulnerable to external shocks, regardless of their exchange-rate systems. U.S. interest rates and U.S. business cycles explain half the variance of real exchange-rate changes and accumulation of international reserves (Calvo and Reinhart 2000). It seems reasonable enough to conclude that U.S. economic influence operates under any exchange-rate regime. Another presumable disadvantage of dollarization is the loss of seigniorage.

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“Estrategias para una Política de Empleo para el Ecuador, con Enfasis en la Pequeña y Micro Empresa.” Unpublished manuscript. Quito. Correia, Maria. 2001. Gender and Hurricane Mitch. Draft. Washington, D.C.: World Bank. Cunningham, Wendy. 2001. “Breadwinner Versus Caregiver: Labor Force Participation and Sectoral Choice over the Mexican Business Cycle.” In E. Katz and M. Correia, eds., The Economics of Gender in Mexico: Work, Family, State and Market. Washington, D.C.: World Bank. Deere, Carmen Diana, and Magdalena León. 2000. “Gender, Property and Empowerment: Land, State and Market in Latin America.” Unpublished manuscript. Doss, Cheryl. 1996.

Buying Time: The Delayed Crisis of Democratic Capitalism
by Wolfgang Streeck
Published 1 Jan 2013

After 1945, capitalism had found itself on the defensive worldwide; in all the countries of the emergent Western bloc, it had to make efforts to extend and renew its social franchise, in the face of a working class strengthened by war and the rivalry between two systems.45 This could be achieved only through sizeable concessions that Keynesian theory had already envisaged and paved the way for: in the medium term, government intervention in the business cycle, and state planning to provide for growth, full employment, social redistribution and ever greater protection from the unpredictability of markets; in the long term, a gradual departure from capitalism in a world of permanently low interest rates and profit margins. Only under these conditions, in the service of politically defined social purposes, could a profit-oriented economic regime, after the end of the war economy, be rebuilt within a stable liberal democracy immune from fascist regression and Stalinist temptations; only then was it politically feasible to restore full property rights and managerial authority.

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Brenner, The Economics of Global Turbulence: The Advanced Capitalist Economies from Long Boom to Long Downturn, London: Verso, 2006. 39 Nor did it see the potential involved in the historical expansion and stretching of what it could only regard as consumerist pseudo-satisfactions to secure the acquisitive and productive motivations on which capitalism depends – as a deflection of demands for collective political progress onto the satisfaction of individual economic wants by the booming world of commodities. 40 My view of economic crises as crises of political confidence, and of declining investment as a communication of discontent on the part of owners and managers of capital, closely follows Michal Kalecki’s theory of political business cycles (e.g. M. Kalecki, ‘Political Aspects of Full Employment’, Political Quarterly, vol. 14/4, 1943, pp. 322–31). 41 Hence it is that employers and economists axiomatically suspect workers of ‘shirking’ – and insist that, because of their ‘opportunism with guile’, they need to be kept under effective supervision or ‘monitoring’. 42 Of course there is a grey area where the categories mix, today more than ever.

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he asked the meeting. And he immediately gave the answer himself: “The Lord only knows.”…In fact, according to the widely held view in Davos, capitalism simply has not delivered … For David Rubinstein, founder and boss of the American private equity firm Carlyle Group, the problems lie deeper. Business cycles were thought to be under control, said the financial investor. But it has turned out that capitalism “lacks the ability to manage the cyclical twists and turns”. More, “capitalism has not solved the problem of inequality.” And “no one in the world seems to have the answer”.’ 9 Polanyi, The Great Transformation, ch. 12. 10 Ibid., ch. 11. 11 Bofinger et al., ‘Einspruch gegen die Fassadendemokratie’, p. 33. 12 Ibid. 13 See the repeated failure to sell the German form of industrial democracy – participation at plant and company level – as a European model for strong workplace representation. 14 Höpner and Schäfer (M.

The Politics Industry: How Political Innovation Can Break Partisan Gridlock and Save Our Democracy
by Katherine M. Gehl and Michael E. Porter
Published 14 Sep 2020

In other industries, channels or suppliers apply pressure on industry rivals to serve customers better—or abandon them. New competitors or substitutes emerge. If all else fails, an independent regulator steps in to protect the consumer. But in politics, these forces have been co-opted or eliminated. Unlike a business cycle, our political system is not in a phase; it will not self-correct. Choosing Not to Solve Problems: The Case of Immigration To appreciate the full suite of unhealthy competition at work, consider the contentious issue of immigration. In the past, both parties compromised on immigration to deliver real solutions and to refine immigration policies over time.

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For example, the Interstate Commerce Act of 1887 was designed to regulate the railroad monopolies, and the Sherman Antitrust Act of 1890 empowered the federal government to combat anticompetitive business practices. Overall, however, the legislative process ground to a halt—and the nation suffered.45 Markets went unregulated, leading to free-for-alls and destructive competition. With no policies in place to moderate the business cycle, wildly oscillating economic conditions ensued.46 Farmers struggled to stay afloat as crop prices plummeted and costs soared, with no real agricultural policies to address the economic difficulties.47 In the 1880s alone, businesses and their workers clashed in thousands of often-bloody strikes, with no collective bargaining rules or government mediators.48 Public schools failed to equip students with the skills needed for the new economy.49 Crime-ridden cities lacked basic services and infrastructure.

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Cochran and William Miller, The Age of Enterprise: A Social History of Industrial America (New York: Harper & Row, 1961), 230. N. S. Balke and R. J. Gordon, “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1, 38–92; Christina D. Romer, “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908,” Journal of Political Economy 97.1, 1–37. 19. Arnesen, “American Workers and the Labor Movement in the Late Nineteenth Century,” The Gilded Age, ed. Calhoun, 55–56. 20. Robert Cherny, American Politics in the Gilded Age: 1868–1900 (Hoboken, NJ: Wiley-Blackwell, 1997), 60. 21.

Mastering the Market Cycle: Getting the Odds on Your Side
by Howard Marks
Published 30 Sep 2018

Given the relative stability of underlying secular growth, one might be tempted to expect that the performance of economies would be consistent from year to year. However, a number of factors are subject to variability, causing economic growth—even as it follows the underlying trendline on average—to also exhibit annual variability. The economic cycle (also known—mostly in the past—as “the business cycle”) provides much of the foundation for cyclical events in the business world and the markets. The more the economy rises, the more likely it is that companies will expand their profits and stock markets will rise. I’ll touch briefly here on the factors that influence economic cycles. But before I do so, I want to make the confession I volunteer whenever I discuss economics (or is it a proud proclamation?)

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First I described a newspaper article that had appeared a few days earlier: It recounted the case currently being made for this remaining a continuous, recession-free economic expansion. As its lead paragraph says: From boardrooms to living rooms and from government offices to trading floors, a new consensus is emerging: The big, bad business cycle has been tamed. The current expansion, at 67 months, has already far exceeded the post-war average. Nevertheless, 51 of the 53 “top economists” surveyed by Blue Chip newsletter (my favorite experts and the subject of my July 1996 memo, “The Value of Predictions II”) predict growth next year of 1.5% or more.

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The Chairman of Sears states “There is no natural law that says we have to have a recession.” According to Amoco’s Chairman, “I don’t see any reason to believe [the recovery] can’t go on until the turn of the century.” Sara Lee’s CEO says “I don’t know what could happen to make a cyclical downturn.” (“The Business Cycle is Tamed, Many Say, Alarming Others,” Wall Street Journal, November 15, 1996) Clearly these statements, made in 1996, did not truly mark the end of cycles. Rather, there was a modest recession in 2001 and then, just a few years later, the Great Recession of 2008–09, the most powerful cyclical event ever experienced by most people alive today.

Portfolio Design: A Modern Approach to Asset Allocation
by R. Marston
Published 29 Mar 2011

An interesting approach is provided by a study by Campbell and Vuolteenaho (2004).5 They distinguish between good beta, the volatility of stocks due to changes in the market’s discount rates, and bad beta, the volatility of stocks due to changes in the market’s cash flows. Only the latter is highly correlated with business cycle risks, hence the bad beta description. Campbell and Vuolteenaho show that value stocks have considerably higher cash-flow betas than do growth stocks. These higher betas, according to the authors, lead investors to require higher returns on value than growth stocks. So perhaps there is a reason why value stocks outperform growth stocks that has to do with the larger business cycle risks facing investors. But by conventional measures of risk, value stocks clearly outperform growth stocks, at least over the last few decades.

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The return on the S&P ranges from 32 percent to 59 percent over the first 12 months. In all but one recession, the recession in 2001, the S&P reaches bottom before the end of the recession. So the investor cannot wait for clear signs that the recession has ended. For one thing, it takes the NBER business cycle committee months to decide that a recession has ended. In addition, the S&P usually rises earlier than that date. So market timers have to have unusual foresight! Let’s consider how easy it would be to bob and weave in these market cycles. We know that (a) bonds are supreme during market downturns and (b) stocks are supreme in upturns.

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With the Treasury-Fed Accord of March 1951, interest rates could once again reflect market forces. I 21 P1: OTA/XYZ P2: ABC c02 JWBT412-Marston December 20, 2010 16:59 22 Printer: Courier Westford PORTFOLIO DESIGN The period beginning in 1951 does include a variety of economic conditions. There are nine recessions during this period, so investment behavior over the business cycle can be studied in detail.2 There is also a period of high inflation, in the 1970s, as well as two periods of relatively low inflation, in the 1950s and in the current decade. There are periods of rising interest rates and falling interest rates, so bond returns have fluctuated widely. And there are bull markets and bear markets for stocks.

Innovation and Its Enemies
by Calestous Juma
Published 20 Mar 2017

Schumpeter, Capitalism, Socialism and Democracy, 83. 23. Norman Clark and Calestous Juma, Long-Run Economics: An Evolutionary Approach to Economic Growth (New York: Bloomsbury, 2014). 24. Joseph A. Schumpeter, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, vol. 1 (New York: McGraw Hill, 1939), 73. 25. Schumpeter, Business Cycles, 73. 26. Schumpeter, Business Cycles, 73. 27. Dan Yu and Chang Chieh Hang, “A Reflective Review of Disruptive Innovation Theory,” International Journal of Management Reviews 12 (2010): 435–452. 28. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (New York: HarperCollins, 2010), xv. 29.

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Similar dynamics of success are evident in the field of scientific research as illustrated in Thomas Kuhn, The Structure of Scientific Revolutions (Chicago: University of Chicago Press, 1962). Chapter 2 1. Suzanne Bush, “Coffee Cleared in Chemical Court,” BBC News, September 30, 2003. 2. Bush, “Coffee Cleared.” 3. Joseph A. Schumpeter, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, vol. 1 (New York: McGraw Hill, 1939), 73. 4. Calestous Juma, The Gene Hunters: Biotechnology and the Scramble for Seeds (Princeton, NJ: Princeton University Press, 1989), 41. 5. Brian W. Beeley, “The Turkish Village Coffeehouse as a Social Institution,” Geographical Review 60, no. 4 (1970): 475–493. 6.

The People vs. Democracy: Why Our Freedom Is in Danger and How to Save It
by Yascha Mounk
Published 15 Feb 2018

See Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Belknap Press of Harvard University Press, 2014), 72–112. 2. S. N. Broadberry and Bas van Leeuwen, “British Economic Growth and the Business Cycle, 1700–1870: Annual Estimates,” Working Paper, Department of Economics, University of Warwick, Coventry, UK, February 2011, CAGE Online Working Paper Series, vol. 2010 (20), http://www2.warwick.ac.uk/fac/soc/economics/events/seminars-schedule/conferences/venice3/programme/british_economic_growth_and_the_business_cycle_1700-1850.pdf. 3. According to Jeffrey Williamson, the Gini coefficient for male earners rose from .293 to .358 between 1827 and 1851.

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In the short run, charismatic candidates heeding the basic electoral lessons of the past years can still earn resounding victories.20 And yet, it is now clear that, in a shockingly wide range of countries, the changes of recent decades have put the populists within striking distance of the seat of power. In the long run, it will thus take something more than a well-run campaign to put liberal democracy on a secure footing. If we don’t want every downturn in the business cycle or every blunder by a mainstream candidate to pose an existential threat to liberal democracy, we need to address the structural drivers of populist support. To save democracy, we need, in other words, to unite citizens around a common conception of their nation; to give them real hope for their economic future; and to make them more resistant to the lies and the hate they encounter on social media each and every day.

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Simone Polillo and Mauro Guillén, “Globalization Pressures and the State: The Worldwide Spread of Central Bank Independence,” American Journal of Sociology 110, no. 6 (2005): 1764–1802, 1770. 45. Ibid., 1767. 46. In the years following the financial crisis in 2008, central banks have started to take an even more important political role. Back in the 1990s and early 2000s, the Federal Reserve, the Bank of England, and the European Central Bank had simply ridden the business cycle’s low inflation and impressive growth. Their failure to predict that massive deregulation would destabilize the financial sector helped to bring about one of the most catastrophic economic downturns in modern history. But rather than losing their power in the aftermath of the financial crisis, many central banks actually grew more powerful—and less accountable.

Utopia or Bust: A Guide to the Present Crisis
by Benjamin Kunkel
Published 11 Mar 2014

In The Enigma of Capital, Harvey coincides with other Marxists in locating the origins of the present crisis in the troubles of the 1970s, when the so-called Golden Age of capitalism following World War II—blessed with high rates of profitability, productivity, wage growth, and expansion of output—gave way to what Brenner called “the long downturn” after 1973. Brenner argued in The Economics of Global Turbulence that this long downturn, with deeper recessions and weaker expansions across every business cycle, reflects chronic overcapacity—another variety of overaccumulation—in international manufacturing, a condition brought about by the maturation of Japanese and German industry by the end of the 1960s, and later compounded by the industrialization of East Asia. As competition to supply export markets increased faster than those markets expanded, the price of international tradeables naturally fell, reducing both the profits of manufacturers and the wages paid to workers.

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On this subject the last word still belongs to Kalecki: “If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which must be scrapped.” February 2010 * Doug Henwood’s calculation, applying a statistical measure developed by the economist Robert Shimer. * The Polish economist Michal Kalecki (1899–1970) developed a “Keynesian” theory of business cycles, liquidity traps, and countercyclical spending independently of Keynes. In economics departments outside the US, he is usually given credit for this. But Kalecki’s politics were Marxist. * Keynes: “The whole management of the domestic economy depends upon being free to have the appropriate rate of interest without reference to the rates prevailing elsewhere in the world.

The System: Who Rigged It, How We Fix It
by Robert B. Reich
Published 24 Mar 2020

Don’t define “national competitiveness” as the profitability of large American corporations. Those corporations are now global, with no allegiance to America. Real national competitiveness lies in the productivity of the American people—which depends on their education, health, and the infrastructure that links them together. You can also forget the ups and downs of the business cycle. Focus instead on systemic changes that have caused the wealth and power of a few to dramatically increase during the last forty years at the expense of the many. Forget the old idea that corporations succeed by becoming better, cheaper, or faster than their competitors. They now succeed mainly by increasing their monopoly power.

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Federal Reserve chair Greenspan insisted that Clinton cut the federal budget deficit rather than deliver on his more ambitious campaign promises, and Greenspan reciprocated by reducing interest rates. By the late 1990s, the economy was recovering so quickly and unemployment was so low that middle-class wages started to rise a bit for the first time in two decades. The rise, however, was propelled by an upturn in the business cycle rather than any enduring change in the system, so it turned out to be a blip. Once the economy cooled, most family incomes were barely higher than before. And when the bubble burst, all hell broke loose. In 1999, Weill and Dimon parted ways. “The problem was…he wanted to be C.E.O. and I didn’t want to retire,” Weill said of Dimon.

Bit by Bit: How P2P Is Freeing the World
by Jeffrey Tucker
Published 7 Jan 2015

He compared sound money to constitutions that guarantee fundamental human rights. F.A. Hayek (1899–1992). Hayek was Mises’s colleague in pushing for fundamental monetary reform for many decades. Together they warned of the dangers of central banking. They demonstrated how expansionary credit policy leads to price inflation and business cycles and also fuels the growth of government. They begged and pleaded to reverse course. But they were doomed to be prophets of decline. One year after Mises’s death, Hayek decided to take a different course. In 1974, he wrote The Denationalization of Money. He gave up on the idea of government involvement in money at any level and concluded that there had to be a complete separation, even at the level of reform.

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Hayek died in 1992, for example, a magazine commissioned me to do a final tribute to his life and work, summing up his main contributions. It was supposed to be for a popular audience. There’s nothing like such a writing assignment to reveal how much you actually know—or do not know—about a subject. I thought it was going to be a snap. I covered his biography and politics just fine; I mentioned his business-cycle studies and his work on capital theory. But of course his main contribution to the world of social science is summed up in the phrase “the knowledge problem.” Even though I read most of his major work, and read his seminal articles on the problem of knowledge, I was stunned to find myself with writer’s block.

Capital Allocators: How the World’s Elite Money Managers Lead and Invest
by Ted Seides
Published 23 Mar 2021

Good performance demonstrated skill, bad performance was bad luck: a textbook example of self-serving bias. Allocators need to be patient and gather lots of information to distinguish between a manager’s luck and skill. Tim Recker at the James Irvine Foundation reminds his team that business cycles can last seven to eight years, and some managers need a full business cycle to show that their strategy works. Summary Making good decisions is hard. We are hardwired to do this poorly, so building processes to mitigate our pernicious biases can help make our decisions less bad. Investment ideas are not black and white.

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market
by Steven Drobny
Published 31 Mar 2006

Has the Fed gotten better at its job, thus reducing volatility as well as opportunities for global macro funds? There aren’t more or less opportunities because we still have those few macro calls to make.That won’t change. The Fed has created a new problem that it finds much harder to control, and that is the global business cycle. The global business cycle has created a new dynamic which has caused increased global correlations THE CURRENCY SPECIALIST 329 across asset classes. Arguably, it is now more difficult for the Fed to manage the economy. It has become more like driving an oil tanker than a small dinghy, but it is still at the wheel.

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But imbalances were allowed to build up because policy was reactive, not sufficiently preemptive, which meant that you’d get this boom followed by a bust. It made output, inflation, and interest rates excessively volatile, but it also gave you nice trending moves that people in the market could exploit. What’s happened now is we don’t have the political business cycle affecting the interest rate cycle, which means that policy is more preemptive and therefore interest rates need to move up and down less than they used to.You get fewer of these long-lived trends that can be exploited by macro funds. That’s true in the United Kingdom and it’s clearly true in many other countries including Canada,Australia, and New Zealand.

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See also Central bank(s)/banking Bank of Canada, 285 Bank of England, 14–15, 113, 152, 161, 166, 175, 274–275, 285 Bank of Japan, 175, 318 Bank paper, 141 Barclays Capital, 134–139, 141, 153 Barings Singapore, 80 Barron’s, 231, 238 Baruch, Bernard, 146–147 Bear/bearish markets, 82–83, 123, 157, 225, 228, 230, 237, 340 Beauty contest, 164–165 Behavioral finance, 152, 159 Bernanke, Ben, 350 Bessent, Scott, 14, 16, 20, 269–288 Bessent Capital, 269 Beta, 8, 282, 328 BHP Billiton, 252 Bid/offer spreads, 45, 61 Big-bet approach, 341–343 Black box trading systems, 332 Black Monday, 11, 212–213 Black Wednesday 1992, 10, 14–17, 29, 114, 275 361 362 Blodgett, Henry, 260 Bond investments, 61, 88, 118, 121–122, 146–147, 157–158, 231, 251 Bond market, 61, 78, 145, 149–151, 193, 225–226, 292, 323, 328 Bond market rout of 1994, 10, 17, 155 Bond prices, 204 Bond rally, 75 Bond specialists, 127 Bonfire of the Vanities (Wolfe), 244 Boom-bust cycle, 167–168 Bosnia, 51 Bottom-up approach, 51, 346 Brady bonds, 296 Brazil/Brazilian real,193, 204, 208–209, 239, 261, 290, 295–296, 327–328, 334–335 Bretton Woods, 6–7, 90, 123, 201 British pound, 14–16, 76, 117, 209, 221–222, 274, 285. See also Sterling Brown Brothers, 271 BTPs (Buoni del Tesoro Poliennali), 85–87 Bucket shops, 36 Buffett,Warren, 278, 292 Bull/bullish market, 83, 107, 123, 217, 225–226, 228, 230–231, 239, 273 Bund/BTP convergence trade, 85–87 Bundesbank, 14 Bunds, 75, 340 Business cycle, global, 328–329 Butterfly options, 46 Buy and hold strategy, 7, 47 Buy low, sell high, 228–229 Buy signals, 226 Call options, 85 Canada, 167 Canadian dollar, 67, 239, 286 Capital allocation, 24, 33, 98–99, 315, 321 Capital preservation, 144, 323–324 Carry trades, 78–79, 110–111, 113, 117–118, 125, 134 Cash market, 85 Caxton, 9–10, 33 Central bank(s)/banking, 32, 40, 83, 139–140, 148, 151–153, 161–162, 167–170, 204, 313, 331 Central banker(s), 13–14, 160, 229, 349.

The Making of an Atlantic Ruling Class
by Kees Van der Pijl
Published 2 Jun 2014

Of bank capital, Marx emphasized that ‘the accumulation of the wealth of this class can proceed in a direction quite different from that of real accumulation’, and that ‘loan capital accumulates at the expense of both industrial and commercial capital’.2 Commercial capital, finally, is able to reinforce its economic position particularly in the upward movement of the business cycle when inventories are revalued and rapidly depleted due to growing demand. New capitalists easily make their appearance in the market, since the initial capital required for commercial activities is relatively small, and credit is readily available in this situation. With these general remarks in mind, let us examine empirical evidence of the changing prominence of the major capital fractions in the business cycle. For the United States, the percentage share of total corporate profits has been calculated for the three capital fractions deriving from the basic functional forms of capital: i.e., bank capital, industrial capital, and commercial capital.

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Given their contradictory combination in reality, no sustained, exclusive application of the recipes inherent in the money-capital or productive-capital concepts of control is possible, even disregarding the fact that interests of subordinate fractions in each concrete case dilute the ideal-type already. In reality, there is a typical ‘political business cycle’ implying a recurrent process of short-term mobilization and countermobilization of interests from either vantage-point (and within the limits posed by the long-term exhaustion of the reserve army of labour under a given mode of accumulation). Accordingly, the success of a particular class strategy depends on the degree to which it succeeds in realigning the existing configuration of forces on the basis of a keen assessment of the objective trends in the sphere of capital accumulation.

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Aglietta, A Theory of Capitalist Regulation: the US Experience [London 1979 & 1976], defines the extensive mode of accumulation as the one in which the ‘classical’ tendency of over-accumulation in heavy industry is at the root of serious cyclical crises; in the course of the New Deal, this mode of accumulation is superseded by the intensive mode, which denotes the ‘Fordist’ accumulation dynamic in which consumer demand and state countercyclical policy tend to even out the business cycle. Aglietta’s concept of an extensive mode corresponds to Andreff’s first two (extensive and intensive); his intensive mode by and large denotes the same as Andreff’s progressive mode. In an Italian study by A. Martinelli, A.M. Chiesi, and N. Dalla Chiesa, I grandi imprenditori italiani. Profilo sociale della classe dirigente economica, Milan 1981, four historically defined but likewise surviving entrepreneurial types are distinguished: the traditional, the supported, the private financier, and the public entrepreneurs.

Misbehaving: The Making of Behavioral Economics
by Richard H. Thaler
Published 10 May 2015

The puzzle was first announced, and given the name, by Raj Mehra and Edward Prescott in a 1985 paper. Prescott was a surprising person to announce an anomaly. He was and remains a hard-core member of the conservative, rational expectations establishment. His work in this domain, called “real business cycles,” would later win him a Nobel Prize. And unlike me, Prescott did not have declaring anomalies as part of his agenda. I suspect he found this one to be a bit embarrassing given his worldview, but he and Mehra knew they were on to something interesting. The term “equity premium” is defined as the difference in returns between equities (stocks) and some risk-free asset such as short-term government bonds.

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For an exercise like this, Shiller’s preferred method is to divide the market price of an index of stocks (such as the S&P 500) by a measure of earnings averaged over the past ten years. He prefers this long look-back at earnings because it smooths out the temporary fluctuations that come over the course of the business cycle. A plot of this ratio is shown in figure 13. FIGURE 13 With the benefit of hindsight, it is easy to see from this chart what an investor would have liked to do. Notice that when the market diverges from its historical trends, eventually it reverts back to the mean. Stocks looked cheap in the 1970s and eventually recovered, and they looked expensive in the late 1990s and eventually crashed.

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“The Missing Motivation in Macroeconomics.” American Economic Review 97, no. 1: 3–36. ———, and Robert J. Shiller. 2009. Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton: Princeton University Press. ———, and Janet L. Yellen. 1985. “A Near-Rational Model of the Business Cycle, With Wage and Price Inertia.” Quarterly Journal of Economics 100, supplement: 823–38. Andersen, Steffen, Alec Brandon, Uri Gneezy, and John A. List. 2014. “Toward an Understanding of Reference-Dependent Labor Supply: Theory and Evidence from a Field Experiment.” Working Paper 20695, National Bureau of Economic Research.

Adam Smith: Father of Economics
by Jesse Norman
Published 30 Jun 2018

His remarks on value are confusing, and his cost-of-production theory and its cousin, the labour theory of value, proved to be a blind alley to most nineteenth-century theorists, and command little support today except among some Marxist economists. And there are central areas of modern economic theory—concerning demand, marginal utility, monetary policy, mass unemployment, the business cycle, to name a few—on which The Wealth of Nations has little if anything direct to say. Much of this is to be expected, since Smith wrote at the last moment of the pre-industrial age. Moreover, though Smith often has moments of startling originality in his moral, historical and jurisprudential writings—the impartial spectator, his stadial theory of development, much of his detailed analysis of commercial society—he was not especially original in his political economy.

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Textbooks disagree on how to categorize the different modern schools of economic thought. But, at the risk of oversimplification, there are at least six identifiable, coherent and more or less active alternatives to the mainstream. In very rough chronological order, they include Marxism, focused on production, class conflict, capital accumulation, business cycles and technological change; Austrian economics, stressing limitations on human rationality, the importance of norms, spontaneous order, prices as signals, innovation and entrepreneurship; post-Keynesianism, emphasizing uncertainty and ‘animal spirits’, stagnation, unemployment and the scope for active government fiscal interventions; developmental economics, analysing the industrial linkages which hinder or assist improvements in productive capabilities, protection and the role of policy in nurturing infant industries; institutional economics, exploring how institutions shape individual and collective behaviour, and more recently the specific role of transaction costs; and monetarism, emphasizing the importance of the money supply and the influence of monetary factors on inflation, economic performance and national output.

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These make asset markets intrinsically unstable, this instability can lead to dangerously self-reinforcing cycles of boom and bust, and these can in turn inflict horrendous damage on the wider economy. This is exactly what happened in the 2008 crash. This was a ‘balance-sheet’ recession: not a recession of the more frequent and familiar kind, driven by falling profitability across the business cycle, but a fundamental shift in asset values, triggered by a collapse in the housing market and in due course spreading from the US and UK to affect much of the wider global economy. The signs were there. In the US, as with the Great Crash of 1929, there was a rapid rise in asset markets in the preceding years, in particular in housing.

The Fractalist
by Benoit Mandelbrot
Published 30 Oct 2012

The bottom line plots the actual daily S&P 500 price index from 1990 to 2005, and the top plots the same data without the ten largest daily price moves. (Illustration Credit 22.3) A second key misstep of Bachelier was even more serious, and correcting it took years. All along, everybody who cared about price variation knew about business cycles. The analysis I carried out in 1962–63 mixed together the phases of low and high price variability. A more realistic model must dig deeper into the data. A common way out introduces the concept of business cycles and assumes that different phases of a cycle follow different rules. Unfortunately, cycle timing has always been mysterious, unreliable, and discernible only long after the fact. The first challenges to Bachelier were entirely my work, and for decades continued to develop largely in my hands.

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If prices take a big leap up or down now, there is a measurably greater likelihood that they will move just as violently the next day. It is not a well-behaved, predictable pattern of the kind economists prefer—not, say, the periodic up-and-down procession from boom to bust with which textbooks trace the standard business cycle. As my later work showed, it is a more complex, long-term memory—one that can be analyzed fractally. Second, the distribution of price changes is not “normal.” Conventional theory says that if you measure the changes from one day, hour, or month to the next, the vast majority of the changes should be very small, with only a few days exhibiting big changes—the “outliers” on the standard bell curve typically used to graph them.

Capitalism: Money, Morals and Markets
by John Plender
Published 27 Jul 2015

Creative destruction, the process identified by the Austrian-American economist Joseph Schumpeter as the essential dynamic of capitalism, has long been troublesome for those thrown out of work as a result of increasing competition and technological innovation. It also subverts the sense of community. And today, not only is the business cycle made worse by ill-judged monetary policies and manic bankers – there have been more than 100 major banking crises worldwide in the past three decades – but globalisation and economic interdependence have caused basic manufacturing industries to evacuate wholesale from the developed to the developing world, at a high cost in lost jobs.

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Galbraith had an interesting theory on morality in financial markets: At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s businesses and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed.

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It seems no accident that ‘Conversion’ and ‘Redemption’ should be the operations most closely associated with the Debt’s reduction.141 The retreat from moralistic attitudes to debt nonetheless continued in the twentieth century, not least because of the greatly enlarged role credit plays in a modern capitalist economy driven by a more pronounced business cycle. The underlying point is that it is difficult to secure a genuinely robust economy if an obsession with a narrow conception of justice is allowed to trump economic logic. The majoritarian principle of the greatest happiness of the greatest number – the utilitarian ethic – has to prevail over the injunctions of the Abrahamic religions for capitalism to do its work in raising living standards and reducing poverty.

No Ordinary Disruption: The Four Global Forces Breaking All the Trends
by Richard Dobbs and James Manyika
Published 12 May 2015

Chile, whose economy is relatively modern but disproportionately reliant on copper exports, maintained its openness to foreign capital but maintained a conservative fiscal policy stance. In 2007, the government set up the Economic and Social Stabilization Fund with an initial contribution of $2.6 billion. The fund was set up specifically to reduce Chile’s dependency on global business cycles and revenue volatility from copper price fluctuations.47 It invests primarily in government bonds, and a portion of its assets can be used to finance deficit spending or pay down government debt. The fund’s assets have grown to about $15 billion, and Chile has become one of the most financially deepened* countries in the region.

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PRNewswire, “Facebook reports third quarter 2014 results,” October 28, 2014, http://investor.fb.com/releasedetail.cfm?ReleaseID=878726. 6. Gardiner Harris, “On a shoestring, India sends orbiter to Mars on its first try,” New York Times, September 25, 2014. 7. James H. Stock and Mark W. Watson, “Has the business cycle changed and why?,” National Bureau of Economic Research working paper no. 9127, August 2002, www.nber.org/papers/w9127. 8. Richard Dobbs, Jaana Remes, Sven Smit, James Manyika, Jonathan Woetzel, and Yaw Agyenm-Boateng, Urban world: The shifting global business landscape, McKinsey Global Institute, October 2013. 9.

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Sankhe, Shirish, Ireena Vittal, Richard Dobbs, Ajit Mohan, Ankur Gulati, Jonathan Ablett, Shishir Gupta, Alex Kim, Sudipto Paul, Aditya Sanghvi, and Gurpreet Sethy, India’s urban awakening: Building inclusive cities, sustaining economic growth, McKinsey Global Institute, April 2010. Spence, Michael, The Next Convergence: The Future of Economic Growth in a Multispeed World (New York: Farrar, Straus & Giroux, 2011). Stock, James H., and Mark W. Watson, “Has the business cycle changed and why?,” National Bureau of Economic Research working paper no. 9127, August 2002, www.nber.org/papers/w9127. Towson, Jeffrey, and Jonathan Woetzel, “All you need to know about business in China,” McKinsey Quarterly, April 2014. United Nations, World population prospects: The 2012 revision, UN Department of Economic and Social Affairs, Population Division, June 2013, http://esa.un.org/wpp.

Straight Talk on Trade: Ideas for a Sane World Economy
by Dani Rodrik
Published 8 Oct 2017

For every authoritarian country that has managed to grow rapidly, there are several that have floundered. For every Lee Kuan Yew of Singapore, there are many like Mobutu Sese Seko of the Congo. Democracies outperform dictatorships in long-term economic growth, and in several other important respects as well. They provide much greater economic stability, measured by the ups and downs of the business cycle. They are better at adjusting to external economic shocks (such as terms-of-trade declines or sudden stops in capital inflows). They generate more investment in health and education, or human capital. And they produce more equitable societies. Authoritarian regimes, by contrast, ultimately produce economies that are as fragile as their political systems.

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They need systems of contract enforcement and property-rights protection. They need regulations to ensure that consumers make informed decisions, externalities are internalized, and market power is not abused. They need central banks and fiscal institutions to avert financial panics and moderate business cycles. They need social protections and safety nets to legitimize distributional outcomes. Well-functioning markets are always embedded within broader mechanisms of collective governance. That is why the world’s wealthier economies, those with the most productive market systems, also have large public sectors.

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For example, economists generally agree that agricultural subsidies are inefficient and that the benefits to European farmers come at large costs to everyone else in Europe, in the form of high prices, high taxes, or both. European democracies maintain these subsidies nevertheless, for domestic political motives. The same is true for poor banking regulations or macroeconomic policies that aggravate the business cycle and generate financial instability and crises. As the global financial crisis showed, these can have momentous implications beyond a country’s own borders. But if US regulators fell asleep on the job, this was not because their economy benefited while everyone else paid the price. The US economy was among those that suffered the most.

Democracy at Work: A Cure for Capitalism
by Richard D. Wolff
Published 1 Oct 2012

This has always been the case since capitalism replaced feudalism in Europe and expanded globally from there. Its oscillations take many names, from downturns, busts, deflations, contractions, recessions, and depressions to upturns, booms, inflations, expansions, and prosperity. Professional economists have had to admit that capitalism displays endemic “business cycles” but keep hoping that something might be done to prevent them or at least to keep them from undermining the system. Many economists have built on the work of John Maynard Keynes to assert that the proper exercise of monetary and fiscal policies by government can realize that hope. Politicians have taken that assertion another step.

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Generally, the appropriation and distribution of enterprise surpluses is the exclusive right and responsibility of the capitalists, not the workers. Thus the problems of modern capitalism—for example, environmental degradation, extremely unequal distributions of income and wealth, and recurring, socially costly business cycles—result in significant ways from how capitalists direct their enterprises. Derivative problems—for example, the undermining of democracy as corporations and the rich protect their disproportionate wealth and power by corrupting politics—also result, to a significant degree, from how capitalists direct their enterprises.

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State
by Paul Tucker
Published 21 Apr 2018

The purpose of the old gold standard was to deliver external convertibility and stability of the currency, which served the interests of those for whom trade and international exchange mattered a lot. The consequent volatility in domestic output and employment would probably not be politically sustainable in the modern world; the public wants price stability to come in harness with measures to smooth the business cycle (macroeconomic stabilization policy). This is a facet of what has become known as embedded liberalism, comprising a system that incorporates measures to mitigate the costs to individuals or groups of free-market capitalism.27 CENTRAL BANK INDEPENDENCE AS A COROLLARY OF THE HIGH-LEVEL SEPARATION OF POWERS On this view, an independent monetary authority is a means to underpinning the separation of powers once the step to adopt fiat money has been taken.

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Thus, when then finance minister Nigel Lawson proposed independence for the Bank of England, Prime Minister Thatcher responded, “to hand over the responsibility for monetary policy, and thus for the fight against inflation, to an independent Bank … would look as if the Government were admitting that, after all, it was unable to bring inflation down itself, which would be highly damaging politically.”3 A few years later when, in 1992, sterling fell out of the European Exchange Rate Mechanism and desperately needed a new nominal anchor, finance minister Norman Lamont attempted to shackle himself and his colleagues by committing to publishing the Bank’s advice and announcing a target for inflation, thereby shifting everyone’s incentives somewhat.4 Those stories are somewhat at odds with researchers having struggled to find compelling evidence of a “political business cycle,” which would be an example of the second type of commitment problem identified in chapter 5. But they might have been looking in the wrong place. They tend to start from an assumption that political monetary policy aims to boost economic activity to coincide with a general election, whereas, from what I saw in the late 1980s and early 1990s, the goal can be less concrete and more immediate.

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It is plausible that convergence of inflation performance would be delivered by a wish to avoid continuous nominal depreciation against low-inflation currencies with independent central banks. 8 Rogoff, “Optimal Degree,” and Walsh, “Optimal Contracts.” 9 Fischer, “Modern Central Banking.” The importance of MIT for the story of part IV cannot be overemphasized. Not only did they bring Chicago’s rational expectations revolution back to Keynesian business cycles, they produced an extraordinary number of the people who went on to become top policy makers. 10 Taylor, “Discretion.” 11 McCallum, “Two Fallacies.” 12 Posen, “Do Better Institutions,” a book review of, among others, Alesina, Roubini, and Cohen, Political Cycles. 13 As a tribe, central bankers did not have much truck with academic models suggesting they would themselves renege on commitments in order to generate a temporary boom in output and employment beyond a sustainable path.

The Globalization Paradox: Democracy and the Future of the World Economy
by Dani Rodrik
Published 23 Dec 2010

Anything bigger, more wide-ranging, and ultimately sustainable requires a large cast of supporting institutions: property rules to establish ownership, courts to enforce contracts, trading regulations to protect buyers and sellers, a police force to punish cheaters, macro-policy frameworks to manage and smooth the business cycle, prudential standards and supervision to maintain financial stability, a lender-of-last-resort to prevent financial panics, health, safety, labor, and environmental standards to ensure compliance with public norms, compensation schemes to placate the losers (when markets leave some in the cold, as they often do), social insurance to provide some insulation against market risks, and taxes to finance all these functions.

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The maintenance of the gold standard had absolute priority in the conduct of monetary policy both because the system came to be viewed as the foundation of monetary stability and because there were no competing objectives—such as full employment or economic growth—in the conduct of monetary policy. Ideas mattered, here as elsewhere. The notion that active monetary and fiscal policies could systematically smooth business cycles or that currency devaluation could help reduce trade imbalances—these were yet to come, or heretical at best. There was no widely believed or well-articulated conception of how governments could stabilize demand, output, or employment. Unlike trade policy makers, central bankers were insulated from the push and pull of domestic politics and could operate autonomously.

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The importing country could impose duties as long as it determined that an exporter had sold its products at “less than normal value” and caused “injury” to the competing industry at home. Domestic authorities could easily manipulate the notion of “less than normal value.” And punitive tariffs could be imposed even if the behavior in question constituted normal commercial practice, such as selling below full cost at the bottom of a business cycle, or if the offender had no ability to monopolize the home market. These rules were widely—and predictably—exploited by domestic firms to obtain custom-made protection. Finally, the enforcement powers of the GATT were a joke. If a government thought another one had violated the rules, it could ask a GATT panel to adjudicate.

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It
by Ian Goldin and Mike Mariathasan
Published 15 Mar 2014

Analyzing the impact of central bank activity in a network model with interbank markets shows that common shocks constitute a larger threat to financial stability than does contagion.65 Empirical studies confirm an increase in correlation between large and complex financial organizations during the 1990s,66 indicating that this development was more severe for North American than for European banks.67 Research indicates that information spillovers are another form of systemic risk that has to be taken into account.68 This effect is sometimes called informational contagion, but that name is misleading because it poses a systemic risk in the broad sense.69 The main idea behind information spillovers is that the insolvency of a bank can increase the re financing costs of the surviving banks—especially in times of crises, when financial markets exhibit herding behavior. Acharya and Yorulmazer develop a model of bank herding behavior based on a bank’s incentives to minimize the information spillover from bad news about other banks. In their model, the returns on a bank’s loans consist of a systematic component (such as the business cycle) and an idiosyncratic component.70 If there is bad news about a bank, this news reveals information about an underlying common factor and thus affects all banks. The authors show that even the possibility of information contagion can induce banks to herd with other banks. Herding behavior in this model is a simultaneous ex ante decision of banks to undertake correlated investments and thus gives rise to correlations among the banks’ portfolios.71 The different forms of systemic risk are not independent of each other, and a bank default does not happen instantaneously.

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Simon Johnson, 2009, “The Quiet Coup,” Atlantic Magazine, May, accessed 16 October 2012, http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364/. 39. Nestor A. Espenilla Jr., 2009, “Regulatory Factors That Contributed to the Global Financial Crisis,” Asia-Pacific Social Science Review 9 (1): 35–40. 40. James H. Stock and Mark W. Watson, 2002. “Has the Business Cycle Changed and Why?,” in NBER Macroeconomics Annual, vol. 17, ed. Mark Gertler and Kenneth Rogoff (Cambridge, MA: MIT Press), 159–218. 41. Andrew G. Haldane, 2009, “Rethinking the Financial Network,” speech delivered to the Amsterdam Student Association, April, accessed 21 January 2013, http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech386.pdf. 42.

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Stern, Nicholas H. 2010. A Blueprint for a Safer Planet: How We Can Save the World and Create Prosperity. London: Vintage. Stiglitz, Jospeh E. 2006. Making Globalization Work. London: W. W. Norton. ———. 2012. The Price of Inequality. London: Allen Lane. Stock, James H., and Mark W. Watson. 2002. “Has the Business Cycle Changed and Why?” In NBER Macroeconomics Annual, vol. 17, ed. Mark Gertler and Kenneth Rogoff. Cambridge, MA: MIT Press, 159–218. Strasburg, Jenny, and Jacob Bunge. 2012. “Loss Swamps Trading Firm: Knight Capital Searches for Partner as Tab for Computer Glitch Hits $440 Million.” Wall Street Journal, 2 August.

The Myth of Capitalism: Monopolies and the Death of Competition
by Jonathan Tepper
Published 20 Nov 2018

Our US Wages Leading Indicator is supposed to lead wages very closely and tell us whether US workers will get a raise or not. It gathers data on how tight the labor market is, how low initial unemployment claims are, and other factors affecting a worker's ability to get a raise. Across half a dozen business cycles, it has told us when workers would be paid more and when corporate profits would be crimped. Back in Manhattan, our client questioned us: “Why is your indicator telling me that wages are going up, when I don't see that in the data? It looks broken,” our client said. “Why are you wrong?” “Trust me, wages will turn up.

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Gulf & Western, for example, had such a grab bag of companies that it owned Simon & Schuster, which published books; Paramount, which made movies; APS, which made car parts; and Consolidated Cigars. There was no reason a book publisher should have any connection to an auto parts maker, but the idea was that the unrelated divisions would counterbalance each other's up-and-down business cycles. The conglomerates used their overvalued stock to buy small firms, and each acquisition made them bigger and more bloated. As conglomerates grew, Wall Street bid conglomerate stocks even higher, allowing for still more deals. Eventually, when markets declined, it became clear that putting a Hollywood studio with a cigar maker and an auto parts company was a really stupid idea.

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(Dancing Unicorn Books, 2016). 11. http://consumerfed.org/wp-content/uploads/2016/12/Overcharged-and-Underserved.pdf. 12. https://www.freepress.net/blog/2017/04/25/net-neutrality-violations-brief-history. 13. https://www.cnet.com/news/fcc-formally-rules-comcasts-throttling-of-bittorrent-was-illegal/. 14. Barry C. Lynn, Cornered: The New Monopoly Capitalism and the Economics of Destruction (Hoboken, NJ: Wiley, 2010). 15. https://www.salon.com/2013/07/08/how_%E2%80%9Cecon_101%E2%80%9D_is_killing_america/. 16. Michał Kalecki, Capitalism: Business Cycles and Full Employment, vol. 1 of Collected Works (Oxford, UK: Oxford University Press, 1990), 252. 17. http://investigativereportingworkshop.org/connected/story/comcast-lures-former-fcc-aides-lobby-nbc-merger/. 18. https://www.newyorker.com/tech/elements/the-oligopoly-problem. 19. Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002–15 (Palgrave Macmillan), p. 27.

Lessons from the Titans: What Companies in the New Economy Can Learn from the Great Industrial Giants to Drive Sustainable Success
by Scott Davis , Carter Copeland and Rob Wertheimer
Published 13 Jul 2020

All good things take time. In fact, the companies we highlight in this book required up to seven years to fully execute their strategy. Any business plan that has teeth will require consistent focus, and that’s probably the hardest part. Sticking with a strategy through the ups and downs of a business cycle while also dealing with the “whack-a-mole” daily distractions requires tremendous focus. WHO WE ARE We are Wall Street analysts who spent most of our careers at bulge-bracket investment banks, recently breaking out of the fold to form our own equity research, data analytics, and consulting firm.

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They don’t work for core operations, where sooner or later the inefficiency of having too little or too much product drags profit down. They don’t work for acquisitions either. Managing by heroic CEO decisions and forecasts is a doomed strategy. We’ve seen hundreds of billions in value destroyed by management teams trying to outguess the business cycle and growth in end markets. Sooner or later, management guesses wrong and gets behind the curve. Drawing on a century-plus data set, we identify the companies with sustained success and the metrics that correlate to their success. We explain what organizations can do to move those metrics in the right direction and the trendy avenues they should avoid.

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Private equity ownership certainly isn’t without its problems. It’s not uncommon for perfectly healthy businesses to be crushed under the burden of high levels of debt, cost cuts that run too deep, or decisions by owners who lack the operational or industry expertise to successfully navigate a business cycle. Other times, however, companies like TransDigm emerge from private equity ownership as more efficient organizations. After it exited PE ownership, the company retained two core beliefs from its experience: (1) thoughtful cash deployment and a well-designed capital structure were tools for creating additional value, and (2) employees should think, act, and be compensated like owners.

Keeping at It: The Quest for Sound Money and Good Government
by Paul Volcker and Christine Harper
Published 30 Oct 2018

My big break came in an interview at the Federal Reserve Bank of New York,* arranged after a vice president of the bank who lived in Teaneck happened to chat with my father about my plans. So there I landed, at a small desk next to the stenographic pool. One new colleague seated alongside regaled me with stories about his father-in-law, Professor Arthur Burns, the business cycle sage who had written a robust criticism of Keynesian economics. Little did I suspect how many times our paths would cross later on. My early Fed years also introduced me to Albert Wojnilower and Henry Kaufman, who became Wall Street economic gurus, later sometimes dubbed “Mr. Gloom” and “Dr. Doom” for their dire economic forecasts.

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Tiny by today’s standards and well short of the boost in confidence that we sought. Finally, Fed chairman Martin, whose restrictive monetary policy Nixon (advised by then professor Arthur Burns) had blamed for his 1960 election defeat, retired from the Fed in early 1970. Burns then became the new chairman. He was a highly respected business cycle expert and certainly close to the president. But to me the new Fed leadership seemed almost perversely willing to ease policy, reducing money market interest rates, even when the dollar was under pressure. More than once I pleaded with my longtime associate and friend, Fed governor Dewey Daane, to encourage the chairman not to ease when I was scheduled to meet with my foreign counterparts.

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The competitive position of the United States, reflected in a declining trade surplus, was simply not strong enough to offset the large government expenditures abroad and chronic capital outflows. A more fundamental approach would be necessary. I had great respect for Arthur Burns as a student of business cycles. And I know he also felt strongly, even emotionally, that the independence of the Federal Reserve was critically important—he would often compare it to the Supreme Court. It has since become clear that he was under persistent pressure from the White House. The extent to which that influenced his policies remains unknown to me.

Let Them In: The Case for Open Borders
by Jason L. Riley
Published 14 May 2008

Before blaming the diminished job prospects of Jamal on Jorge, blacks would do better to address the anti-intellectualism that permeates the culture of the black underclass. And legislators might first consider revisiting the racially tinged protectionist laws and public policies already on the books. FRENCH LESSONS Living in a free-market society inevitably involves living with more economic risk. The effects of business cycles can be minimized but not eliminated. The disequilibrium that characterizes our economy is also what makes possible the innovation and productivity that facilitate our prosperity. The welfare states of continental Europe offer another model for managing an economy. Italy, Germany, and France feature highly protected labor markets, where the interest of the worker is placed above that of the consumer.

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“This analysis concludes that there is little evidence that legal immigration is economically preferable to illegal immigration,” writes Hanson. “In fact, illegal immigration responds to market forces in ways that legal immigration does not.” How’s that? To begin with, illegal immigrants are more sensitive to the U.S. business cycle. They tend to come when the economy is expanding, and they can more easily migrate to those areas of the country where job growth is fastest because they’re not bound to a single employer. Legal immigrants necessarily respond more slowly to economic conditions. The number of green cards available each year is fixed, and the backlog is several years long.

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
by Morgan Housel
Published 7 Sep 2020

As I write this it looks like we’re going into recession—12 years since the last recession began in December 2007. That’s the longest gap between recessions since before the Civil War. There are plenty of theories on why recessions have become less frequent. One is that the Fed is better at managing the business cycle, or at least extending it. Another is that heavy industry is more prone to boom-and-bust overproduction than the service industries that dominated the last 50 years. The pessimistic view is that we now have fewer recessions, but when they occur they are more powerful than before. For our argument it doesn’t particularly matter what caused the change.

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This was a rewarding activity, say, 40 years ago, when our textbook was first published. But the situation has changed a great deal since then.⁴¹ What changed was: Competition grew as opportunities became well known; technology made information more accessible; and industries changed as the economy shifted from industrial to technology sectors, which have different business cycles and capital uses. Things changed. An interesting quirk of investing history is that the further back you look, the more likely you are to be examining a world that no longer applies to today. Many investors and economists take comfort in knowing their forecasts are backed up by decades, even centuries, of data.

An Empire of Wealth: Rise of American Economy Power 1607-2000
by John Steele Gordon
Published 12 Oct 2009

In that time, they would destroy Hamilton’s financial regulatory system and would replace it with nothing. As a result, the American economy, while it would grow at an astonishing rate, would be the most volatile in the Western world, subject to an unending cycle of boom and bust whose amplitude far exceeded the normal ups and downs of the business cycle. American monetary authorities would not—indeed could not—intervene decisively to abort a market panic before it spiraled out of control for another 195 years. Thomas Jefferson, one of the most brilliant men who has ever lived, was psychologically unable to incorporate the need for a mechanism to regulate the emerging banking system or, indeed, banks at all, into his political philosophy.

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Sellers’ panics produce, by their nature, a sudden surge in demand for money as investors and depositors seek liquidity, and money, of course, is the ultimately liquid asset. Because there was no central bank empowered to regulate the money supply and to provide the liquidity needed to protect the banking system in times of stress, however, these sellers’ panics greatly exacerbated the downward swings of the business cycle. Basically sound financial institutions collapsed by the hundreds when they were unable to meet the sudden demand for money. Often they took the life savings of families and the liquid assets of businesses with them. The years immediately following the Civil War were a time of enormous economic expansion, a classic American boom.

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At the same time, the Roosevelt administration began to cut public works spending to help bring the budget closer into balance. The result was a new depression. Unemployment soared back up to 19 percent the following year, while GNP dropped 6.3 percent. It was the first time in the history of the American economy, and the last time, so far, that the peak of the business cycle was lower than the previous peak had been, as the height in 1937 was well below the peak in 1929. While technically the economy had been in recovery for four years, in popular parlance the word depression was applied to the whole decade of the 1930s. So economists dubbed this new depression within a depression a “recession.”

Capitalism in America: A History
by Adrian Wooldridge and Alan Greenspan
Published 15 Oct 2018

“It has been no part of mine to build castles of the future,” he reflected, “but rather to measure the experiments, the actions, and the forces of men through the cold and uninspiring microscope of fact, statistics and performance.” Where he broke with the Fabians was in the belief that intervention should be the work of business’s friends rather than its enemies. He believed in using the power of government to make business work better—for example, by simplifying rules and by smoothing out the business cycle. One of Hoover’s first acts on becoming president was to draw up an ambitious plan to recruit the best brains in the country to compile a body of knowledge and a plan of action to guide the country in “the next phase of the nation’s development.” “In a society of temperate, industrious, unspectacular beavers,” Time magazine commented, “such a beaver-man would make an ideal King-beaver.”

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There was plenty of good news to weigh against the bad: the 1929 unemployment rate had been 2.9 percent, one of the lowest ever; the new economy of radio, movies, and airplanes was booming; corporate profits were strong. When it became clear that America was heading into an unprecedented storm, they didn’t have a clear understanding of how the various segments of the economy interacted. To be sure, Wesley Clair Mitchell had spelled out how business cycles functioned in 1913. But that was scarcely adequate to penetrate the confusing fog of the crash of 1929. The only depression that remotely rivaled the Great Depression in severity and length was the depression of 1893. But it was still possible in those days of small government and fatalistic politics for the government to stand pat and let creative destruction take its course.

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Between 1981 and 2007, consumer debt as a proportion of disposable income grew by 8 percentage points and home-mortgage debt grew by 57 percentage points. So did America’s level of anxiety. Information technology had already started to do for some white-collar jobs—particularly secretarial and clerical jobs—what machines had done for blue-collar jobs, creating a nagging fear of technological obsolescence. In 1991, at the bottom of the business cycle, a survey of workers in large corporations showed that 25 percent were afraid of being laid off. In 1995–96, with the economy booming, the figure nonetheless increased to 46 percent.14 At the time, though, these negatives were obscured by the positives: the stock market soared, the dollar surged, unemployment declined, trade boomed, and even pessimists such as Robert Gordon began to talk about “the Goldilocks economy.”

Lords of Finance: The Bankers Who Broke the World
by Liaquat Ahamed
Published 22 Jan 2009

Every month the company mailed out reams of charts and tables, dissecting the behavior of individual stocks, the overall market, and the economy. Babson had built his forecasting method around two somewhat antithetical notions: that the “ups and downs” of the economy “operate according to definite laws” derivable from Newton’s third law of motion and that emotions were “the most important factor in causing the business cycle.” Babson had some other quirkier ideas. Having suffered a bout of tuberculosis as a youth, he believed in the benefits of fresh air and insisted on keeping all the windows in his office wide open. In winter, his secretaries, wrapped in woolen overcoats, sheepskin boots, and thick mittens, had to type by striking the keys with a little rubber hammer that Babson had himself expressly invented.

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Babson, the “prophet of loss,” as he was now nicknamed, was derided up and down Wall Street, mocked even by BusinessWeek for his “Babsonmindedness.” During the month of September, these two New England cranks—Babson and Fisher—battled for the soul of the market. Every time one was quoted, the newspapers obtained a rebuttal from the other. The official chronicler of business cycles in the United States, the National Bureau of Economic Research, a not-for-profit group founded in 1920, would declare, though many months later, that a recession had set in that August. But in September, no one was aware of it. There were the odd signs of economic slowdown, especially in some of the more interest-rate-sensitive sectors—automobile sales had peaked and construction had been down all year, but most short-term indicators, for example, steel production or railroad freight car loadings, remained exceptionally strong.

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The recession was a direct consequence of the past overspeculation, during which money had been thrown down absurd and uneconomic avenues. The only way to return to a healthy economy was to allow it to suffer for a while, a form of penance for the excesses of the last few years. Because the notion of an active monetary policy to combat the business cycle was so novel and the knowledge of how the economy worked so primitive, debates among the various factions within the Fed became highly confused and at times even incomprehensible. In September 1930, Governor Norris, an otherwise highly competent and respected banker, found himself arguing at a Fed meeting that by easing interest rates, they had their policy backward.

The New Division of Labor: How Computers Are Creating the Next Job Market
by Frank Levy and Richard J. Murnane
Published 11 Apr 2004

Figure 3.2 shows how these occupational groupings changed in relative size between 1969 and 1999, a period when computers of all kinds permeated the economy. (We chose 1999 instead of a later year as the HOW COMPUTERS CHANGE WORK AND PAY 41 end point of our comparison in order to compare two business-cycle peak years.) Reading the figure from left to right, we learn the following: • Service Workers grew modestly from 11.6 percent of all workers • • • • • in 1969 to 13.9 percent in 1999. Blue Collar Workers and Administrative Support Workers both declined. Together, these two occupational groups employed 56 percent of all adult workers in 1969, falling to 39 percent of all adult workers in 1999.

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A larger fraction of the entire population was working in the year 2000 than in 1969, but the unemployment rate is defined as: (number of people looking for work) (number of people looking for work + number of people working) , and this statistic could be equal in the two years because the number of people working and the number of people looking for work had both risen. 5. Another factor contributing to the growth in the number of mutual funds was the replacement of defined benefit pension plans (fully managed by employers) by 401K plans. 6. These stories should be abstracted from temporary unemployment due to fluctuations in the business cycle. 7. That is, 50 percent of all families had higher incomes and 50 percent had lower incomes. The figure refers to all U.S. families regardless of age, the number of earners, etc. 162 NOTES TO CHAPTER 4 8. Daniel E. Hecker, “Occupational Employment Projections to 2010,” Monthly Labor Review 57, no. 84 (2001): p. 80, table 4. 9.

Fault Lines: How Hidden Fractures Still Threaten the World Economy
by Raghuram Rajan
Published 24 May 2010

Jobless recoveries are particularly detrimental because the prolonged stimulus aimed at forcing an unwilling private sector to create jobs tends to warp incentives, especially in the financial sector. This constitutes yet another fault line stemming from the interaction between politics and the financial sector, this time one that varies over the business cycle. From 1960 until the 1991 recession, recoveries from recessions in the United States were typically rapid. From the trough of the recession, the average time taken by the economy to recover to pre-recession output levels was less than two quarters, and the lost jobs were recovered within eight months.7 The recoveries from the recessions of 1991 and 2000–2001 were very different.

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The CEO of JP Morgan, Jamie Dimon, played a key role in preventing his bank from taking a bigger position in highly rated mortgage-backed securities, and in unwinding its existing positions, beginning in 2006.16 As he often emphasized to his staff, “We have got to have a fortress balance sheet! … No one has the right to not assume that the business cycle will turn! Every five years or so, you have got to assume that something bad will happen.”17 He also beefed up pay for risk managers, so that these positions attracted knowledgeable traders. He tried to ensure that they had clout. And although he had a much deeper understanding of derivatives than many of his fellow CEOs, he also had a rule: if he did not understand how a business made money, he would not participate in it.

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Sawhill, Creating an Opportunity Society (Washington, DC: Brookings Institution Press, 2009), 111. 5 Erica Groshen and Simon Potter, “Has Structural Change Contributed to a Jobless Recovery?” Current Issues in Economics and Finance, Federal Reserve Bank of New York, 9, no. 8 (August 2003): 1–7. 6 Kathryn Koenders and Richard Rogerson, “Organizational Dynamics over the Business Cycle: A View on Jobless Recoveries,” Federal Reserve Bank of St. Louis Review 87, no. 4 (July–August 2005): 555–80. 7 Schreft, Singh, and Hodgson, “Jobless Recoveries.” 8 Louis Uchitelle, “Labor Data Show Surge in Temporary Workers,” New York Times, December 20, 2009. 9 Study by the U.K. National Council for Volunteer Organizations and United for a Fair Economy, cited in Alberto Alesina and Edward Glaeser, Fighting Poverty in the US and Europe (Oxford: Oxford University Press, 2004), 45. 10 See, for example, Joe Peek and Eric S.

In FED We Trust: Ben Bernanke's War on the Great Panic
by David Wessel
Published 3 Aug 2009

They believed that financial markets reflected and predicted what was going on in the underlying economy but weren’t an independent driver of the business cycle. It was a reflection of much of the profession’s amazing proclivity for assuming away reality at times and understating the importance of institutions. Ben Bernanke didn’t see the world as they did. The health of banks and other financial institutions and their attitude toward lending was a major driver of the business cycle — and could amplify the impact of Fed policies on the economy, he said. He called it “the financial accelerator,” and the Great Depression became his leading case study.

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265 “by far the deepest” International Monetary Fund, World Economic Outlook, April 2009, p. 9. http://www.imf.org/external/pubs/ft/weo/2009/01/index.htm 267 “I’ve been in the trenches:” Interview, Henry Paulson. 268 “chance to talk” CBS News, 60 Minutes, March 15, 2009. http://www.cbsnews.com/stories/2009/03/12/60minutes/ main4862191.shtml 268 “the best possible” Jon Hilsenrath, “Bernanke’s PR Push Rewrites Fed Script,” Wall Street Journal, April 15, 2009, A1. 269 “increased uncertainty” Ben Bernanke, “Long-term commitments, dynamic optimization, and the business cycle,” MIT, 1979. http://dspace.mit.edu/handle/1721.1/29839 269 “I think it is important” Jon Hilsenrath, “Bernanke’s PR Push Rewrites Fed Script,” Wall Street Journal, April 15, 2009, p. A1. 270 “The biggest risk” CBS News, 60 Minutes, March 15, 2009. http://www.cbsnews.com/stories/2009/03/12/ 60minutes/main4862191.shtml 270 “We should not” Sen.

Phishing for Phools: The Economics of Manipulation and Deception
by George A. Akerlof , Robert J. Shiller and Stanley B Resor Professor Of Economics Robert J Shiller
Published 21 Sep 2015

An alternative estimate of the cost by the National Commission on Financial Institution Reform, Recovery and Enforcement was 7 to 11 percent higher. 2. James H. Stock and Mark W. Watson, “Forecasting Output and Inflation: The Role of Asset Prices,” Journal of Economic Literature 41 (2003): 797. For business cycle dates, National Bureau of Economic Research, “U.S. Business Cycle Expansions and Contractions,” accessed January 13, 2015, http://www.nber.org/cycles.html. 3. Akerlof and Romer, “Looting.” 4. For use of the concept of “tunneling,” see Simon Johnson, Rafael La Porta, Florencio López de Silanes, and Andrei Shleifer, “Tunneling,” American Economic Review 90, no. 2 (May 2000): 22–27. 5.

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New York: Grossman, 1965. Nash, Nathaniel C. “Savings Institution Milked by Its Chief, Regulators Say.” New York Times, November 1, 1989. National Association of Realtors. “Code of Ethics.” Accessed March 15, 2015. http://www.realtor.org/governance/governing. National Bureau of Economic Research. “U.S. Business Cycle Expansions and Contractions.” Accessed January 13, 2015. http://www.nber.org/cycles.html. National Consumers League. “Our Issues: Outrage! End Child Labor in American Tobacco Fields.” November 14, 2014. Accessed March 15, 2015. http://www.nclnet.org/outrage_end_child_labor_in_american_tobacco_fields.

The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics
by William R. Easterly
Published 1 Aug 2002

Although Domar assumed that production capacity was proportional to thestock of machinery, he admitted the assumption was unrealistic and eleven years later, in 1957,complaining of an ”ever-guilty conscience,” he disavowed the theory.15 He said his earlier purpose was to comment on an esoteric debate on business cycles, not to derive ”an empirically meaningful rate of growth.” He said his theory made no sense for long-run growth, and instead he endorsed the new growth theory of Robert Solow (which I discuss in thenext chapter). To sum up, Domar’s model was not intended as a growth model, made no sense as a growth model, and was repudiated as a growth model over fortyyearsagobyitscreator.

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Domar took high unemployment as a given, so there were always people available to run any additional machines that were built. Domar’s theory became known asthe Harrod-Domar model.(A Britisheconomist namedRoy Harrod had published in 1939 a similar but more convoluted article.) Clearly Domar’s interest was the short-run business cycle in rich countries. So how did Domar’s fixed ratio of production to machines make it into the analysis of poor countries’ growth? The Invention of Development The quest for a theory of growth and development has tormented us economists as long as there have been economists. In 1776, eco- 30 Chapter 2 nomics' founding father, Adam Smith, asked what determined the wealth of nations.

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T.,34 Baumol, William, 65 Becker, Gary, 96 Belarus, 233 Belgium, 163 Belize, 198 Bhagwati, Jagdish, 34 Black market premium, 82,106,108, 221-223,249,252,256-261,264,278, 289 Bolivia, 219, 279 Bojas, George, 163 Boserup, Ester, 94 Bosnia, 267-268 Boston-Washington corridor, 165 Botswana, 92, 198 Brazil, 83, 113, 164, 200, 215, 219 Brown, Lester, 88, 89 Bruno, Michael, 219 Budget deficits. See Deficits Bulgaria, 233, 246, 269 Burundi, 11 Business cycle, 29 336 Cairo, 281 Cambodia, 268 Cameroon, 12, 128, 233 Canada, 236,266 Capital, 40, 44, 47, 48, 49, 53, 68, 69, 150, 152,157,167,267,203,264-265 capital flows, 58-59 human capital, 78-81,151, 157,167 knowledge capital, 150 physical capital, 56-58, 67-69, 151, 167, 203,264 Capital Fundamentalism, 47, 48, 50, 69 Capitalism, 178 Causality, 235-237 Central Asia, 13 Chad, 65,128,185,233 Challenger accident, 145, 155 Chavez, Hugo, 264 Chen, Shaohua, 13,14 Chenery, Hollis, 34, 206 Chicago, 157 Children, 6, 7, 8-10, 11, 12, 15, 28, 73, 78, 82, 85, 90, 93, 94, 96, 97, 98, 195-197, 269 Chile, 219 China, 38, 74, 114, 148, 164, 175-177, 181,198,268,280 agriculture, 175 Beijing, 244 Ming Dynasty, 175, 181,280 technology, 176 Christians, 268-269, 282 Circles, 153 virtuous circles, 153-154, 159-160, 166, 169, 201,248 Clausen, A.

High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems
by Irene Aldridge
Published 1 Dec 2009

OPERATING MODEL Overview Surprisingly little has been published on the best practices to implement high-frequency trading systems. This chapter presents an overview of the business of high-frequency trading, complete with information on planning the rollout of the system and the capital required to develop and deploy a profitable operation. Three main components, shown in Figure 3.2, make up the business cycle: r Highly quantitative, econometric models that forecast short-term price moves based on contemporary market conditions r Advanced computer systems built to quickly execute the complex econometric models r Capital applied and monitored within risk and cost-management frameworks that are cautious and precise The main difference between traditional investment management and high-frequency trading is that the increased frequency of opening and closing positions in various securities allows the trading systems to profitably 27 Overview of the Business of High-Frequency Trading Models Systems Capital Re-investment FIGURE 3.2 Overview of the development cycle of a high-frequency trading process.

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Stock reaction to nonmonetary macroeconomic news is usually mixed. Positive inflation shocks tend to induce lower stock returns independent of other market conditions (see Pearce and Roley, 1983, 1985 for details). Several other macroeconomic variables produce reactions conditional on the contemporary state of the business cycle. Higher-than-expected industrial production figures are good news for the stock market during recessions but bad news during periods of high economic activity, according to McQueen and Roley (1993). Similarly, unexpected changes in unemployment statistics were found to cause reactions dependent on the state of the economy.

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I 325 Index Accounting services, importance of, 26 Accuracy curves, back-testing, 228–229 Admati, A., 277 Administrative orders, 70 Aggarwal, V., 181 Ahn, H., 67 Äijö, J., 183 Aite Group, 18–19 Ajayi, R.A., 181 Alam, Zinat Shaila, 132, 274, 277–278 Aldridge, Irene, 13–14, 19, 214–215, 222–231 Alexakis, Panayotis, 88 Alexander, Carol, 89, 216–217 Algorithmic trading, 15, 16–19, 22, 23–24 distinguished from high-frequency trading, 16 execution strategies, 16–17, 273–274 portfolio optimization, 213–217 trading signals, 16–17 All or none (AON) orders, 69 Almeida, Alvaro, 168 Almgren, R., 274, 275, 295 AMEX, 9 Amihud, Y., 37–38, 134, 192, 195, 264 Amoaku-Adu, Ben, 192 Analysis stage, of automated system development, 234–235 Anand, Amber, 158–159 Andersen, T.G., 106, 109, 176–178 Andritzky, J.R., 183 Ang, A., 208–209 Angel, J., 133 Anonymous orders, 69–70 Apergis, Nicholas, 88 Arca Options, 9 ARCH specification, 88 Asset allocation, portfolio optimization, 213–217 Asymmetric correlation, portfolio optimization, 208–209 Asymmetric information, measures of, 146–148 Augmented Dickey Fuller (ADF) test, 98 Autocorrelation, distribution of returns and, 94–96 Automated liquidity provision, 4 Automated Trading Desk, LLC (ATD), 12 Automated trading systems, implementation, 233–249 model development life cycle, 234–236 pitfalls, 243–246 steps, 236–243 testing, 246–249 Autoregression-based tests, 86 Autoregressive (AR) estimation models, 98–99 Autoregressive analysis, event arbitrage, 167–168 Autoregressive moving average (ARMA) models, 98, 101, 106 Avellaneda, Marco, 138–139 Average annual return, 49–51 327 328 Bachelier, Louis, 80 Back-testing, 28, 219–231 of automated systems, 233 directional forecasts, 220, 222–231 point forecasts, 220–222 risk measurement and, 255, 268 Bae, Kee-Hong, 67, 68 Bagehot, W., 151 Bailey, W., 183 Balduzzi, P., 182 Bangia, A., 263 Bank for International Settlements (BIS), 43–44 BIS Triennial Surveys, 44 Bannister, G.J., 183 Barclay, M.J., 277 Basel Committee on Banking Supervision, 251, 253, 265 Bayesian approach, estimation errors, 209–211 Bayesian error-correction framework, portfolio optimization, 213–214 Bayesian learning, 152–155 Becker, Kent G., 183 Benchmarking, 57–58 post-trade performance analysis, 296–298 Berber, A., 142 Bernanke, Ben S., 180 Bertsimas, D., 274 Bervas, Arnaud, 38, 263, 264 Best, M.J., 209 Bhaduri, R., 270 Biais, Bruno, 12, 67, 160, 163 Bid-ask bounce, tick data and, 120–121 Bid-ask spread: interest rate futures, 40–41 inventory trading, 133, 134–139 limit orders, 67–68 market microstructure trading, information models, 146–147, 149–157 post-trade analysis of, 288 tick data and, 118–120 Bigan, I., 183 Bisiere, Christophe, 12 INDEX BIS Triennial Surveys, 44 Black, Fisher, 193, 212 Bloomfield, R., 133 Bollerslev T., 106, 176–178 Bollinger Bands, 185 Bond markets, 40–42 Boscaljon, Brian L., 174 Boston Options Exchange (BOX), 9 Bowman, R., 174 Boyd, John H., 180 Bredin, Don, 184 Brennan, M.J., 147, 192, 195 Brock, W.A., 13 Broker commissions, post-trade analysis of, 285, 287 Broker-dealers, 10–13, 25 Brooks, C., 55 Brown, Stephen J., 59 Burke, G., 56 Burke ratio, 53t, 56 Business cycle, of high-frequency trading business, 26–27 Caglio, C., 142 Calmar ratio, 53t, 56 Cancel orders, 70 Cao, C., 131, 139, 142 Capital asset pricing model (CAPM), market-neutral arbitrage, 192–195 Capitalization, of high-frequency trading business, 34–35 Capital markets, twentieth-century structure of, 10–13 Capital turnover, 21 Carpenter, J., 253 Carry rate, avoiding overnight, 2, 16, 21–22 Cash interest rates, 40 Caudill, M., 113 Causal modeling, for risk measurement, 254 Chaboud, Alain P., 191 Chakravarty, Sugato, 158–159, 277 Challe, Edouard, 189 Chan, K., 67 Chan, L.K.C., 180, 289, 295 Index Chen, J., 208–209 Chicago Board Options Exchange (CBOE), 9 Chicago Mercantile Exchange (CME), 9, 198 Choi, B.S., 98 Chordia, T., 192, 195, 279 Chriss, N., 274, 275, 295 Chung, K., 67–68 Citadel, 13 Clearing, broker-dealers and, 25 CME Group, 41 Cohen, K., 130 Co-integration, 101–102 Co-integration-based tests, 89 Coleman, M., 89 Collateralized debt obligations (CDOs), 263 Commercial clients, 10 Commodities.

Capital Ideas Evolving
by Peter L. Bernstein
Published 3 May 2007

“Introduction” to James Bicksler, Investment Portfolio Decision-Making, New York: Lexington Books/D. C. Heath & Co. Samuelson, Paul A., 1998. “Summing up on Business Cycles: Opening Address,” in Jeffrey Fuhrer and Scott Schub, Beyond Shocks: W hat Causes Business Cycles, Boston: Federal Reserve Bank of Boston. Samuelson, Paul A., 2004. “The Backward Art of Investing Money,” The Journal of Portfolio Management, 30th Anniversary Issue (September), pp. 30 –33. Schumpeter, Joseph, 1939. Business Cycles, New York: McGraw-Hill & Co. Schumpeter, Joseph, 1942. Capitalism, Socialism and Democracy, New York: Harper & Row. Schwarz, Eduardo, Joanne Hill, and Thomas Schneeweis, 1986.

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It
by Anat Admati and Martin Hellwig
Published 15 Feb 2013

If the bank is more trustworthy, its trustworthiness might be due to its being relatively less risky because it makes many different loans whose individual risks, by and large, cancel each other out; the bank might also have an established reputation, which a start-up does not. Both arguments must be taken with a grain of salt, however: if the many loans that the bank makes have risks that depend on a common underlying factor—for example, the business cycle or housing prices—the bank may be strongly affected. Moreover, the bank’s reputation may be irrelevant if new developments induce the bank’s management to take large risks. See Diamond (1984), Keeley (1990), Hellwig (1998), and Allison (2011). 12. See Diamond (1984) and Hellwig (1991, 1998).

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Cambridge, England: Cambridge University Press. ———. 2012. “Sovereign Ratings When Default Can Come Explicitly or via Inflation.” VoxEU, London. February 2. Gorton, Gary. 1985. “Clearinghouses and the Origin of Central Banking in the United States.” Journal of Economic History 45 (2): 277–283. ———. 1988. “Banking Panics and Business Cycles.” Oxford Economic Papers 40 (4): 751–781. ———. 1994. “Bank Regulation When ‘Banks’ and ‘Banking’ Are Not the Same.” Oxford Review of Economic Policy 10: 106–119. ———. 2010. Slapped by the Invisible Hand: The Panic of 2007. Oxford, England: Oxford University Press. Gorton, Gary, and Andrew Metrick. 2010.

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New York: Pantheon. ———. 2012. “Is Financial Innovation Good for the Economy?” In Innovation Policy and the Economy, ed. Josh Lerner and Scott Stem. Cambridge, MA: National Bureau of Economic Research. Jordà, Oscar, Moritz Schularick, and Alan Taylor. 2011. “When Credit Bites Back: Leverage, Business Cycles, and Crises.” Working Paper 2011–27. Federal Reserve Bank of San Francisco. Jostarndt, Philipp, and Stefan Wagner. 2006. “Kapitalstrukturen börsennotierter Aktiengesellschaften–Deutschland und die USA im Vergleich.” Discussion Paper 2006–17. Munich School of Management, University of Munich, Munich.

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World
by Ruchir Sharma
Published 5 Jun 2016

These stagnations are not as famous or well studied as the postwar Asian growth “miracles” that ran for decades and lifted Japan (before 1990) and some of its neighbors to rich-nation status. But stagnations are at least as common as miracles and are perhaps more relevant to the AC era. It’s vital to understand that even the business cycle cannot be relied on to revive nations in a predictable, linear way. Once an economy contracts beyond a certain point, it can lose its capacity to self-correct. For example, a normal recession will raise unemployment and lower wages, which will eventually lead to a new cycle of hiring and a recovery.

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That target seems to have come from a back-of-the-envelope calculation of how fast China needs to grow to double its GDP by 2020—an ambition with no basis in economics and reminiscent of the man-made targets that guided the Soviet Union’s effort to catch up to the West. We all know how that attempt ended. It is simply not possible to engineer endless runs of fast growth, with no downturns in the business cycle, and that lesson applies equally to the technocrats in Beijing. Bullets versus Ballots Following the spectacular three-decade boom in China, there is a strong tendency to believe that autocracies are better than democracies at generating long runs of growth, a myth that may be built not so much on the rise of China as on coverage of the rise of China.

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One such job is designed to overcome the lack of ferry services in remote river villages of Vietnam, where students and teachers on the way to school will cross the river by hopping into a big plastic bag and enlisting a strong man to carry them across the current. Two kinds of spending drive any economy—consumption and investment—and while in most economies people and governments spend more on consumption, investment is the more important driver of growth and business cycles. Investment spending is usually more volatile than consumption spending, and it helps create the new businesses and jobs that put money in consumers’ pockets. It includes investment by both the government and private business in construction of roads, railways, and the like, in plants and equipment from office machines to drill presses, and in buildings from schools to private homes.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio
by William J. Bernstein
Published 26 Apr 2002

Because the purchase of a new car is a discretionary decision, it can easily be put off when times are tough. During recessions, it is not unusual for the earnings of the large automakers to completely disappear. So investors will apply a higher DR to an auto company than to a food company. That is why “cyclical” companies with earnings that fluctuate with business cycles, such as car manufacturers, sell more cheaply than food or drug companies. Put another way, since the earnings stream of an auto manufacturer is less reliable than that of a food company, you will pay less for its earnings and dividends because of the high DR you apply to them. All other things being equal (which they never are!)

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Currently, it stands at more than 50% of all households. Next, the very idea that stocks might themselves be a wise investment was attacked: Further, this “death of equity” can no longer be seen as something a stock market rally—however strong—will check. It has persisted for more than 10 years through market rallies, business cycles, recession, recoveries, and booms. The problem is not merely that there are 7 million fewer shareholders than there were in 1970. Younger investors, in particular, are avoiding stocks. Between 1970 and 1975, the number of investors declined in every age group but one: individuals 65 and older.

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The Internet didn’t change everything—at least not in the world of investments—and along with it, bricks, mortar, and real estate didn’t become obsolete either. After the collapse of the tech bubble, real estate did indeed turn around, but it didn’t, as its new enthusiasts predicted, climb forever. The business cycle wasn’t abolished, and the newfangled derivatives didn’t quite eliminate risk. The word these days? The economies of the old, developed Western nations are entering a “new normal” of slower economic growth, and stocks and bonds in the United States, Europe, and Japan will languish along with them.

How Will Capitalism End?
by Wolfgang Streeck
Published 8 Nov 2016

A sociological approach, however, should be able to recognize behind the veil of efficiency theory the moral economy of the owners and investors of capital or, more generally, of essential productive resources. A key concept here is that of investor ‘confidence’, as analysed in Kalecki’s political theory of the business cycle.34 Rather than reacting mechanically to fixed rates of expected return, capital owners use pronouncements on their self-diagnosed ‘psychological’ condition, from pessimism to optimism, from panic to euphoria, to signal whether what they are offered in return for investing their resources conforms to what they feel they are entitled to.

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Among the collective safety provisions that have fallen victim to capitalism’s remarkable escape act are politically guaranteed full employment, economy-wide free collective bargaining, industrial democracy at the workplace, a broad public sector offering secure employment in good jobs, extensive public services, economic planning to prevent the return of business cycles and crises, a social welfare state guaranteeing a general floor of social rights for every citizen and protecting people’s lives from the commodifying pressures of market competition, and so on. It is important to note that these developments, and the pressures emanating from them for a deep reorganization of life and society in response to market pressures for competitiveness, flexibility and profitability, were not at all limited to the U.S. but appeared in locally diversified forms in all industrial societies, some leading in the breaking of the promises of the post-war era and others lagging, but all of them essentially moving in the same direction.3 How is what we have seen in the past four decades to be interpreted?

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More specifically, a rational capitalistic establishment is one with capital accounting, that is, an establishment which determines its income yielding power by calculation according to the methods of modern bookkeeping and the striking of a balance’ (Max Weber, General Economic History, New Brunswick, NJ: Transaction Publishers 2003 [1927], p. 275); Schumpeter: ‘Capitalism is that form of private property economy in which innovations are carried out by means of borrowed money, which in general, though not by logical necessity, implies credit creation’ (Joseph A. Schumpeter, Business Cycles, Vol. 1, Philadelphia, PA: Porcupine Press 1982 [1939], p. 223); Keynes: ‘… the essential characteristic of capitalism [seems to me] the dependence upon an intense appeal to the money-making and money-loving instincts of individuals as the main motive force of the economic machine’ (John Maynard Keynes, The End of Laissez-Faire: The Collected Writings of John Maynard Keynes, Vol. 9, London: Macmillan Press Ltd 1972 [1931], p. 293).

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What It Used to Be
by Moises Naim
Published 5 Mar 2013

Shelley Singh, “India Accounts for 51% of Global IT-BPO Outsourcing: Survey,” Times of India, April 28, 2012, http://timesofindia.indiatimes.com/tech/news/outsourcing/India-accounts-for-51-of-global-IT-BPO-outsourcing-Survey/articleshow/12909972.cms. 40. Nadeem, Dead Ringers: How Outsourcing Is Changing the Way Indians Understand Themselves. 41. Dhar, “More Indian Women Postponing Motherhood.” 42. Schumpeter, “The Historical Approach to the Analysis of Business Cycles,” in Essays: On Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism, p. 349. CHAPTER FIVE 1. This passage was originally part of a speech given at Munich University in 1918. See Weber, Essays in Sociology, p. 78. 2. Ronald Brownstein, “The Age of Volatility,” The National Journal, October 29, 2011. 3.

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Oxford: Oxford University Press, 2008. ——. “Venture Capital in the ‘Periphery’: The New Argonauts, Global Search and Local Institution Building.” Economic Geography 84, no. 4 (2008). Scaff, Lawrence A. Max Weber in America. Princeton: Princeton University Press, 2011. Schumpeter, J. A. Essays: On Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism. New Brunswick and London: Transaction Books, 1949. Shirky, Clay. Here Comes Everybody: The Power of Organizing Without Organization. New York: Penguin Books, 2009. Singer, P. W. Wired for War: The Robotics Revolution and Conflict in the Twenty-First Century.

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist
by Kate Raworth
Published 22 Mar 2017

David Ricardo’s nineteenth-century theory of comparative advantage demonstrates that countries should focus on what they are relatively good at doing and then trade: if they do, both parties will gain from it, no matter how unequal they are.10 Hence trade barriers should be dismantled because they only distort the efficient workings of the international market. THE STATE, which is incompetent – so don’t let it meddle. When government tries to intervene in the market, it usually makes things worse, distorting incentives and picking white elephants instead of winners. If it tries to smooth the business cycle, in classic Keynesian style, its timing will inevitably be off, and the market will pre-empt its effects.11 Beyond defending the nation’s borders and its citizens’ private property, it is quite simply best for the state to leave things to the market. Other characters not required on stage: THE HOUSEHOLD, which is domestic – so leave it to the women.

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‘Economists set themselves too easy, too useless a task,’ he wrote, ‘if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.’17 In the 1940s, Joseph Schumpeter drew on Marx’s insights into dynamism to describe how capitalism’s inherent process of ‘creative destruction’, through continual waves of innovation and decline, gave rise to business cycles.18 In the 1950s, Bill Phillips created his MONIAC precisely with the aim of replacing comparative statics with system dynamics, complete with the time lags and fluctuations that can be observed as water flows into and out of tanks. In the 1960s Joan Robinson lambasted equilibrium economic thinking, insisting that, ‘a model applicable to actual history has to be capable of getting out of equilibrium; indeed it must normally not be in it’.19 And in the 1970s, the father of neoliberalism, Friedrich Hayek, decried the economist’s ‘propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error’.20 So let’s finally heed their collective advice, push equilibrium thinking to one side, and start to think in systems instead.

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It may sound extraordinary but, despite having adopted GDP growth as the de facto goal of economic policy, the textbooks never actually depict how it is expected to evolve over the long term. Yes, there may be graphs showing various economic cycles, ranging from the 7–10-year boom and bust of business cycles to the 50–60-year waves – known as Kondratieff waves – that are due to technological innovation. But it is rare indeed to come across a graph plotting several centuries of past GDP growth, let alone a diagram suggesting what might happen in centuries ahead. Is the answer so obvious that the textbooks need not bother?

Trading Risk: Enhanced Profitability Through Risk Control
by Kenneth L. Grant
Published 1 Sep 2004

This means that there is a limited shelf life for nearly any highly successful market approach. Ultimately, I believe that almost any strategy either will require significant tweaking or will be periodically subject to The Risk Management Investment 11 diminished returns over what constitutes a very real but little understood business cycle that exists for market participation of all kinds. As a result, only those who are willing to perpetually adapt to change have the opportunity to succeed consistently at trading and investment over a lifetime. In addition to encouraging you to be proactive in the adaptation of your strategies, I will show you ways to use a statistical tool kit to establish a framework to ensure that your forays into uncharted waters are undertaken as controlled experiments, such that the likelihood of their success can be maximized, with minimal damage if things go wrong.

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A good qualitative starting point is the rudimentary economics of the securities themselves. For example, if you are trading equities, you can assume that in order to achieve a meaningful level of diversification, it will be necessary to hold positions across a number of industries—ideally those that are subject to different business cycles. Similarly, if you are trading commodities, a portfolio of materially different asset classes (e.g., grains and energies) is likely to generate higher levels of diversification than one that is focused in a single set of “substitutable” product types (e.g., wheat and corn). These dynamics also carry forward to the remaining segments of global capital markets, most notably fixed income and foreign exchange.

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Contents Index Absolute net market value, 173–174 Accuracy ratio, 184–186 Active trading, 186, 203–205, 221 Arbitrage, 65, 105–106 Asset classes, 106, 145, 147, 200 Asymmetric payoff functions, 130, 132, 150–151 At-the-margin, behavior, 16, 236–237 Autocorrelation, 77 Autoregression, 77 Average holding period, individual trades, 164–165 Average P/L, 56–57, 69, 163–164, 186–188 Averaging, 137–138 Balanced portfolio, 135–140 Bias, implications of, 172–173. See also Directional bias Bid/offer spreads, 143, 153, 221, 223 Break-even position, 200–201, 203 Breakout strategies, 77 Brokerage firms, functions of, 165, 199 Budgets/budgeting, 239 Budget revenues, 24 Business cycles, 145 Buy-and-hold strategy, 204 Capital allocation, 75, 226 Capital investment, 171–172 Capital preservation, 12, 123, 215, 231 Capital providers, risk tolerance, 121–122, 228 Capital utilization, 171 Charts/charting, benefits of, 107, 196 Collateralization, 92 Commissions, 143, 153, 198, 236 Confidence intervals, 59–62, 100 Consolidated statistical profile, 79–80 Contrarian investing, 128 Convertible bond arbitrage, 105–106 Correlation.

Mastering the VC Game: A Venture Capital Insider Reveals How to Get From Start-Up to IPO on Your Terms
by Jeffrey Bussgang
Published 31 Mar 2010

Which partner at the firm did which deals? What are the partners like to work with—how well do they reference with other entrepreneurs who have worked with them? Scoping out VC firms also means learning as many details as you can about their current situation. It’s important to know where the firm is within its own business cycle. Where are they in their new fund cycle? Did the firm just raise a fund and therefore has plenty of fresh capital available to put to work? Or is the firm in the middle of raising a new fund, in which case the partners are too consumed with pitching limited partners to pay attention to new deals?

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Modern iconic entrepreneurs, such as Bill Gates, Steve Jobs, Michael Dell, Jeff Bezos, and others, continue to inspire young entrepreneurs around the globe to pursue the art of the possible. In the last few decades, the venture capital industry has worked to accelerate entrepreneurship and, as much as possible, improve the odds for success. By working with entrepreneurs in a range of industries across a number of business cycles, VCs try to figure out the formula for entrepreneurial success and impart those lessons to the next generation of would-be Franklins and Edisons. After decades spent perfecting the recipe and passing it on from generation to generation of VCs, they have begun to export it beyond America’s shores.

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence
by Jerry Kaplan
Published 3 Aug 2015

Their work must stand up to objective, independent peer review, which basically means it must be reduced to numbers. But as I learned in business, spreadsheets and financial statements can capture only certain things, while trends that resist reduction to measurement often dominate the outcome. (Indeed, there’s an argument to be made that the troublesome and unpredictable business cycles plaguing our economy are largely driven by the fact that returns are easily quantified, but risks are not.) I can’t count the number of meticulously detailed yet bogus sales projections I’ve seen bamboozle management teams. At work I sometimes felt my most important contribution as a manager was anticipating that which had yet to manifest itself in quantifiable form.

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See Bureau of Labor Statistics Blue Origin, 114 Blue River Technologies, 144 bond market, 175, 177, 178 book industry, 97, 98 physical bookstores vs. online sales, 16, 48. See also Amazon BP oil spill (2010), liability case, 80, 82–83, 84, 87 brain function, 23–24, 36 Brewster, Jason, 147 Bureau of Labor Statistics, 138–39, 141, 142, 152, 170 business cycles, 137 California, 113, 118, 143 cameras, 39, 46 cap and trade, 168 capital, 10–11, 12, 58 CAPTCHAs (brain twisters), 73 carbon dioxide, 158, 168 Carlyle Group, 118 cars: annual operating costs, 196 antilock brakes function, 204–5 first introduction of, 194 self-driving (see autonomous vehicles) sticker price components, 100 CDs (compact discs), 46, 193 cell phones, 46 prepaid card prices, 55.

Double Entry: How the Merchants of Venice Shaped the Modern World - and How Their Invention Could Make or Break the Planet
by Jane Gleeson-White
Published 14 May 2011

The advent of the corporation raised several other key accounting issues; for example, how to calculate the declining values—due to wear and tear—of large investments in machinery, rails, rolling stock (or railway vehicles), and so on. This problem gave rise to the concept of depreciation. And how were companies to assign expenses and revenues in this new corporate continuum where there is no obvious end to a business cycle, where ‘no ship arrives to signal that it is time to balance accounts and calculate profits’? With the ongoing life of a corporation, there is no ‘natural’ business period, as there was in the Middle Ages; for example, the length of a ship’s voyage. Artificial and arbitrary accounting periods had to be created—such as our accounting period of a year—so managers could allocate expenses and revenues consistently to work out how much each item had cost to produce and how much it had earned (which was essential if profit was to be calculated and dividends determined).

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As economists Paul A. Samuelson and William D. Nordhaus explain, the GDP and related national accounting data have been used as ‘beacons that help policymakers steer the economy toward the key economic objectives’. These numbers have been credited with smoothing out the peaks and troughs of the business cycle since the Second World War and even with the strong economic growth of the postwar era. This one miraculous figure, the GDP, apparently ‘compresses the immensity of a national economy into a single data point of surpassing density’—and governments and many people believe that only this one statistic ‘can really show whether things are getting better or getting worse’.

Data-Ism: The Revolution Transforming Decision Making, Consumer Behavior, and Almost Everything Else
by Steve Lohr
Published 10 Mar 2015

It took that long, he wrote, not only for the technology to be widely diffused but also for businesses to reorganize work around the industrial production line, the efficiency breakthrough of its day. By the 1990s, the adaptive response to the Internet was faster than with the electric motor, and by the late 1990s productivity rose. In an immense economy, like that of the United States, with its gross domestic product of $17 trillion, an amalgam of factors affects performance, including business cycles, financial crises, and demographic trends, not just technology. But Brynjolfsson sees a pattern playing out with big data that is comparable to past technologies. Innovations that have been percolating for years in research labs are making their way into products. An industry or two leads the way, like online advertising, and showcase projects point toward the future, like IBM’s Watson or Google’s self-driving cars (robotic incarnations of big data).

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The current debate, Berner adds, revives an old one in economics, pointing to a 1947 article, “Measurement Without Theory,” by Tjalling Koopmans, a Dutch-American economist who later won a Nobel Prize. The Koopmans article was a critique of the hard-line “empiricist” approach to the study of business cycles back then. Few people have wielded the power of data with so dramatic effect as David Ferrucci. He led the IBM research team that created Watson the Jeopardy! winner. That contest ended with Ken Jennings, the all-time champion on the TV quiz show, writing on his video screen, in a gesture of genial surrender, “I, for one, welcome our new computer overlords.”

Bikenomics: How Bicycling Can Save the Economy (Bicycle)
by Elly Blue
Published 29 Nov 2014

Portland, Oregon removed parking minimums in the 1980s in areas with frequent transit service, with good success (it has very recently reinstituted them after neighbors of a planned new development feared that on-street parking in that area, which is free, would become hard to find). 98 Gotschi, T., and Mills, K., “Active Transportation For America,” Rails to Trails Conservancy. 2008 99 Pucher, Handy, and Dill, “Infrastructure, programs, and policies to increase bicycling: An international review,” Preventive Medicine. online September 16, 2009 100 Lee and March (2010), Recognising the Economic Role of Bikes: Sharing Parking in Lygon Street, Carlton, Australian Planner Findings are per square meter of parking on retail heavy Lygon Street; 99% of parking space was for cars, 1% for bikes. 101 Ligeti, Eva “Bike Lanes, On Street Parking, and Business” Clean Air Partnership. 2009 102 Clifton, K “Business Cycles: Catering to the Bicycling Market,” OTREC 2012 103 Buck, Darren, “Bikeshare Equity Framework,” (bikepedantic.wordpress.com) November 29, 2012 104 . Fried, B., “The Citi Bike Story No One’s Talking About: Only 3 Injuries in 500,000 Rides” Streetsblog NYC. July 3, 2013 105 Across other bike sharing systems, the same phenomenon has been found—people using the bike share have a lower crash rate than is recorded for cycling generally.

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Part of the reason for this is that unlike the car parking tax credit 154 Martin, C., “In Cargo Delivery, the Three Wheelers that Could,” New York Times, July 7, 2013 155 In fact, advocates for the two interests are beginning to recognize this commonality—two advocates in Oregon recently worked together to alter the design of a street being given a road diet treatment so that users on bicycles and people making freight deliveries would not come into conflict. Andersen, M., “Are ‘bikes vs trucks’ battles fading? Advocates say so,” BikePortland. June 26, 2013 156 They chronicle their adventures and share their work at pathlesspedaled.com 157 Cited in Clifton, K “Business Cycles: Catering to the Bicycling Market,” OTREC 2012 158 “Economic and Health Benefits of Bicycling,” Iowa Bicycle Coalition. January, 2012 159 The Cycling Sojourner guide book series, produced by former Lonely Planet author Ellee Thalheimer, are filling the previously empty niche of guiding self-supported bike tourists. 160 Beierle, H., “Bicycle Tourism as a Rural Economic Development Vehicle,” Department of Planning, Public Policy & Management, University of Oregon, June , 2011 161B “Outdoor Recreation Report 2013”, Outdoor Foundation 161 Personal communications and Maus, J., “With six kids and no car, this mom does it all by bike,” BikePortland.

Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity
by Charles L. Marohn, Jr.
Published 24 Sep 2019

The government can’t fail in the same sense as a private-sector business; it can fail in its duties, but it won’t go away or cease to exist. Revenues will continue to come in and so, whatever shortfalls occur, local governments have an internal incentive to prioritize their own staff. The cuts that happen instead result in more deferred maintenance, slower response times, and, worse service. Over multiple business cycles, these diverging responses to hardship result in local governments full of legacy programs – things they’ve always done and just never stopped doing – and, subsequently, short on both resources and the capacity to innovate. Again, this is not because the people lack competence or motivation – I have found some of the most competent and heroic people working for local government – but because of the nature of the feedback local governments receive.

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Guidance can be efficiently sent down each hierarchy to be executed. Each silo can develop their own internal expertise, culture, and champions. While this approach is efficient, it lacks adaptability. Once a silo and hierarchy system is established, there is internal inertia that resists change. Repeated business cycles have forced most of the private sector – any part that relies on innovation – to address this shortcoming, largely by reorganizing into a flatter, team structure. Local government, with its different response to stress, has largely resisted this kind of realignment. Some local governments have adopted a team approach for major projects, but the teams are subordinate to the silo structure and the relative hierarchy of each silo remains.

Work in the Future The Automation Revolution-Palgrave MacMillan (2019)
by Robert Skidelsky Nan Craig
Published 15 Mar 2020

The Origins of Power, Prosperity, and Poverty. New York: Crown Publishers. Dosi, G. (1982). Technological Paradigms and Technological Trajectories. “A Suggested Interpretation of the Determinants and Directions of Technical Change”. Research Policy, 11(3), 147–162. Freeman, C., & Perez, C. (1988). Structural Crises of Adjustment, Business Cycles and Investment Behaviour. In G. Dosi (Ed.), Technical Change and Economic Theory (pp. 38–66). London: Francis Pinter. 18 Shaping the Work of the Future: Policy Implications 201 Karstgen, J., & West, D. (2015). New Skills Needed for New Manufacturing Technology. Brookings.edu. Retrieved August 30, 2016, from https://www. brookings.edu/blog/techtank/2015/07/15/new-skills-needed-for-newmanufacturing-technology/ Katz, L. (2014, July 15).

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New York: Farrar & Rinehart. Salazar-Xirinachs, J. M., Nübler, I., & Kozul-Wright, R. (2014). Transforming Economies: Making Industrial Policies Work for Growth, Jobs and Development. Geneva: ILO. Schumpeter, J. (1911). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Piscataway, NJ: Transaction Publishers. UNDP (United Nations Development Program). (2015). Transforming Our World: The 2030 Agenda for Sustainable Development. Retrieved from https://sustainabledevelopment.un.org/post2015/transformingourworld Vivarelli, M. (2014). Innovation, Employment and Skills in Advanced and Developing Countries: A Survey of Economic Literature.

Digital Disconnect: How Capitalism Is Turning the Internet Against Democracy
by Robert W. McChesney
Published 5 Mar 2013

This is a recession, and it is a part of a business cycle that has always existed under capitalism. Of course, recessions end when conditions change—inventories run down, wages fall, bad debt is cleared off the books—and generally turn into booms. Even at the business cycle’s peak, as contemporary Americans know well, it will not necessarily gravitate to full employment. Instead, as John Maynard Keynes posited in his General Theory, the logical resting spot for an advanced capitalist economy may be with significant unemployment and unused capacity. The business cycle may “peak” with millions unemployed and incomes in decline.75 A major conclusion of Keynesian economics was the need for an increased role of the government in the economy.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

In his 1776 work The Wealth of Nations, Adam Smith argued for a self-regulating market system in which narrow self-interest could order economic activity: It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.3 Capitalism created wealth and progress, but at high social cost. Economic theory was preoccupied with the business cycle—especially painful and disruptive boom-bust cycles. The 1929 stock market crash brought to an end the long boom of the jazz age. During this period, led by the United States, the world’s dominant economy, there were sharp increases in economic activity and the prices of stocks, commodities, and other assets.

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The physicist Paul Dirac observed that: “In physics, we try to tell people in such a way that they understand something that nobody knew before. In the case of poetry, it’s the exact opposite.”6 Economics, as practiced at Chicago, with its mix of dogma, political fundamentalism, and mathematics, was neither poetry nor physics. Theories—rational expectations, real business cycle theory, portfolio theory, efficient market hypothesis, capital structure theory, capital asset pricing models, option pricing, agency theory—rolled off the academic production line. Many economists received recognition in the form of the Nobel prize in Economics (technically the “Severige Riksbank [Swedish Central Bank] Prize in Economic Sciences in Memory of Alfred Nobel” founded in 1968).

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Analysis of defaulted bonds is tricky because there are few defaults, which are concentrated in specific industries (railways) or at specific times (severe recessions such as the 1920s). Markets and issuers change over time, and data is not comparable. Hickman did not conclude that ratings were incorrect but that there were errors, due to problems in forecasting the business cycle and industry developments. Lower-rated bonds outperformed at certain times of the economic cycle, mainly when markets became extremely concerned about default. It was an old investment adage—buy when everybody is selling, when there are blood and tanks on the street. Altman’s studies compared defaults in one year to the entire universe of junk bonds.

Theory of Games and Economic Behavior: 60th Anniversary Commemorative Edition (Princeton Classic Editions)
by John von Neumann and Oskar Morgenstern
Published 19 Mar 2007

Dr. von Neumann, a collaborator of Albert Einstein, who did mathematical work important in the development of the atomic bomb, is recognized by his colleagues as one of the great original workers of the day in mathematics. He is the author of “Mathematical Foundations of Quantum Mechanics.” Dr. Morgenstern, former director of the Austrian Institute for Business Cycle Research at the University of Vienna, is considered one of the world’s leading mathematical economists. He is the author of “Economic Forecasting.” They published the results of their years of research in a 625-page book, “Theory of Games and Economic Behavior,” with nearly every page studded with formulae, mainly in the theory of sets and groups and in linear geometry.

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I showed in some detail in particular that the pursuit developing between these two could never be resolved on the basis of one of them out-thinking the other (“I think he thinks that I think! ! . . . ”), but that a resolution could only be achieved by an “arbitrary decision,” and that it was a problem of strategy.3 The problems touched in that book never left me, in spite of my involvement in business cycle theory and statistics. In 1935 I published a paper in the Zeitschrift für Nationalökonomie “Vollkommene Voraussicht und Wirtschaftliches Gleichgewicht” in which the same illustration of Sherlock Holmes and Moriarty was used once more, but the whole matter of prediction and foresight was put into a wider frame [12, 1935].

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I repeated this talk, at Menger’s request, in his Colloquium and after the meeting broke up, a mathematician named Eduard Čech came up to me and said that the questions I had raised were identical with those dealt with by John von Neumann in a paper on the Theory of Games published in 1928 [18], the same year that I had published my book on economic forecasting [10, 1928]. Čech, then already a promising mathematician, outlined to me its principal ideas and results and was very eager that I should study this particular work. I intended to do so, but the great burden of work I was carrying at that time as director of the Institute of Business Cycle Research during civil war conditions, with the Nazis threatening, with frequent trips to the League of Nations in Geneva, to Paris and London, etc., made this impossible. Nevertheless, even during those years in the 1930’s in Vienna, I managed to read a lot of logic and set theory, e.g., Hilbert-Ackermann, Fraenkel, Hilbert-Bernays, Hahn, Hausdorff, etc.

The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It
by Paul Collier
Published 26 Apr 2007

But just as Sachs exaggerates the payoff to aid, Easterly exaggerates the downside and again neglects the scope for other policies. We are not as impotent and ignorant as Easterly seems to think. So how does this involve ordinary people in rich societies? Electorates tend to get the politicians they deserve. A classic example in the rich democracies is something called the “political business cycle.” For years governments routinely spent money just before an election to artificially boost the economy, facing up to the consequent mess only once reelected. Eventually, electorates wised up to what was happening, and so the ploy no longer pulled in the votes. As a result, politicians now rarely try it.

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See Delocalization Overseas Private Investment Corporation (OPIC), 154 Oxford Revolutionary Socialist Students, ix Oyefusi, Aderoju, 30 Patronage politics, 45–46 Pattillo, Cathy, 88, 91, 93, 123 Peace, 131 Peace-Building Commission, 186 Pearson Commission, 7 Perpetual inventory method, 92 Philippines, 61 Policy incoherence, 160 Policy instruments, 12 Political business cycle, 192 Political development trap, 51 Political divide, xi–xii Political restraints democracy emphasizing, 50 enthusiasm for, 147 on power, 47 as public good, 51 resource revenues weakening, 46 Political rights, 23 Politicians, 24, 66–67 Politics arguments in, regarding aid, 99–100 conflict inherent in, 17 patronage, 45–46 resource surplus relating to, 44 Popular Movement for the Liberation of Angola (MPLA), 26 Population growth, 6 turnaround influenced by, 70–72 Portfolio choice, 92 Postconflict, 27 aid, 177 charter for, situations, 151–53, 178, 186 countries sustaining turnaround, 72–73 crime in, society, 33 maintaining peace, 126–29 military spending deterring conflict, 132 political evolution, 152 potential for change, 94 relapses, 34 reverting to conflict, 131 security for, societies, 177–78 situations, high risk in, 133 Postwar costs, 28 Poverty.

The Great Reset: How the Post-Crash Economy Will Change the Way We Live and Work
by Richard Florida
Published 22 Apr 2010

We can keep pumping money and energy—and a whole lot of wishful thinking—into a vain attempt to forestall the inevitable, or we can try another route: we can turn more of the jobs in the sectors that are already growing today into good, high-paying jobs. We’ve seen very little progress in this arena over the past couple of decades. “This is the only recession since the Great Depression to wipe out all job growth from the previous business cycle,” writes Mort Zuckerman, the editor in chief of U.S. News & World Report, in an oped ominously titled “The Free Market Is Not Up to the Job of Creating Work.”2 Over this time, literally all of the growth in wages and salaries—and income in general—has gone to the highest-earning 1 or 2 percent of the population.

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Ltd., 60 Ames, Iowa, 69 Amsterdam, Holland, 50 Amtrak’s Acela high-speed train service, 165, 166, 168 Andersen, Kurt, 105 Ann Arbor, Michigan, 69 Arizona State University, 93 Arlington, Virginia, 145 Asian economies, global financial leadership and, 56–59 Athens, Georgia, 99 Atlanta, Georgia, 99, 150, 166 Austin, Texas as destination of recent college graduates, 149 economic health of, 69, 99 high-speed rail service and, 166 automobiles cities and decreased use of, 7–8, 156–163 Current Reset and decreased spending on, 131–137, 140 Current Reset principles, 186 Detroit’s dependency on production of, 75–76, 78–79 recent increase in costs of, 131 Second Reset and suburbanization, 33, 34 AVE communities, 176 Avent, Ryan, 168–169 Baltimore, Maryland commuting and, 158, 161 high-speed rail service and, 168 job market in, 149 movement of industry in, 21 population before 1900, 17 Second Reset and demographic changes, 36 Bank of America, 64–65, 90 Bank of Nova Scotia, 90 Beattie, Geoff, 113 Bell, Alexander Graham, 14, 15 Bell, Daniel, 63 Benz, Karl, 11 Bessemer, Henry, 11 Best Buy, 122 bicycles commuting on, 161 evolution of transportation technology, 10–11 Bing, Dave, 73 Black, William, 111–112, 114 Blake, William, 116 Bloomberg, Michael, 54 bonus, offered for quitting job, 122 Boston, Massachusetts commuting in, 160, 161 as destination of recent college graduates, 147, 149 movement of industry in, 21 population before 1900, 17 remaking of economy in, 81 Second Reset and demography of, 36 Bos-Wash megaregion, 54, 142, 149 as high-speed rail corridor, 166, 168 Boulder, Colorado, 161 Boyle, Robin, 75 Brookings Institution, 95 Brooklyn, New York, 17 Brush, Charles, 12 Bucchianeri, Grace Wong, 171 Buffalo, New York, 21 Busch, Adolphus, 20 Bush, George W., 7, 130 business cycles. See resets Byrne, David, 161 California, housing bubble in, 94 Campus Philly, 86 Canada, high-speed rail service and, 166, 167 capitalism, prone to panics and crises, 4 Capitals of Capital (Cassis), 50 Carnegie, Andrew, 11, 20 Carnegie Mellon University, 78 Cary, North Carolina, 99 Cascadia megaregion, 143, 149, 150, 166 Casesa, John, 136–137 Case-Shiller Home Price Index, 53 Case Western Reserve University, 17 Cassis, Youssef, 50, 58 Chapel Hill, North Carolina, 99 Char-lanta megaregion, 143, 149, 166 Charlotte, North Carolina financial sector and, 52, 63–65, 92, 99 high-speed rail service and, 166 Chicago, Illinois commuting in, 161 as destination of recent college graduates, 147, 149 as financial center, 61, 62 high-speed rail service and, 166, 167, 168 immigrants in, 20 job market in, 149 population before 1900, 18 rented housing in, 175 China global financial leadership and, 56–57 high-speed rail service and, 164–165 Chi-Pitts megaregion, 142, 166 cities community-versus government-led programs to revitalize, 76–86 Current Reset principles, 185 decline of manufacturing sector and, 71–78 First Reset and changes in lifestyles and consumption, 22–25 First Reset and population shifts, 18–22 happiness attributes and, 86 Citigroup, 90 Cleveland, Ohio high-speed rail service and, 166 movement of industry in, 21 population before 1900, 17, 18 Second Reset and demographic changes, 36 Cohen, Jon, 27 college graduates changing employment interests, 112–113 settling in megaregions, 147–149 college towns, economic health of, 68–70, 99 Columbus, Ohio, 52 communications and information technology, First Reset and growth of, 15 congestion pricing, for automobile use, 162–163 consumption, 129–140 Current Reset and decreases in, 131–137 Current Reset principles, 185–186 debt and roots of current economic crisis, 41–46, 129–130 First Reset and changes in, 22–25 lack of, as new normal, 139–140 Second Reset and changes in, 130, 133 status and, 137–140 Container Store, 121 Cox, Wendell, 145–146 Craftsman, The (Sennett), 71 Craig, John, 81 Cranbrook Academy, 79 Crawford, Matthew, 71, 126–127 creative destruction, 4, 12 currency, global economic leadership and, 57 Current Reset effect on New York City, 49, 51–52 government not solution to, 180–182 guiding principles for transformation, 182–187 home ownership, debt, and consumption as roots of, 41–46, 129–130 job shifts away from manufacturing sector, 116–117 likely transformations of, 6–9 need for financial investment in innovation and building, not trading, 107–115 service jobs potential, 116–128 sources of employment in, 117–120 values and, 105–107 See also spatial fix, of Current Reset Currid, Elizabeth, 52–53 Daimler, Gottlieb, 11 Dal-Austin megaregion, 143 Dallas, Texas as destination of recent college graduates, 149 economic health of, 69, 99 high-speed rail service and, 166 job market in, 150 Second Reset and population growth, 36 Davos Competitiveness Index, 56 debt ratio to disposable income, 1980–2007, 43–44 roots of current economic crisis and, 41–46, 129–130 Defense Highways Act (1956), 34 Den-Bo megaregion, 143, 149 Denver, Colorado, 147 Des Moines, Iowa, 52 Detroit, Michigan decline of, 73–78 effect of suburbanization on, 35 high-speed rail service and, 166 housing price declines and, 53, 73 immigrants in, 20 population changes in, 17, 18, 73, 75 possible recovery of, 78–81 unemployment in, 69 Dewey, John, 17 Dubai, 58 Economy of Cities, The (Jacobs), 59, 146 Edison, Thomas, 12, 13–14, 15 education Current Reset principles, 183 in Detroit, 79 First Reset and increased access to, 16–17 Philadelphia and, 85–86 Pittsburgh and, 78 Second Reset and infrastructure expansion, 28–29 electricity distribution of, 14–15 innovative applications for, 12–14 electronics, increased spending on, 133 Emanuel, Rahm, 5 employment.

Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading
by Joel Hasbrouck
Published 4 Jan 2007

The observable variable, pt , is thus decomposed into a random-walk and a covariance-stationary error. Random-walk decompositions were originally developed and applied in macroeconomic settings, where the random-walk component is considered the long-term trend and the stationary component impounds transient business cycle effects. This literature mostly employs the trend/cycle terminology. The treatment here follows the historical development of this literature. I begin with Beveridge and Nelson (1981) and follow with the more general case described in Watson (1986). Later chapters explore multivariate extensions and cointegration.

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Maxwell, and Kumar Venkataraman, 2005, Market transparency and institutional trading costs (Social Sciences Research Network). Beveridge, Stephen, and Charles R. Nelson, 1981, A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the “business cycle,” Journal of Monetary Economics 7, 151–74. Biais, Bruno, Lawrence R. Glosten and Chester Spatt, 2005, Market microstructure: A survey of microfoundations, empirical results, and policy implications. Journal of Financial Markets 8, 217–64. Biais, Bruno, Pierre Hillion and Chester Spatt, 1995, An empirical analysis of the limit order book and the order flow in the Paris Bourse.

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis
by Kevin Mellyn
Published 30 Sep 2009

The Harvard economist John Kenneth Galbraith wrote a best seller in 1960 called The Affluent Society that painted America as a land of private wealth and public squalor. The obvious remedy was more government spending using the tools of Keynesian economics. The U.S. economics profession as a whole had come to the consensus that it was possible to flatten the business cycle by ‘‘fine tuning’’ the economy through government spending. Since the best and brightest thought this could be done, it was hard to argue that it shouldn’t be done. There was remarkably little resistance to the idea that the federal budget could and should run a deficit—spend more money than it took in as taxes—whenever the economy slowed down.

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When financial markets go south, the first instinct of modern central banks is to slash interest rates, much less raise them. This is the Keynes drill, not the Bagehot prescription. Reducing the cost of borrowing money is thought to be a powerful incentive for people and companies to borrow more and spend more, thus restoring economic growth and confidence. This is more often than not true in a classic business cycle recession or a short, sharp shock to the system like the dot.com stock market collapse or even the aftermath of 9/11. However, this carries a big risk of creating larger problems down the road. Low borrowing costs are an open invitation for people to take risks with OPM. The slashing of rates after the collapse of the NASDAQ tech stocks—a staggering destruction of paper wealth for millions of households—arguably fueled the housing bubble that just burst.

The Next Decade: Where We've Been . . . And Where We're Going
by George Friedman
Published 25 Jan 2011

Understanding what happened and why in both cases amplifies our sense of what it means to be an empire and what its price is, especially when we consider how these interrelated events, which began as domestic American concerns, came to engulf the entire world. Let’s begin with the financial crisis. Every business cycle ends in a crash, and one sector usually leads the way. The Clinton boom ended in 2000, when the dot-coms crashed; the Reagan boom of the 1980s ended in spectacular fashion with the collapse of the savings-and-loans. From this perspective, there was nothing at all extraordinary about what happened in 2008.

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Germany didn’t want the responsibility for bailing out weaker countries, but the weaker countries didn’t have full control over their economies so they couldn’t take control of their own destiny. The question going forward is whether the EU, especially in light of European history, can withstand this centrifugal force. The answer lies in part in whatever the Germans choose to do. The euro serves a series of countries in different stages of development and in different parts of their business cycle, and the currency that helps one country doesn’t necessarily help another. Obviously, the European Central Bank is more worried about the condition of the German economy than about that of a smaller country, and that affects valuation decisions. From its founding in 1993 until 2008, the EU enjoyed a period of unprecedented prosperity, and for a while that prosperity submerged all of the issues that had never been fully resolved.

The Age of the Infovore: Succeeding in the Information Economy
by Tyler Cowen
Published 25 May 2010

Some of those mortgage lenders were fraudulent, but a lot of them just didn’t see that the story of perpetually rising home prices had to come to an end and that it would come to an end as soon as it did. The stickiness of our stories is also why, on the macroeconomic level, economies experience nasty business cycles. Much of modern macroeconomics is built around the idea that some wages and prices do not adjust downward easily. If you are fired because business is slow, you might wonder, “Why didn’t they offer to keep me on for a 20 or maybe 30 percent pay cut?” Sometimes this happens but the reality is that most workers develop poor morale, or foment rebellion, when their wages are cut.

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You ought to be switching into the story “I need to take one on the chin to regroup and move on” but the reality is that most people do not make this adjustment smoothly. Even if you can make that adjustment, your employer doesn’t know that about you and so you get fired instead of the pay cut. That’s a big reason why the downward swing of the business cycle usually involves so much unemployment. Thomas Schelling, in his “The Mind as a Consuming Organ,” understood the very human limitations behind our stories and our limited mental and emotional capacities: “Marvelous it is that the mind does all these things. Awkward it is that it seems to be the same mind from which we expect both the richest sensations and the most austere analyses.”

Where Does Money Come From?: A Guide to the UK Monetary & Banking System
by Josh Ryan-Collins , Tony Greenham , Richard Werner and Andrew Jackson
Published 14 Apr 2012

Globalizing capital: a history of the international monetary system. Princeton University Press; 2nd edition, p. 82 96 Eichengreen, B. J. and Sachs, J. (1985). Exchange Rates and Economic Recovery in the 1930s. Journal of Economic History 45: 925-946 97 Choudhri, E., Kochin, L.A., (1980). The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression. Journal of Money, Credit, and Banking 12: 565-574 98 Davies, R., Richardson, P., Katinatire, V., (2010). Evolution of the UK Banking System. Bank of England Quarterly Bulletin 4: 321-332 99 Croome, D. R. and Johnson, G. J., (eds) (1970).

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The Handbook of Economic Sociology, 2nd Edition, Princeton: Russell Sage Foundation Chen, Y. and Werner, R.A., (2010). The Monetary Transmission Mechanism in China. Centre for Banking, Finance and Sustainable Development Discussion Paper. Southampton: School of Management, University of Southampton Choudhri, E. and Kochin, L.A., (1980). The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression. Journal of Money, Credit and Banking 12: 565-574 Clews, R., Salmon, C. and Weeken, O., (2010). The Bank’s money market framework. Bank of England Quarterly Bulletin Q4: 292-301 Clower, R, (1967). A reconsideration of the microfoundations of money.

The End of Alchemy: Money, Banking and the Future of the Global Economy
by Mervyn King
Published 3 Mar 2016

But the general point stands. 16 One view that most economists do not find compelling is that there are times in which people want to spend less and take more leisure, and periods in which they want to do the opposite. The former are periods in which employment is low and the latter in which it is high. Business cycles are rational phenomena. Such models are called ‘real business cycle’ models. 17 Minsky (1975, 1986). He died in 1996, some twelve years or so before there was a resurgence of interest in his ideas. 18 See Gennaioli, Shleifer and Vishny (2015), and Eggertsson and Krugman (2012). 19 Such features are sometimes described as ‘financial frictions’, which gives the game away because they are seen as tweaks to a basically true model rather than posing a challenge to the model itself. 20 Keynes (1936), p. 96. 21 Keynes (1923a), p. 80. 22 Hicks (1974), p. 1. 23 The phrase the ‘NICE decade’ was used first in King (2003). 24 Inaugural Address of President Franklin D.

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While businesses believed in the heuristic that governments could and would ensure steady economic expansion, investment seemed less risky than during the instability of the inter-war period. So investment continued to rise at a steady rate, producing stable growth. Expectations of continued steady growth were self-reinforcing.26 Unfortunately, the belief that governments could eliminate the business cycle proved illusory. After the success of the immediate post-war period, problems emerged that could not be concealed by a belief in the effectiveness of Keynesian policy stimulus. The oil price shocks of 1973 and 1979 raised inflation and reduced potential output in the industrialised world. Unemployment could be maintained at previous low levels only by accepting cuts in real wages.

Growth: From Microorganisms to Megacities
by Vaclav Smil
Published 23 Sep 2019

Even so, the next decade maintained annual growth at just above 3%, and this was followed by a notable slowdown to 2.55% (1.54%/capita) between 1986 and 2016, and annual growth averaged just 1.86% (and 1.01%/capita) during the first 16 years of the 21st century. These longer-term averages hide considerable shorter-term fluctuations, including recurrent business cycles. Between 1854 and 2009 the US experienced 33 cycles, that is averaging one every 4.7 years, but the frequency has been declining: between 1854 and 1919 there was a business cycle recurring every four years, the frequency between 1919 and 1945 was 4.3 years, and between 1945 and 2009 it lengthened to 5.8 years. Average peak-to-trough contraction for all cycles lasted 17.5 months and expansion from their troughs to a new peak averaged nearly 39 months (NBER 2017).

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(Ayres 2017, 40) Ayres showed convincingly that since the onset of the industrial revolution economic growth has been driven largely by declining energy costs resulting from the discovery and extensive exploitation of relatively inexpensive and highly energy-dense fossil fuels (Ayres and Warr 2009; Ayres and Voudouris 2014; Ayres 2016). And Schumpeter’s (1939) classical account of Western business cycles, based on Kondratiev (1926), showed how new energy sources and prime movers led to cyclically accelerated investment. As identified by Kondratiev, the first upswing (1787–1817) coincided with the rising extraction of coal and with the initial adoption of stationary steam engines. The second upswing (1844–1875) was driven by the deployment of steam engines on railroads and in steamships and by advances in iron metallurgy (Bessemer steel).

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Adoption of Light-Emitting Diodes in Common Lighting Applications. https://energy.gov/sites/prod/files/2015/07/f24/led-adoption-report_2015.pdf. NBA (National Basketball Association). 2015. NBA starting lineups ranked by height. http://nba-teams.pointafter.com/stories/8626/nba-starting-lineups-ranked-height. NBER (National Bureau of Economic Research). 2017. US business cycle expansions and contractions. http://www.nber.org/cycles.html. NBS (National Bureau of Statistics of China). 2000. China Statistical Yearbook 2000. Beijing: NBS. NBS. 2016. China Statistical Yearbook 2016. Beijing: NBS. http://www.stats.gov.cn/tjsj/ndsj/2016/indexeh.htm. NCBA (National Cattlemen’s Beef Association). 2016.

The Social Life of Money
by Nigel Dodd
Published 14 May 2014

Both the “real” and the “financial” dimensions of contemporary capitalism are now characterized by a reliance on intellectual labor (Marazzi 2008: 93–94). Whereas the monetary and financial problems that shaped the immediate post-Bretton Woods era were based on the contradictory relationship between the real and financial economies, i.e., the ability of money to recuperate itself as capital, financialization has spread across the entire business cycle (Marazzi 2010: 27–29, 49). The new economy is driven by excessive levels of financial activity (lending and speculation), with no brake or threshold within the real economy to slow things down. This situation is financial saturation. Moreover, whereas Harvey continues to see the state as key to reestablishing money’s underlying value in the aftermath of credit crisis, Marazzi brings the argument he began with Bretton Woods to its logical conclusion: this is a post-Keynesian system in which the old internal and external solutions for restoring capital’s value—effective demand management and colonialism, respectively—have been exhausted.

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For a long time, economic theory portrayed banks mainly as intermediaries between depositors and borrowers. The microeconomic theory of banking was not developed until after the 1970s.28 Schumpeter, however, made the earliest significant contribution to understanding the importance of banks and finance to economic development and the business cycle (Clark 2010: 209). In this respect, his arguments represent a major step forward from Mitchell-Innes. Mitchell-Innes mentioned banks but did not build them into the theory of money: like states, they are merely components of the circulation of credit and debt. For Schumpeter, by contrast, banks are a major structural feature of capitalism, its differentia specifica (Schumpeter 2008: 69).

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To grasp the significance of this difference for money, I want to turn to the arguments of Hyman Minsky and Susan Strange. MINSKY’S HALF-CENTURY Hyman Minsky was a doctoral student of Joseph Schumpeter and Wassily Leontief at Harvard during the 1940s. Whereas Schumpeter had drawn attention to banks’ importance in the business cycle, Minsky’s main focus was on the effect of financial markets on the wider economy (Minsky 1993a, 1993b). During the 1970s, Minsky developed the financial instability hypothesis, in which he argued that speculative bubbles and spells of financial market instability are part of the normal life cycle of the economy (Minsky 1992).

Security Analysis
by Benjamin Graham and David Dodd
Published 1 Jan 1962

The bonds went from $56 to $105. The stock also soared. The investor doubled his money on each of his Xcel trades. Neither had been a roll of the dice; rather, each was quantifiably demonstrable as a Graham and Dodd investment. “It was a safe, steady industry,” the investor agreed. “Not a lot of business-cycle risks. I think Ben Graham would have approved.” As intriguing as Xcel types of puzzles may be, most stocks will simply be valued on their earnings. In reality, the process isn’t “simple.” Valuing equities involves a calculation of what a company should be able to earn each year, going forward, as distinct from taking a snapshot of the assets it has at the moment.

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The widespread difficulties of the utilities were due not to any weakness in the light and power business, but to the reckless extravagance of its financing methods. The losses of investors in public-utility bonds could for the most part have been avoided by the exercise of ordinary prudence in bond selection. Conversely, the unsound financing methods employed must eventually have resulted in individual collapses, even in the ordinary course of the business cycle. In consequence, the theory of investment in sound public-utility bonds appears in no sense to have been undermined by 1931–1933 experience. 2. Stability of Railroad Earnings Overrated. Turning to the railroads, we find a somewhat different situation. Here the fault appears to be that the stability of the transportation industry was overrated, so that investors were satisfied with a margin of protection which proved insufficient.

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There are several reasons why we cannot be sure that a trend of profits shown in the past will continue in the future. In the broad economic sense, there is the law of diminishing returns and of increasing competition which must finally flatten out any sharply upward curve of growth. There is also the flow and ebb of the business cycle, from which the particular danger arises that the earnings curve will look most impressive on the very eve of a serious setback. Considering the 1927–1929 period we observe that since the trend-of-earnings theory was at bottom only a pretext to excuse rank speculation under the guise of “investment,” the profit-mad public was quite willing to accept the flimsiest evidence of the existence of a favorable trend.

The Inequality Puzzle: European and US Leaders Discuss Rising Income Inequality
by Roland Berger , David Grusky , Tobias Raffel , Geoffrey Samuels and Chris Wimer
Published 29 Oct 2010

Ultimately, the opening up of these markets results in prosperity and helps to secure jobs in Germany. Will inequality continue to increase into the near future? Or will the trend soon stabilize or even reverse itself? If you do expect stabilization or reversal, will this occur because of changes in the business cycle, because of direct political intervention, or through some other means? Inequality is something that will always be with us and will fluctuate somewhat over time with economic cycles. And as I said before, nature provides all of us with different gifts and talents. Where influence is possible, I think it is important that we work to avoid extremes of inequality that undermine social cohesion and harm society and the economy.

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There are widening inequalities between countries in the European Union as a result of the crisis. This is despite the EU being one of the more economically robust parts of the world. Normally, one would expect the well- Part 2: Interviews 95 developed public sectors to act as a stabilizer during a downturn in the business cycle. In 2009, there was a contrast of a 5% drop in economic growth in Germany compared to 18% in Latvia. On a global level the crisis has increased inequality between Europe and developing countries, particularly the poorest countries in Africa. However, some of the emerging countries, especially the BRIC countries, have moved faster than the rest of the world has done, so you have a mixed picture.

The Cost of Inequality: Why Economic Equality Is Essential for Recovery
by Stewart Lansley
Published 19 Jan 2012

A year later, in February 2004, Ben Bernanke, a former Princeton Professor and soon to be appointed Chairman of the Federal Reserve, gave a speech called ‘The Great Moderation’, that made a similar point. Bernanke claimed that because of the apparent decline in the variability of both output and inflation from the mid-1980s, modern macroeconomics had largely solved the problem of the business cycle. According to these accounts, from two of the leading economic theorists in the US, the disaster of 2008-2009 should not have happened. So what about the record of the thirty-year long era of market economics? Have markets delivered greater economic prosperity and stability than in the more interventionist post-war era?

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224 The slowing of growth and productivity since 1980 amongst the world’s leading economies has also been a central factor in the onset of domestic and global instability. The downturn of 2008-2009 was merely the most acute of a series of global crises. For the generation after the Second World War, active intervention to moderate the business cycle was largely successful. As the American economist Hyman Minsky observed in 1982, ‘The most significant economic event of the era since World War II is something that has not happened: there has not been a deep and long-lasting depression’.225 Despite claims that the injection of market forces would reduce the capitalist tendency towards instability, the world became a more turbulent place in the next three decades than in the immediate post-war period.

The End of Growth
by Jeff Rubin
Published 2 Sep 2013

Unemployment soared to the highest levels since the 1930s, home sales plummeted and GDP tumbled. By 1983, though, the economy was firmly back on track. The Fed dropped interest rates to single-digit levels and GDP grew steadily for the rest of the decade. That recession caused considerable pain, but it also followed the pattern we’ve all come to expect from the business cycle: an economy expands until it reaches a peak. It then contracts into a recession, hits a trough, and starts back on the road to recovery. That’s what happened during the recession in the early 1990s and again in the first few years of the 2000s. In the postwar era, even the deepest recessions have rarely lasted more than a year.

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Many will argue that the EMU should have taken that shape from the start—that throwing the PIIGS into a currency union with Germany and France was an unnatural configuration similar to putting Mexico into a currency union with the United States and Canada. When economic times are good, Mexico would be fine. But when the business cycle turned down, it would be an entirely different story. Without the ability to devalue the peso and juice its economy, Mexico’s situation would soon turn just as desperate as Greece’s is today. What will the European Union look like in the event of a monetary divorce? The currency sphere is only part of the picture.

How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present
by Thomas J. Dilorenzo
Published 9 Aug 2004

And it worked: while the price level, as measured by the Consumer Price Index, was about the same in 1913 as it had been in 1789, since the Fed’s creation it has gone up by at least a multiple of fifteen. But bank credit expansion is what causes the so-called boom-and-bust cycle in an economy, as Austrian School economist Ludwig von Mises—the only economist of the 1920s to predict the Great Depression—first explained. Mises’s theory of the business cycle was advanced by his student, Nobel laureate Friedrich Hayek, and later by another one of his students, Murray Rothbard, in his book America’s Great Depression. According to the so-called Austrian theory, the money in circulation is either spent on consumption items (such as food and clothing) or saved and ultimately invested in capital goods (machinery, tools, equipment, and so on), which are used by businesses.

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Savings have not really increased; the central bank’s money creation has caused the interest rate to decline. Businesses will eventually find that there is not sufficient consumer demand for the products produced with their additional capital investments; that is, businesses have made wasteful investments during the “boom” phase of the business cycle. Some businesses, therefore, will have to be liquidated. This is the “bust” phase—recession or depression, which occurs as the economy adjusts to the waste caused by the central bank’s expansion of credit. Recessions, unfortunately, are a necessary process of returning an economy to “normal” in terms of the pattern of present versus future consumption.

The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All
by Martin Sandbu
Published 15 Jun 2020

And not only greater inequality. It is bad enough that macroeconomic mismanagement makes for a more unfair division of the economic pie, but it also makes the pie smaller than it might be otherwise. Many policy makers who steer macroeconomic policy are guided by a model of the economy in which business cycles are temporary fluctuations around a stable long-term trend. This view encourages central bankers to assume responsibility for minimising those swings—but to decide policy as if the long-term trend were given, and unaffected by their own moves to achieve short-term stabilisation. There is strong evidence, however, that temporary downturns can leave permanent scars on an economy’s productivity in the long run.

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The self-reinforcing nature of (especially) banking, unless carefully regulated, intensifies the economy’s cycles and makes downturns deeper and more protracted. History shows that a rapid increase in bank credit is a telltale sign of a looming crisis, that economic slumps are worse in areas that have seen particularly fast credit buildup, and that recoveries from a recession caused by a financial bust are slower than from ordinary business-cycle downturns.2 Since we know downturns hurt the left behind and the vulnerable more than the average person, financial cycles are a chronic danger to strong economies of belonging. Financial instability also makes it harder for governments to act forcefully to maintain the high-pressure economy I called for in the previous chapter.

The Magic of Thinking Big
by David J Schwartz
Published 4 Feb 2016

I wouldn’t have said this to anyone five years ago or even one year ago, but now I’m ready to talk about it. “As I look back at my college education now, I see that I became an expert in why a business idea won’t work out. I learned every conceivable pitfall, every reason why a small business will fail: ‘You’ve got to have ample capital;’ ‘Be sure the business cycle is right;’ ‘Is there a big demand for what you will offer?’ ‘Is local industry stabilized?’—a thousand and one things to check out. “The thing that hurts most is that several of my old high school friends who never seemed to have much on the ball and didn’t even go to college now are very well established in their own businesses.

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This point applies to all situations, little and big. The political leaders who do not genuinely believe permanent world peace can be established will fail because their minds are closed to creative ways to bring about peace. The economists who believe business depressions are inevitable will not develop creative ways to beat the business cycle. In a similar fashion, you can find ways to like a person if you believe you can. You can discover solutions to personal problems if you believe you can. You can find a way to purchase that new, larger home if you believe you can. Belief releases creative powers. Disbelief puts the brakes on.

The Socialist Manifesto: The Case for Radical Politics in an Era of Extreme Inequality
by Bhaskar Sunkara
Published 1 Feb 2019

A lot of people benefited from the old system—the corporate health care industry, for example, put up a mighty struggle when the US National Health Service was created, and is still trying to make a comeback by providing “personalized” outpatient services. And the economy is still driven by private enterprise. Capitalists resent the higher taxes they have to pay, don’t want to comply with new environmental regulations, and hate dealing with more empowered and restive workplaces. Especially during downturns in the business cycle, capitalists can make a credible argument to voters: the whole economy only works if we’re making money, and we’ll only take risks in bringing new products and services to market if there’s a large enough reward to justify it. Plus, those bankers you keep handcuffing give us the financing we need to keep the whole machine humming.

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Neoliberalism—a set of policies to use state power to restore employer profits by rolling back regulations and challenging unions—was one way to solve the crisis of the 1970s. Wrestling control of investment from capital was another. But social democrats were unprepared for this choice. Thinking they had abolished the business cycle through state intervention, they forgot a core tenet of Marxism: that the contradictions of capitalism, and its tendency toward crisis, cannot be resolved within the system. Perhaps things would have played out differently if Palme and his party had backed the Meidner Plan wholeheartedly in the 1970s.

AIQ: How People and Machines Are Smarter Together
by Nick Polson and James Scott
Published 14 May 2018

In fact, he told Menger that he was happy to take any job that would let him make ends meet; all he wanted to do was keep proving theorems and attending math seminars. At first, Wald worked as the private math tutor for a wealthy Austrian banker named Karl Schlesinger, to whom Wald remained forever grateful. Then in 1933 he was hired as a researcher at the Austrian Institute for Business Cycle Research, where yet another famous scholar found himself impressed by Wald: economist Oskar Morgenstern, the coinventor of game theory. Wald worked side by side with Morgenstern for five years, analyzing seasonal variation in economic data. It was there at the institute that Wald first encountered statistics, a subject that would soon come to define his professional life.

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Although pleased by the recognition, Wald had initially been hesitant to leave Vienna. But Anschluss changed his mind, as he witnessed the Jews of Austria falling victim to a terrible orgy of murder and theft and betrayal. Their shops were plundered, their homes vandalized, their roles in public life stripped by the Nuremberg Laws—including Wald’s role, at the Institute for Business Cycle Research. Wald was sad to say good-bye to Vienna, his second home, but he could see the winds of madness blowing stronger every day. So in the summer of 1938, at great peril, he snuck across the border into Romania and traveled onward to America, dodging guards on the lookout for Jews fleeing the country.

The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival
by Charles Goodhart and Manoj Pradhan
Published 8 Aug 2020

Thus, Hundtofte et al. (2019) state that ‘on average – individuals do not use borrowing to smooth consumption when they experience a typical transitory income shock of unemployment. Instead, individuals smooth their credit card debt and overdrafts by adjusting consumption’. As a result, the demand for credit is procyclical, amplifying the business cycle. © The Author(s) 2020 C. Goodhart, M. PradhanThe Great Demographic Reversalhttps://doi.org/10.1007/978-3-030-42657-6_6 6. The Determination of (Real) Interest Rates During the Great Reversal Charles Goodhart1 and Manoj Pradhan2 (1)London School of Economics, London, UK (2)Talking Heads Macro, London, UK Charles Goodhart (Corresponding author) Email: C.A.Goodhart@lse.ac.uk Manoj Pradhan Email: manoj@talkingheadsmacro.com 6.1 Introduction A key and central conclusion of our work is that the Great Reversal of demography and globalisation will lead to more inflation.

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Diagram 13.2CBO’s baseline projections of outlays and revenues, compared with actual values 25 and 50 years ago: USA (Source CBO) Diagram 13.3Federal debt held by the public: USA (Source CBO) In one respect, the USA is in a rather more adverse condition than most other countries, thanks to a worse starting fiscal stance (adjusted for the stage of the business cycle). This is only partly because of the recent fiscal expansion measures deployed by the Trump administration, as their Fig. 1.3 (reproduced below as Diagram 13.4) portrays. Diagram 13.4Baseline deficits compared with deficits and surpluses when the unemployment rate has been relatively low: USA (Source CBO) In another respect, however, the USA is in a rather better state than most other advanced economies, since the ratio of old to working population is both lower and growing less rapidly. 13.2 Two Things Are Inevitable: Old Age and Taxes So, on present demographic and medical assumptions the current fiscal stance is unsustainable.

The Capitalist Manifesto
by Johan Norberg
Published 14 Jun 2023

Research shows that there are economic cycles in the feeling of insecurity on the labour market – it increases in a recession and decreases in a boom – so those who want to argue about how bad everything has become use a simple trick: they use surveys done in the middle of recessions and compare them with how people responded during a previous boom. If you instead measure over a longer period of time, over several business cycles, the pattern is one of stability and a small improvement. In the United States, United Kingdom and Germany, the experience of labour market insecurity has not increased in the last forty years, despite the major financial crisis towards the end of the period. When researchers try to explain subjectively perceived insecurity, they can’t find that it correlates with technological change or labour market legislation.

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Sven Norfeldt, one of Sweden’s most successful entrepreneurs, once described the market to me as a minefield. Over there, on the other side, there is new knowledge, capacities, products and services that could enrich the whole of society. But our path there is blocked by a minefield of uncertainty, technological dead-ends, unpredictable consumers, shifting business cycles, interest rate changes, capricious policies and plain bad luck. We have no idea where the mines are located. The only way to find a way to the other side is to get as many people as possible to venture out. This increases the chance that someone will find a safe path that we can all follow. Nothing can inspire people to make this risky journey of discovery like the hope of getting a substantial share of the profits if they succeed.

Valuation: Measuring and Managing the Value of Companies
by Tim Koller , McKinsey , Company Inc. , Marc Goedhart , David Wessels , Barbara Schwimmer and Franziska Manoury
Published 16 Aug 2015

Diversification is intrinsically neither good nor bad; it all depends on whether the parent company is the best owner for the businesses in its portfolio. But some executives believe that diversification brings benefits of its own, such as more stable aggregate cash flows, tax benefits from higher debt capacity, and better timing of investments across business cycles. However, as we discuss in Chapter 25, there is no evidence of such advantages in developed economies. Yet the costs of diversification can be very real: the business units of diversified companies often underperform their focused peers, because of added complexity and bureaucracy. A widespread misunderstanding about spin-offs and other forms of divestment is that they are effective instruments to unlock so-called conglomerate discounts.

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In addition, when estimating the continuing-value parameters, keep in mind the following technical considerations: r NOPLAT: The level of NOPLAT should be based on a normalized level of revenues and sustainable margin and return on invested capital (ROIC). This is especially important in a cyclical business: revenues and operating margins should reflect the midpoint of the company’s business cycle, not its peak or trough. r RONIC: The expected rate of return on new invested capital (RONIC) should be consistent with expected competitive conditions. Economic theory suggests that competition will eventually eliminate abnormal returns, so for companies in competitive industries, set RONIC equal to WACC.

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Our perspective is that diversification is intrinsically neither good nor bad; which it is depends on whether the parent company adds more value to the businesses it owns than any other potential owner could, making it the best owner of those businesses in the circumstances. Over the years, different ideas have been floated to encourage or justify diversification, but these theories simply don’t hold water. Most rest on the idea that different businesses have different business cycles, so cash flows at the peak of one business’s cycle will offset the lean cash years of other businesses, thereby stabilizing a company’s consolidated cash flows. If cash flows and earnings are smoothed in this way, the reasoning goes, then investors will pay higher prices for the company’s stock.

Civilization: The West and the Rest
by Niall Ferguson
Published 28 Feb 2011

In practice, most of the world is now integrated into a Western economic system in which, as Smith recommended, the market sets most of the prices and determines the flow of trade and division of labour, but government plays a role closer to the one envisaged by Keynes, intervening to try to smooth the business cycle and reduce income inequality. As for non-economic institutions, there is no debate worth having. All over the world, universities are converging on Western norms. The same is true of the way medical science is organized, from rarefied research all the way through to front-line healthcare. Most people now accept the great scientific truths revealed by Newton, Darwin and Einstein and, even if they do not, they still reach eagerly for the products of Western pharmacology at the first symptom of influenza or bronchitis.

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As the economists Thorstein Veblen and Joseph Schumpeter would later remark, nineteenth-century capitalism was an authentically Darwinian system, characterized by seemingly random mutation, occasional speciation and differential survival or, to use Schumpeter’s memorable phrase, ‘creative destruction’.27 Yet precisely the volatility of the more or less unregulated markets created by the Industrial Revolution caused consternation among many contemporaries. Until the major breakthroughs in public health described in the previous chapter, mortality rates in industrial cities were markedly worse than in the countryside. Moreover, the advent of a new and far from regular ‘business cycle’, marked by periodic crises of industrial over-production and financial panic, generally made a stronger impression on people than the gradual acceleration of the economy’s average growth rate. Though the Industrial Revolution manifestly improved life over the long run, in the short run it seemed to make things worse.

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On mechanical slavery, on the slavery of the machine, the future of the world depends.32 Yet the revolution feared by Wilde and eagerly anticipated by Marx never materialized – at least, not where it was supposed to. The bouleversements of 1830 and 1848 were the results of short-run spikes in food prices and financial crises more than of social polarization.33 As agricultural productivity improved in Europe, as industrial employment increased and as the amplitude of the business cycle diminished, the risk of revolution declined. Instead of coalescing into an impoverished mass, the proletariat subdivided into ‘labour aristocracies’ with skills and a lumpenproletariat with vices. The former favoured strikes and collective bargaining over revolution and thereby secured higher real wages.

The State and the Stork: The Population Debate and Policy Making in US History
by Derek S. Hoff
Published 30 May 2012

Some economists drew inspiration from preeminent midcentury conservative Joseph Schumpeter and averred that the Western economies were in the trough of a long-term cycle determined by the waxing and waning of technological innovation. Even Jay Forrester, the MIT business professor whose work inspired Limits to Growth, pointed to long waves in the economy, rather than the normal fluctuations of the business cycle or demography, to explain macroeconomic lethargy.63 By the end of the decade, the economists who held sway were adherents of laissez-faire, and many were aligned with the “monetarist” school population aged 231 of Milton Friedman, which rejected the Keynesian stress on personal consumption and asked little of government in economic policy making except sound monetary policy.

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The early-1980s recession, which occurred when the American birthrate was only beginning its recovery, shored up the notion that an aging workforce would exacerbate macroeconomic malaise. In other words, the graying of the American population was seen as not only worrisome for the future of Social Security but also contributive to the current economic doldrums. Less tied to the immediate business cycle, however, belief that there was an aging crisis also reflected growing antipathy to the state among policy makers and the general public; it was inextricably linked to and helped consolidate the anti–welfare state agenda of a conservative movement rejuvenated by Reagan’s election. Put another way, the current fiscal crisis in America, and the fact that balancing the budget without deep cuts in Medicare, Medicaid, and Social Security now seems next to impossible, has masked the contingency and ideological origins of the aging issue.

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Frederick Osborn, “Summary of VII Ad Hoc Meeting, April 4, 1957,” Population Council Records, Box 2, Folder 12, “Ad Hoc Philosophy Committee, Meeting 7, Correspondence and Discussion Papers, 1956–1957,” 5. 116. Ibid., 2. 117. Ibid., 3. 118. Kuznets spent his career quantifying capital formation and national income. In the 1930s, he postulated the presence of what came to be called “Kuznets cycles”—15- to 25-year movements of business conditions that operate independently of shorter business cycles. In Postwar Economic Growth, Kuznets connected sustained historical increases in national per capita income with population growth (39). Yet in Population, Capital, and Growth: Selected Essays (New York: W. W. Norton, 1973), he wrote, “That modern economic growth meant a strikingly accelerated rise not only in product per capita but also in population does not imply that the latter was a necessary condition for the former” (2). 119.

Unhealthy societies: the afflictions of inequality
by Richard G. Wilkinson
Published 19 Nov 1996

He concluded that conventional price indices would show a 180 per cent rise in the price of light in contrast to the 800 per cent fall which his calculations suggested had actually happened. The result is not only that we have a mistaken idea of inflation, but every series of figures deflated by a price index is also wrong. If growth averaged about 2 per cent a year over the course of the business cycle, and it was deflated annually by even 1 per cent more than it should have been, then the measure of growth would halve the actual real—quality-adjusted—growth rate. While recognising that in many fields the effect of technical change has been much less dramatic than it has in lighting, Nordhaus nevertheless makes a ‘guesstimate’ suggesting that increases in real incomes have been many times larger than the conventional indices suggest.

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The first step is for politicians and the public to recognise the importance of these issues. At the moment the Social capital: putting Humpty together again 223 management of the national economy is devoted almost exclusively to the pursuit of economic objectives. This must be changed. Policies on education, employment, industrial structure, taxation, the management of the business cycle, must all be assessed in terms of their impact on social justice and social divisions. Economic management must have the explicit aim of increasing social cohesion and the social quality of life. Historical experience shows that political will is crucial. Rather than the necessary policy changes having to wait until the economy is ‘right’ and such social luxuries can be afforded, we saw in chapter 6 that, in wartime Britain, they became necessities.

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope
by John A. Allison
Published 20 Sep 2012

The very existence of the Federal Reserve enhances the ability of the federal government to borrow and has allowed politicians to substantially increase the debt leverage in the U.S. economy. Before the Fed existed, the federal government operated with a low level of debt, except during wars. Central banks were founded and still exist today not primarily because they stabilized the banking system or the business cycle, but because they facilitate government finance.8 One reason that federal debt was limited before the Federal Reserve was created was market discipline, which meant that the federal government was in a position similar to that of state governments today. A state can borrow substantial amounts based on its ability to tax.

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In addition to the risk of the bank’s failing, there is another negative effect: under liquidity pressure, banks can no longer make loans, and this often puts businesses that need to borrow into financial distress, with the result that the whole economic system starts to malfunction. Some Austrian economists have argued against fractional reserve banking (specifically for demand deposits, or checking accounts). They have identified the existence of central banks (like the Federal Reserve) as the primary cause of business cycles and fractional reserve banking as a related factor.1 They have a valid and useful insight. In Chapter 18, on solutions to the financial crisis, I will share with you some ideas for dealing with this issue without losing the benefits of magnifying the economic efficiency of intermediate-size investments and small savings that banks provide.

Made to Break: Technology and Obsolescence in America
by Giles Slade
Published 14 Apr 2006

In 1928 Frederick had come into contact with the ideas of an Austrian-born economics professor at the University of Bonn through Mazur, a Manhattan business acquaintance. Schumpeter was refinin a view of capitalism he had set forth in 1912 in his Theory of Economic Development (a work that would not appear in English translation until 1934).5 Late in 1929, in the wake of Black Tuesday, Schumpeter’s notion of business cycles would provide a shocked and desperate world with insight into economic devastation, and his “creative destruction”would describe forms of obsolescence that might fuel capitalism’s recovery.6 Although Frederick, in his 1928 article, did not credit Schumpeter’s work, J. George’s notion of progressive obsolescence was very similar to the forces of perpetual market change that drove capitalism in Schumpeter’s model: “The fundamental impulse that sets and keeps the capitalist engine in motion,”wrote Schumpeter, “comes from the new consumers’ goods . . . that capitalist enterprise creates . . .

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George Frederick, “Is Progressive Obsolescence the Path toward Increased Consumption?” Advertising and Selling, 11, no. 10 (September 5, 1928): 19,20,44, 46. 3. Ibid., p. 44. 4. Ibid., p. 49. 5. Joseph A. Schumpeter, The Theory of Economic Development: An Enquiry into Profits Capital, Credits, Interest and the Business Cycle,trans. R. Opie (Cambridge: Harvard University Press, 1934). 6. Eduard März, Joseph Schumpeter: Scholar, Teacher, Politician (New Haven: Yale University Press, 1991), p. 5. 7. Schumpeter, Capitalism, Socialism and Democracy, pp. 82–83. 8. Paul M. Mazur, American Prosperity: Its Causes and Consequences (London: Jonathan Cape, 1928), p. 98. 9.

Python for Finance
by Yuxing Yan
Published 24 Apr 2014

Remember that the x and y scale is from 0 to 1: >>>from pylab import * >>>x = [0,1,2] >>>y = [2,4,6] >>>plot(x,y) >>>figtext(0.2, 0.7, 'North & West') >>>figtext(0.7, 0.2, 'East & South') >>>show() [ 131 ] Visual Finance via Matplotlib The corresponding output graph is given as follows: Let's make it more complex. From the National Bureau of Economic Research web page at http://www.nber.org/cycles.html, we can find the following table showing the business cycle in the past two decades: Turning Point Date Peak or Trough Announcement Date June 1, 2009 Trough September 20, 2010 December 1, 2007 Peak December 1, 2008 November 1, 2001 Trough July 17, 2003 March 1, 2001 Peak November 26, 2001 March 1, 1991 Trough December 22, 1992 July 1, 1990 Peak April 25, 1991 November 1, 1982 Trough July 8, 1983 July 1, 1981 Peak June 1, 1982 July 1, 1980 Trough July 8, 1981 January 1, 1980 Peak June 3, 1980 [ 132 ] Chapter 7 Working with DuPont identity In finance, we could find useful information from a firm's financial statements such as annual income statement, balance sheet, and cash flow statement.

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French's Data Library http://mba.tuck.dartmouth.edu/pages/faculty/ ken.french/data_library.html Fama-French factors, market index, risk-free rate, and industry classification Census Bureau http://www.census.gov/ http://www.census.gov/compendia/statab/hist_ stats.html Census data Bondsonline http://www.bondsonline.com/ Bond data U.S. Department of the Treasury http://www.treas.gov Bureau of Labor Statistics http://download.bls.gov/ U.S. Treasury ? yield http://www.bls.gov/ Inflation, employment, unemployment, pay, and benefits Business cycles, vital statistics, and report of Presidents [ 174 ] Chapter 8 We can easily download many time series from these sources. For example, to download IBM historical daily price data from Yahoo! Finance, we can perform the following steps: 1. Go to Yahoo! Finance at http://finance.yahoo.com. 2.

The Wealth of Humans: Work, Power, and Status in the Twenty-First Century
by Ryan Avent
Published 20 Sep 2016

Before the industrial revolution, the broad social role of the state we now take for granted – which includes universal education, publicly provided healthcare and financial support for the poor and out-of-work, generous pensions, the building and maintenance of networks of infrastructure – was unimaginable. The worrying thing, of course, is that the world nearly ripped itself apart getting from point A to point B. From early in the nineteenth century to well into the twentieth, revolution was a constant threat in many rich countries. Governments struggled to tame financial and business cycles of increasing viciousness, which swept across advanced economies, destroying livelihoods and nest eggs. And nations fought bitter, unimaginably costly wars, culminating in the great ideological war that began in 1939 and claimed tens of millions of lives. That war, in turn, led to the development of weapons that threatened the very survival of humanity, and, it could be argued, did not truly end until the dissolution of the Soviet Union in 1991.

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The hyperglobalization that resulted shunted hundreds of millions of low-wage workers into direct competition with less-skilled workers in the rich world and elevated China to its status as the world’s largest economy. The emerging world now represents roughly half of all global output. Developing economies that were once at the mercy of rich-world crises and business cycles can now themselves cast a great economic shadow on advanced economies, or pull them along towards prosperity. Meanwhile, the distribution of global income has fundamentally changed. Prior to the 2000s, global income followed a bimodal, or two-peaked, distribution, with lots of people in the rich world clumped together around high incomes and lots (and lots) of people in the developing world clumped together around low incomes.

The End of College: Creating the Future of Learning and the University of Everywhere
by Kevin Carey
Published 3 Mar 2015

Societies make judgments about whether to let them compete, fail, thrive, and change in something resembling a free market, or to use the power of regulation and public subsidy to shelter them in valleys. Traditional hybrid universities have spent the last century in a highly protected place. To be sure, this had many benefits. If colleges were left entirely vulnerable to unpredictable business cycles, mismanagement, and bad luck, society couldn’t ensure that each new class of high school graduates would have someplace to enroll. Institutions that create knowledge on behalf of all humanity can’t rely exclusively on the funding that private markets provide. But those benefits also had a cost.

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PAYING FOR COLLEGE Most of the future is hard to time. No one can predict at this point exactly when the weight of large numbers will knock the hybrid university off its foundations. The political and regulatory protections surrounding the hybrid university are functions of politics, which always oscillate on the edges of luck, personality, the business cycle, and majority coalition building. Potentially world-changing education technology companies can rise or fall based on a few semirandom changes in the venture capital environment, the labor market, or the ins and outs of acquisition and IPO. All of which means that now is not the time to cash in your 529 college savings plan and buy a sports car.

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril
by Satyajit Das
Published 9 Feb 2016

These POWs—physicists on Wall Street, a term coined by Goldman Sachs's Emanuel Derman—helped drive the trading of complex instruments, which were now an established part of the finance economy. These events and their influences were central to the continuation of postwar expansion. The period commencing in the 1990s became known as the Great Moderation, an era of strong economic growth, high production and employment, low inflation, reduced volatility in the business cycle, and self-adulation among politicians, central bankers, and academic economists. UK prime minister Gordon Brown boasted that under New Labour's stewardship the boom–bust cycles of the domestic economy had been banished. University of Chicago's Professor Robert Lucas claimed that macroeconomics had “solved, for all practical purposes” the problem of economic depression.4 US Federal Reserve chairman Ben Bernanke argued that improvements in monetary policy helped create the Great Moderation.

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In the half-century leading up to 2008, the amount of debt needed to create US$1 of GDP in the US increased from US$1–2 to US$4–5. This rapid rise is unsustainable, given an aging population, slower growth, and low inflation. American economist Hyman Minsky identified three phases of finance. In the early stages of a business cycle, money is only available to creditworthy borrowers whose income can meet the principal and interest on the debt, a phase known as hedge finance. As the cycle develops, competing lenders extend money to marginal borrowers, whose income can cover interest payments but not the principal, requiring the debt to be continually refinanced, a phase known as speculative finance.

The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance)
by Feng Gu
Published 26 Jun 2016

Commenting on the October 2014 market volatility (the S&P 500 decreased 6 percent in mid-October 2014, yet ended the month in record high), an opinion piece in the Wall Street Journal reminded readers: . . . the volatility in the macro (real) economy is very low. . . . [L]ooking back over the entire business cycle, the volatility of GDP growth during the past four years is comparable to the previous two business-cycle expansions. . . . To describe similar phenomena in the 1990s, about a decade ago economists coined the term the Great Moderation—and its back in use today.8 Thus, we experience a great moderation rather than rising turbulence. The volatility of the overall economy is, of course, a major determinant of business enterprises’ volatility.

Fully Grown: Why a Stagnant Economy Is a Sign of Success
by Dietrich Vollrath
Published 6 Jan 2020

Figure 12.4 plots job creation and destruction rates over time, similar to the rates for establishments. In 1976, the number of jobs created was equal to roughly 22% of the total existing number of jobs in the economy at that point, and the number of jobs destroyed was a little over 15%. This data is spikier than the establishment data, so you can see more of the business cycle represented over time. See the surge in job destruction during the early 1980s, around 2001, and in 2009, for example. The drops in job creation are visible during those same periods. But overall, the rates tend to trend downward over time, just like the establishment rates did. Even ignoring the financial crisis, the job creation rate fell to about 14% in 2014 while the job destruction rate fell below 12%.

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A lot of that job creating and destroying tends to net out to zero; a person quitting a job one place to take another shows up as a job destruction and a job creation but has no effect on the number of people working. But the pace of job creation tended to be faster than job destruction, and the medium gray bars in the middle of figure 12.5 show this net job creation. Every year, the economy added about 1.7 million jobs, but this fluctuated over the business cycle, as you can see. In 1983, 1991, 2002, 2009, and 2010 there was a net loss of jobs, with the decline in 2009 standing out, with a loss of 5.6 million. Since the recent recession, the economy has added between 2 million and 3 million jobs per year. All this net job creation over time means that the total number of jobs tended to rise over time, too.

Concentrated Investing
by Allen C. Benello
Published 7 Dec 2016

Compounding the error, Keynes’s idea of “opposed risks”—that losses from one part of portfolio would always be offset by gains in another part of the portfolio—failed, as his speculative equity positions collapsed in the stock market rout along with the commodity positions intended to protect them. Believing that the crash represented the routine end of an ordinary business cycle that would lead into a short‐term downturn, Keynes held on to his long positions. By the beginning of the next decade, when it became apparent that the bust was no run‐of‐the‐mill depression, all his commodity positions were total losses. Keynes, who had been wiped out in the early 1920s, was almost wiped out for a second time.

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They were paid guarantee fees of 0.23 percent of the face value of the mortgages to insure their creditworthiness. Greenberg recalls Freddie Mac’s overhead was “about five basis points”—0.05 percent—and their losses on the mortgages were anywhere between one and five basis points depending upon where they were in the business cycle.43 The business got 23 points in revenues and costs ran 6 to 10 points, leaving the rest as profit. With only two competitors and a growing market, it seemed like a no-lose proposition. Then Freddie Mac developed the capacity to sell callable debt and leverage its own balance sheet by owning mortgages.

No More Work: Why Full Employment Is a Bad Idea
by James Livingston
Published 15 Feb 2016

But at this rate of pay, even at forty hours a week—an unlikely amount in fast-food franchises—you’re still at that official poverty line. What, exactly, is the point of a earning a paycheck that isn’t a living wage, except to prove that you have a work ethic? But isn’t our present dilemma just a passing phase of the business cycle? What about the job market of the future? Haven’t the doomsayers, those damn Malthusians, always been proved wrong by rising productivity, new fields of enterprise, new economic opportunities? Well, yeah—until now, these times. The measurable trends of the past half century, and the plausible projections for the next half century, are just too empirically grounded to dismiss as dismal science or ideological hokum.

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite
by Daniel Markovits
Published 14 Sep 2019

And investment banks such as Drexel Burnham Lambert and private equity firms such as Kohlberg Kravis Roberts & Company embraced and expanded the tactics of earlier corporate raiders, bringing corporate takeovers from the eccentric fringes of finance to Wall Street’s charismatic center. The dollar volume of mergers and acquisitions in the United States—a good if rough overall measure of the shareholder activism—grew by over 200 percent between 1982 and 1987 (similar years in the business cycle) and then by nearly 500 percent again between 1988 and 1999. By 1990, one-third of the firms in the Fortune 500 had been targeted by a hostile takeover bid, and two-thirds had feared such a bid sufficiently to implement anti-takeover defenses. Third, these financial and legal innovations spurred managerial innovations, through which firms displaced the democratic management technologies deployed at midcentury with the meritocratic technologies that dominate management today.

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Autor, Lawrence F. Katz, and Melissa S. Kearney, “The Polarization of the U.S. Labor Market,” AEA Papers and Proceedings 96 (2006): 189–94, hereafter cited as Autor, Katz, and Kearney, “The Polarization of the U.S. Labor Market”; Christopher L. Foote and Richard W. Ryan, “Labor-Market Polarization over the Business Cycle,” NBER Macroeconomics Annual 29 (2015): 371–413. skill-biased technological change: David Card and John E. DiNardo, “Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles,” Journal of Labor Economics 20, no. 4 (October 2002): 734 (“This hypothesis—that a burst of new technology caused a rise in the demand for highly skilled workers, which in turn led to a rise in earnings inequality—has become known as the Skill-Biased Technical Change (SBTC) hypothesis.”); Eli Berman, John Bound, and Stephen Machin, “Implications of Skill-Biased Technological Change: International Evidence,” Quarterly Journal of Economics 113, no. 4 (November 1998): 1245–79.

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The least educated face a constant, demoralizing struggle to find work at all, while (contrary to popular stories of college graduates living in their parents’ basements) the most educated enjoy full employment. Changes in the labor force participation rate have many causes, including an aging population, changing gender norms, and the impacts of cyclical patterns in the business cycle. Nevertheless, the data clearly show a falling labor force participation rate even among prime-aged men and, more recently and after a decades-long rise, among prime-aged women also. The decline is especially prominent among less educated, lower-paid workers, and this reinforces the effects of education on work revealed in the unemployment statistics.

The Euro and the Battle of Ideas
by Markus K. Brunnermeier , Harold James and Jean-Pierre Landau
Published 3 Aug 2016

THE RULER OR PLUCKING MODEL An older Keynesian tradition has experienced a revival since the crisis, through authors like Paul Krugman.14 It argues that there is a potential amount of output that economies almost always fail to achieve. This makes business-cycle peaks the natural measure of productive capacity and suggests extrapolation from past business-cycle peaks to measure current output gaps, an approach that has been called the ruler model. In other words, recessions are only temporary phenomena.15 In Milton Friedman’s 1964 plucking model, recessions temporarily pull the economy down. The deeper the recession, like the harder one pulls down on the string of a guitar, the larger the bounce back to where the old (from peak-to-peak) trend line should be.

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In 2005, the disciplinary mechanism was again softened; many processes became merely discretionary, and new procedural provisions made it harder to take action against noncompliant states. By the end of the 2000s, however, Germany was moving back to a more conservative stance. In particular, the Bundestag, in 2009, enacted a debt brake (Schuldenbremse), with the intention of limiting over the course of a business cycle the volume of new public debt issued, both at the federal level and at that of the Länder (German states), and in effect imposing a balanced budget from 2016. The 2009 decision was treated as a major German success, and Germany wanted to see other European countries adopt similar legislation.

Who Stole the American Dream?
by Hedrick Smith
Published 10 Sep 2012

In a classic rejoinder mocking Soviet claims of a classless Communist society, Nixon taunted Khrushchev: “The United States comes closest to the ideal of prosperity for all in a classless society.” Nixon was right. To a far greater degree than most Americans today realize, our economic boom in the three decades after World War II delivered solid middle-class prosperity to a large majority of Americans. Of course, the economy had plenty of problems. There were ups and downs in the business cycle, periodic surges of unemployment, and too much poverty. People lived in smaller homes than today, with fewer appliances and gadgets. Families had one car, not two. And despite the model of the Treaty of Detroit, there were strikes, occasional violence, and stormy labor-management confrontations.

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After the 2010 midterm elections, New York’s Republican mayor, Michael Bloomberg, seemed to cast himself as a centrist contender with his broadside blast at both major parties. “Despite what ideologues on the left believe, government cannot tax and spend its way back to prosperity, especially when that spending is driven by pork barrel politics,” Bloomberg declared. “… Despite what ideologues on the right believe, government should not stand aside and wait for the business cycle to run its natural course. That would be intolerable….” But having staked out the political middle, Bloomberg did not throw his hat in the ring. Even when third-party movements have run a potent vote-getter, such as Theodore Roosevelt and the Bull Moose Party in 1912 or Ross Perot in 1992, third parties have never offered a long-term solution to a sharp divide between the two major parties.

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, 93. 37 A host of modern economic studies James R. Repetti, “Democracy, Taxes, and Wealth,” Research Paper No. 2001–03 (Newton, MA: Boston College Law School, June 14, 2011), 831. 38 Come to a similar conclusion Torsten Persson and Guido Tabellini, “Growth, Distribution, and Politics,” in Political Economy, Growth, and Business Cycles, ed. Alex Cukierman, Zvi Hercowirtz, and Leonardo Leiderman (Cambridge, MA: Massachusetts Institute of Technology Press, 1992). 39 Alan Greenspan was moved to comment Alan Greenspan, remarks, Council on Foreign Relations, March 15, 2011, http://​www.​cfr.​org; Greenspan, citing Federal Reserve data, in “Activism,” International Finance 14, no. 1 (October 2011): 165–82, http://​online​library.​wiley.​com. 40 Not business investment but consumer demand James Livingston, “It’s Consumer Spending, Stupid,” The New York Times, October 25, 2011. 41 Major banks to big pharmaceuticals Nelson D.

Why Stock Markets Crash: Critical Events in Complex Financial Systems
by Didier Sornette
Published 18 Nov 2002

The principal concern of this school of research applied to economic modeling [2] is to understand positi ve feedback s 131 why certain global regularities have been observed to evolve and persist in decentralized market economies despite the absence of top-down planning and control such as trade networks, socially accepted monies, market protocols, business cycles, and the common adoption of technological innovations. The challenge is to demonstrate constructively how these global regularities might arise from the bottom up, through the repeated local interactions of autonomous agents. A second concern of researchers is to use this framework as computational laboratories within which alternative socioeconomic structures can be studied and tested with regard to their effects on individual behavior and social welfare.

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On the minority game: Analytical and numerical studies, Physica A 256, 514–532. 79. Chan, N. T., LeBaron, B., Lo, A. W., and Poggio, T. (1999). Agent-Based Models of Financial Markets: A Comparison with Experimental Markets, Working paper, MIT, Cambridge, MA; preprint at http://cyber-exchange.mit.edu/. 80. Chauvet, M. (1998). An econometric characterization of business cycle dynamics with factor structure and regime switching, International Economic Review 39, 969–996. 81. Checki, T. J. and Stern, E. (2000). Financial crises in the emerging markets: The roles of the public and private sectors, Current Issues in Economics and Finance (Federal Reserve Bank of New York) 6 (13), 1–6. 82.

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L’aventure économique (L’Harmattan, Paris), p. 160. 182. Guare, J. (1990). Six Degrees of Separation: A Play (Vintage, New York). 183. Guild, S. E. (1931). Stock Growth and Discount Tables (Financial publishers). 184. Hamilton, J. B. (1989). A new approach to the economic analysis of nonstationary time’ series and the business cycle, Econometrica 57, 357–384. 185. Hamilton, J. D. (1986). On testing for self-fulfilling speculative price bubbles, International Economic Review 27, 545–552. 186. Hanson, R. (2000). Could It Happen Again? Long-Term Growth as a Sequence of Exponential Modes, Working paper available at http://hanson.gmu.edu/longgrow. html. 187.

The Third Pillar: How Markets and the State Leave the Community Behind
by Raghuram Rajan
Published 26 Feb 2019

Worse than the factory jobs were the appalling, polluted, overcrowded, and unsanitary urban ghettos where the workers lived. Few employers were enlightened enough to do anything about these living conditions. With everyone subsisting at the margin, there was little sense of community, let alone community support in these anonymous, unfamiliar industrial towns. Every worker feared the job losses from the emerging business cycles and financial booms and busts, which could quickly convert a barely tolerable existence into utter destitution. Parliaments, as we have seen, arose to protect the wealth of the propertied against the state. To ensure the right members were elected, legislatures also instituted a property qualification for voting.

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THE MARXIST RESPONSE The Industrial Revolution that started in Britain in the late eighteenth century created tremendous new possibilities as well as widespread despair. I have already referred to workers displaced by new machines like the power loom. In addition, though, the promise of new technologies, as well as new lands, especially in the Americas, made accessible by railways and the steamship, prompted waves of euphoria fueled by finance. The business cycle, with its production booms and busts, emerged in many industrializing countries, as did the financial cycle, with sustained booms in lending and euphoric rises in land and stock prices, followed by crashes. In the United States, there were serious financial panics about once every twenty years between 1819 and the start of the Great Depression in 1929.

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While market “fundamentalism” along with individualism were seen as Anglo-American fetishes that were not conducive to civilized conduct or social harmony, European politicians were also reluctant to confront the electorate after thirty glorious years of growth with the reality that they had promised too much. The kinds of protections that Europe had built for incumbent workers were also not conducive to social harmony. So long as immigrants from Southern Europe and Turkey bore the brunt of job losses in business cycle downturns, Western European workers could have it all. As growth slowed significantly in the 1970s, however, unemployment mounted even among the native born. Eurosclerosis was the term German economist Herbert Giersch used to describe Europe’s slow growth and high unemployment, brought about by the postwar accumulation of regulations and social protections.

The Misbehavior of Markets: A Fractal View of Financial Turbulence
by Benoit Mandelbrot and Richard L. Hudson
Published 7 Mar 2006

If prices take a big leap up or down now, there is a measurably greater likelihood that they will move just as violently the next day. It is not a well-behaved, predictable pattern of the kind economists prefer—not, say, the periodic up-and-down procession from boom to bust with which textbooks trace the standard business cycle. Examples of such simple patterns, periodic correlations between prices past and present, have long been observed in markets—in, say, the seasonal fluctuations of wheat futures prices as the harvest matures, or the daily and weekly trends of foreign exchange volume as the trading day moves across the globe.

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Corn stocks are like that; the curve bumps up at the one-year mark, because the annual cycle of sowing and harvest has a powerful effect on supply. Gross domestic product, the standard measure of an economy’s output, has several odd bumps on the way downhill to zero correlation—often, at a few years, at fifteen to twenty years, and at forty to sixty years. Economists have been debating the bumps’ meaning in the business cycle for years, with no clear answers. But why stop at fifteen or fifty years? Hurst’s work suggested something more radical to me: correlations that decrease, but so slowly that they seem never to vanish completely, no matter how far back in time you go. How is that possible? Recall that Hurst was ultimately interested in reservoir levels; his range formula is mathematical shorthand for calculating the optimum dam height and reservoir level.

The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor, and Why You Can Never Buy a Decent Used Car
by Tim Harford
Published 15 Mar 2006

Since 1990, the Nobel Prize in Economics has only occasionally been awarded for advances in the obviously “economic” things, such as the theory of exchange rates or business cycles. More often, it has been awarded for insights less obviously connected with what you might have thought was economics: human development, psychology, history, voting, law, and even esoteric discoveries such as why you can’t buy a decent secondhand car. My aim in this book is to help you see the world like an economist. I will tell you nothing about exchange rates or business cycles, but I will unlock the mystery of secondhand cars. We’ll look at the big issues, such as how China is lifting a million people a month out of poverty, and the little ones, such as how to avoid paying too much money in the supermarket.

Why It's Still Kicking Off Everywhere: The New Global Revolutions
by Paul Mason
Published 30 Sep 2013

Once the first phase of the crisis was over, parts of the business elite began to breathe easy and tell themselves they’d seen it all before. ‘No one has yet dis-invented the business cycle,’ Rupert Murdoch chuckled, quoting Margaret Thatcher to an invited audience in London in 2010, including numerous beaming members of the Coalition Cabinet. ‘The “gales of creative destruction” still roar mightily from time to time.’1 But this is no mere business cycle, and no ordinary cycle of boom and bust. As the data clearly illustrate, the seeds of the crisis were sown by structural changes. Exhibit One: the average US house price at the peak, in 2006, was double what the historic trend line said it should be, even when compared to every other boom–bust cycle since the war.

The Revolt of the Public and the Crisis of Authority in the New Millennium
by Martin Gurri
Published 13 Nov 2018

Instead of voicing his doubts openly, he developed a tortured style of communication which allowed different observers to draw diametrically opposed conclusions about what he had said.[121] He called this “constructive ambiguity.”[122] Every word Greenspan uttered in public was parsed for meaning, like holy writ. Even his silences were interpreted as conspiratorial. Greenspan received praise for engineering a “soft landing” for the economy in 1995-1996: to many, he appeared to have repealed the iron necessity of the business cycle. In a rare moment of pride, Greenspan compared the theory of the soft landing with Einstein’s theory of relativity, and his own search for meaningful economic data with Eddington’s excursion to Principe and Brazil.[123] This was more perceptive than he knew. Greenspan, like Einstein, had risen to become a towering figure in his field, an expert’s expert, to be sure, but also a celebrity to ordinary people.

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If I were a doctor attempting to diagnose this particular sickness – the crisis of authority – I would look for definite causal patterns and symptoms. Among the patterns I would include exaggerated expectations by the public, abetted by exaggerated claims of competence by authority. I must believe that seismologists can save me from earthquakes, that the chairman of the Fed has tamed the business cycle: and these authorities must either believe the same thing, or, at a minimum, collude in my delusions. A second causal pattern would be the elites’ loss of control over the story told about their performance, particularly when it has failed to meet expectations. Such control, I noted, is a function of monopoly, so another way to diagnose this pattern is to determine whether the public has broken the institutions’ grip on information and communication.

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them
by Nouriel Roubini
Published 17 Oct 2022

The vast network of transactions operates smoothly across the globe, moving resources, finished goods, payments, and capital with minimal friction. Buyers, sellers, borrowers, investors, and lenders can count on central banks to restrain inflation and maintain stable currencies through shifting economic climates and business cycles. A stable currency—in the last century the US dollar—is the anchor of that international monetary and financial system, where transactions in goods, service, capital, labor, technology, and data require a stable and accepted global reserve currency to grease international trade and globalization.

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On close scrutiny, the EMU lacks crucial characteristics of a robust and optimal currency area. Political motives trumped economics at its origin: anchoring a united Germany to Europe was more important than working out the economic details and the optimality of a currency union. For a currency area to succeed, business cycles, overall growth, and productivity rates in its constituent countries should be synchronized. Labor and capital should move freely to help countries adjust when local shocks occur. There must be a way to share fiscal and financial risks. Successful currency unions also require a shared political framework, so that central bank policies can overrule national authorities without objection, when necessary—and without trampling on democratic legitimacy.

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
by Simon Johnson and James Kwak
Published 29 Mar 2010

Jackson’s veto most likely slowed the development of an integrated payments and credit system such as those seen in more advanced parts of Europe.33 Without a major national bank or a central bank with the ability to stabilize the financial system, the U.S. economy also suffered through severe business cycles through the rest of the nineteenth century. However, the primary importance of the Bank War was not economic, but political.34 Although Jackson’s economic grounds for opposing a new charter may have been weak, the Second Bank’s behavior showed the political danger presented by a powerful private bank.

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Carr, The Panic of 1907: Lessons Learned from the Market’s Perfect Storm (Hoboken, NJ: John Wiley & Sons, 2007). 61. On financial crises in general, see Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises, fourth edition (Hoboken, NJ: Wiley, 2000). On the role of credit in booms and busts, see also Wesley C. Mitchell, Business Cycles (Berkeley: University of California Press, 1913). On the banking panics between the National Bank Act of 1863 and the creation of the Fed, see Elmus Wicker, Banking Panics of the Gilded Age (Cambridge: Cambridge University Press, 2000). 62. On the “financial accelerator,” see Ben S. Bernanke, “The Financial Accelerator and the Credit Channel” (lecture, The Credit Channel of Monetary Policy in the Twenty-first Century Conference, Federal Reserve Bank of Atlanta, Atlanta, Georgia, June 15, 2007), available at http://www.federalreserve.gov/newsevents/speech/Bernanke20070615a .htm; Ben S.

The Physics of Wall Street: A Brief History of Predicting the Unpredictable
by James Owen Weatherall
Published 2 Jan 2013

Some market forces, like the details of how an exchange works or the interactions of traders, can affect how prices change over the course of a day. These are like the fast fluctuations that salmon experience from one river bend to the next. But there are other forces affecting markets, things like business cycles and government interest rates, that become apparent only when you step back and look at a longer time period. These are slow fluctuations. It turned out the financial world was the perfect place to look for data that could be used to test Osborne’s ideas about how these different kinds of fluctuations affect one another.

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Varahamihira’s Brhat Samhita. Delhi: Motilal Banarsidass. Billingsley, P. 1995. Probability and Measure. New York: John Wiley and Sons. Bird, Kai, and Martin J. Sherwin. 2005. American Prometheus: The Triumph and Tragedy of Robert Oppenheimer. New York: Random House. Black, Fischer. 1987. Business Cycles and Equilibrium. Hoboken, NJ: John Wiley and Sons. — — — . 1989. “How We Came Up with the Option Formula.” Journal of Portfolio Management 15 (2): 4–8. — — — . 1992. “The Holes in Black-Scholes.” In From Black-Scholes to Black Holes: New Frontiers in Options, 51–56. London: Risk Magazine

Rise of the Robots: Technology and the Threat of a Jobless Future
by Martin Ford
Published 4 May 2015

Over the thirty years between 1979 and 2009, the percentage of the US workforce employed in these four areas declined from 57.3 percent to 45.7 percent, and there was a noticeable acceleration in the rate of job destruction between 2007 and 2009.45 Autor’s paper also makes it clear that polarization is not limited to the United States, but has been documented in most advanced, industrial economies; in particular, sixteen countries within the European Union have seen a significant decline in the percentage of the workforce engaged in mid-range occupations over the thirteen years between 1993 and 2006.46 Autor concludes that the primary driving forces behind job market polarization are “the automation of routine work and, to a smaller extent, the international integration of labor markets through trade and, more recently, offshoring.”47 In their more recent paper showing the relationship between polarization and jobless recoveries, Jaimovich and Siu point out that fully 92 percent of the job losses in mid-range occupations have occurred within a year of a recession.48 In other words, polarization is not necessarily something that happens according to a grand plan, nor is it a gradual and continuous evolution. Rather, it is an organic process that is deeply intertwined with the business cycle; routine jobs are eliminated for economic reasons during a recession, but organizations then discover that ever-advancing information technology allows them to operate successfully without rehiring the workers once a recovery gets under way. Chrystia Freeland of Reuters puts it especially aptly, writing that “the middle-class frog isn’t being gradually boiled; it is being periodically grilled at a very high heat.”49 A Technology Narrative It’s fairly easy to piece together a hypothetical narrative that puts advancing technology—and the resulting automation of routine work—front and center as the explanation for these seven deadly economic trends.

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Shang-Jin Wei and Xiaobo Zhang, “Sex Ratios and Savings Rates: Evidence from ‘Excess Men’ in China,” February 16, 2009, http://igov.berkeley.edu/sites/default/files/Shang-Jin.pdf. 37. Caroline Baum, “So Who’s Stealing China’s Manufacturing Jobs?,” Bloomberg News, October 14, 2003, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRI4bAft7Xw4. 38. On investment and the business cycle, see Paul Krugman, “Shocking Barro,” New York Times (The Conscience of a Liberal blog), September 12, 2011, http://krugman.blogs.nytimes.com/2011/09/12/shocking-barro/. CHAPTER 9 1. Stephen Hawking, Stuart Russell, Max Tegmark, and Frank Wilczek, “Stephen Hawking: ‘Transcendence Looks at the Implications of Artificial Intelligence—But Are We Taking AI Seriously Enough?

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond
by Chris Burniske and Jack Tatar
Published 19 Oct 2017

In their well-regarded book This Time Is Different: Eight Centuries of Financial Folly, Carmen Reinhart and Kenneth Rogoff deliver a 300-page tour de force to prove that this time is never different. They describe how “this time is different” thinking was used to justify the sustainability of jubilant markets prior to the 1929 crash that led to the Great Depression. Proponents of “this time is different” thinking claimed that business cycles had been cured by the creation of the Federal Reserve in 1913. The thinking was that the Federal Reserve could use monetary policy to boost economies when production and consumption were flagging, and they could reel in markets when they showed signs of overheating. Others pointed to increasing free trade, declining inflation, and scientific methods being applied to corporate management that were leading to much more accurate production and inventory levels.28 In the October 16, 1929, issue of the New York Times, Yale economist Irving Fisher declared, “Stock prices have reached what looks like a permanently high plateau.”29 His proclamation would go down as the worst stock tip in history, as eight days later the market dropped by 11 percent.

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Known as the “new paradigm,” or the “Goldilocks economy” (like the porridge in the fairy tale it was neither too hot nor too cold), the theory suggested that the control of inflation by the Federal Reserve, the decline in the federal deficit, the opening of global markets, the restructuring of corporate America, and the widespread use of information technology to control inventory stock levels had combined to do away with the business cycle. Point for point, this was a reiteration of the new era philosophy of Irving Fisher’s day.31 Similar to the 1920s, in the 1990s stock analysts and investment managers rationalized the expensive markets with the claim that the old methods of valuing companies no longer applied. There were new methods that justified the nosebleed prices.32 The Same Patterns Persist The idea of valuation, which we will tackle in the next chapters, is a particularly challenging one for cryptoassets.

Journey to the Edge of Reason: The Life of Kurt Gödel
by Stephen Budiansky
Published 10 May 2021

Menger described him as “small and thin, obviously poor, looking neither young nor old, a strange contrast to the lively beginners.” Recognizing what Oskar Morgenstern called Wald’s “exceptional gifts and great mathematical power,” Menger had approached Morgenstern in his capacity as director of the Austrian Institute for Business Cycle Research to find some funding to support his gifted pupil. “Like everyone else,” Morgenstern said, “I was captivated by his great ability, his gentleness, and the extraordinary strength with which he attacked his problems.” Wald in turn ended up giving Morgenstern private tutorials in calculus, which led to a warm and enduring friendship.45 Wald’s research during the year of Gödel’s absence from Vienna had focused on price equilibrium in economics, and Gödel, with his usual knack of insight and curiosity, asked Wald to bring him up to date on his work, and immediately offered some useful suggestions on formulating a system of equations to address the question.

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See also anti-Semitism literary and artistic society, 30, 35–37, 65 monarchy, 9, 13–15, 18–22 Nazis in, 143, 144, 160–61, 193–98, 260–61 parliament (Reichsrat), 20, 23, 24, 30, 35, 63 (map), 143 political conflict in, 35, 85–87, 143–44, 160 population statistics and demographics, 11, 13, 15, 28 science and medicine in, 25–26, 28–29 scientific exodus from, 142–43, 156, 185–86, 196, 208, 261 see also Vienna “Austriacus, Dr.” (Johann Sauter), 182–84 Austrian Academy of Sciences, 260, 261 “Austrian Idea, The” (Hofmannstahl), 13 Austrian Institute for Business Cycle Research, 164 Axiom of Choice, 111, 177, 213, 263, 265 Axiom of Infinity, 111 axioms consistency and completeness and, 115–16 Gödel’s Proof and, 129, 130, 241 human intuition and invention of, 240–41, 266–67 logical, 118 philosophical, 241, 242 set-theoretical, 111, 213–14, 245, 265 Aydelotte, Frank, 203, 221, 223–24, 224–25 Babylonians, 242 Bach, J.

Economic Origins of Dictatorship and Democracy
by Daron Acemoğlu and James A. Robinson
Published 28 Sep 2001

The Reform Act, therefore, did not create mass democracy but rather was designed as a strategic concession. Unsurprisingly, the issue of parliamentary reform was still very much alive after 1832, and it was taken up centrally by the Chartist movement. Momentum for reform finally came to a head in 1867, largely due to a juxtaposition of factors. Among these was a sharp business-cycle downturn that caused significant economic hardship and increased the threat of violence. Also significant was the founding of the National Reform Union in 1864 and the Reform League in 1865, and the Hyde Park Riots of July 1866 provided the most immediate catalyst. Searle (1993, p. 225) argues that Reform agitation in the country clearly did much to persuade the Derby ministry that a Reform Bill, any Reform Bill, should be placed on the statute book with a minimum of delay.

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Nature moves first and selects between two threat states, low and high; S = L or H. The motivation for introducing these two states is to emphasize that only in some situations is there an effective threat of revolution. In general, this could be because some circumstances are uniquely propitious for solving the collective-action problem – such as a harvest failure, a business-cycle depression, the end of a war, or some other economic, social, or political crisis. We assume that the effectiveness of the revolution threat differs between these two states. In particular, we assume that the payoff to the citizens from revolution in the state S is:   (1 − µ S ) ȳ V p R, µ S = 1−δ (5.12) where we think that the low-threat state corresponds to the case in which it is relatively costly for the citizens to solve the collective-action problem or face other problems in organizing revolution, so µ L is high.

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Although in this book we capture these ideas using the reduced-form parameter µ so that the costs of revolution fluctuate directly, in Acemoglu and Robinson (2001) we showed how the same results follow from a model in which the cost of revolution is constant but total factor productivity fluctuates, as in standard models of the business cycle. In that model, changes in productivity change the opportunity costs of revolutions (and coups) and this has the same effects. 8. Subgame Perfect Equilibria In the previous section, we characterized a subset of the subgame perfect equilibria of G ∞ (β). In this section, we analyze our basic dynamic model of democratization without the restriction to Markovian strategies.

Adaptive Markets: Financial Evolution at the Speed of Thought
by Andrew W. Lo
Published 3 Apr 2017

This market is a thousand times smaller than the U.S. housing market, so there’s little chance of broad systemic effects on the economy—though potential systemic effects should certainly be considered and managed. The historical statistics for the development of anticancer therapies are well documented, and they’re not very highly correlated with the business cycle, so the securitization process will be less sensitive to economic booms and busts than its equivalent in the mortgage market. Finally, in terms of human welfare, curing cancer seems more worthy a goal than simply increasing home ownership. We’ve already seen the negative extreme of financial innovation in the housing market; now let me describe one possible positive extreme.

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This term also refers to both economic and regulatory reforms that were put in place in the wake of the Great Depression to modulate financial activity, including much of the U.S. code that now governs the entire financial system: the Glass-Steagall Act of 1932, the Banking Act of 1933, the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. The Great Modulation should not be confused with the “Great Moderation,” a term coined by Stock and Watson (2002) that refers to the 1987–2007 period of lower volatility in the U.S. business cycle. The two concepts are clearly related. 4. Specifically, it is a graph of 1,250-day geometrically compounded annualized returns for the CRSP value-weighted return index. 5. Black (1972). 6. Hasanhodzic and Lo (2011). 7. Bogle (1997). 8. Merton (1989; 1995a, b) and Merton and Bodie (2005). 9.

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Steiger, William L. 1964. “A Test of Nonrandomness in Stock Price Changes.” In The Random Character of Stock Market Prices, edited by Paul Cootner. Cambridge, MA: MIT Press. Stiglitz, Joseph E. 2009. “Capitalist Fools.” Vanity Fair, January. Stock, James H., and Mark W. Watson. 2003. “Has the Business Cycle Changed and Why?” In NBER Macroeconomics Annual 2002, edited by Mark Gertler and Kenneth Rogoff, 159–230. Cambridge, MA: MIT Press. Striedter, Georg F. 2005. Principles of Brain Evolution. Sunderland, MA: Sinauer Associates. ___. 2006. “Précis of Principles of Brain Evolution.” Behavioral and Brain Sciences 29: 1–36.

Nature's Metropolis: Chicago and the Great West
by William Cronon
Published 2 Nov 2009

Explaining their vision of Chicago’s “destiny” means reading Turner backward, for their theory of frontier growth apparently began with the city instead of ending with it. The speculators’ urban dream extended to many more places than just Chicago. The land craze of the 1830s was nationwide, part of an upward swing in the business cycle and a dramatic easing of admittedly shaky credit in the wake of Andrew Jackson’s victorious assault on the Second Bank of the United States. As real estate prices skyrocketed, they fueled a manic search for new places in which to invest.33 Joseph Balestier, a Chicago attorney who had done well for himself just by processing land titles during the craze, recalled in 1840 how the speculators had remapped—and redreamed—the Old Northwest until they had nearly covered it with “a chain almost unbroken of suppositious villages and cities.

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Come spring, they could then hope that the flow of natural capital from the forests would meet the demand of the farmers, turning lumber into cash and enabling companies to pay off their debts. As the experiences of Charles Mears show, the dangers of the seasonal cycle were compounded by the business cycle. The same shortage of liquid capital that led lumbermen to fear the winter months threatened catastrophe when the economy jolted into a financial panic. In years like 1857, 1873, and their lesser cousins, many lumber companies found themselves caught in a trap of their own making. Not only had they incurred debts with their suppliers, but more often than not they had also extended credit to their own customers, who were now unable to pay.

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Declaring in October 1859 that “these are the hardest times for the lumber trade I have ever seen,” Mears wrote one of his managers, “I . . . have hardly been able to attend to any thing but money matters and have hardly been able to collect enough to pay expenses.” After repeating his ritual injunction “I hope you will not fail to send me all the money you can spare,” Mears added, “Many of the lumber Dealers will be obliged to fail if these times last a month longer.”78 Such were the perils of juggling debts in the troughs of the business cycle. Risky as the dependence on credit could be, there was almost no way to escape it. Buyers and sellers were both short of cash, which meant that both had to offer customers their best natural alternative—lumber, grain, meat, and other provisions—in return for a promise to pay cash in the future.

Beyond Outrage: Expanded Edition: What Has Gone Wrong With Our Economy and Our Democracy, and How to Fix It
by Robert B. Reich
Published 3 Sep 2012

And many of you know firsthand the painful disruptions this has caused for a lot of Americans. Factories where people thought they would retire suddenly picked up and went overseas, where the workers were cheaper. Steel mills that needed a thousand employees are now able to do the same work with a hundred, so that layoffs were too often permanent, not just a temporary part of the business cycle. These changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs or the Internet. Today, even higher-skilled jobs like accountants and middle management can be outsourced to countries like China and India.

Four Futures: Life After Capitalism
by Peter Frase
Published 10 Mar 2015

Supporters of this position can point to previous waves of anxiety about automation, such as the one in the 1990s that produced works like Jeremy Rifkin’s The End of Work and Stanley Aronowitz and Bill DeFazio’s The Jobless Future.17 As early as 1948, the mathematician and cyberneticist Norbert Weiner warned in his book Cybernetics that in the “second, cybernetic industrial revolution,” we were approaching a society in which “the average human being of mediocre attainments or less has nothing to sell that it is worth anyone’s money to buy.”18 While many jobs have indeed been lost to automation, and jobless rates have risen and fallen with the business cycle, the social crisis of extreme mass unemployment, which many of these authors anticipated, has failed to arrive. Of course, this is the kind of argument that can only be made from a great academic height, while ignoring the pain and disruption caused to actual workers who are displaced, whether or not they can eventually find new work.

Hard Times: The Divisive Toll of the Economic Slump
by Tom Clark and Anthony Heath
Published 23 Jun 2014

It has always been said that the most valuable things are those that money can't buy. Keynes’ essentially accurate long-range forecast prompts the thought that we might already have reached a pass where we can afford to protect the things that really matter – things like mental health, family and community – from the vicissitudes of the business cycle. With national income so high by any historical standard, we are left with a question that holds few terrors: How big a deal is it when a rich society gets a bit poorer? Hopes of a heartening answer draw support from a wealthy society that has experienced dragging semi-slump in our own time – the curious case of Japan.

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In the early 1990s downturn, too, the proportion of time that these disadvantaged men spent without work again soared by 7–8 points, while for the luckier group whose fathers had always been employed, worklessness rose by no more than a couple of points.77 The heartening corollary of all these gloomy statistics about the divisive effect of recession is that, contra the underclass thesis, strong recoveries ought to do most for the employment prospects of those from workless homes. Far from these people being beyond the reach of the business cycle, economic conditions – for good or ill – are most important for their prospects. Drilling down into the variation across towns and cities further confirms that, more than anything, it is the health of the local labour market that determines the prospects of the children of the unemployed. In a boom year in, say, Surrey, in Britain's stockbroker belt, our analysis suggests that a young man with a jobless father faces no penalty at all; a similar young man, however, is hit hard in a bad year in depressed Blaenau Gwent in Wales – doomed to spend 30% more of his total time jobless than a friend from a working home.

Prosperity Without Growth: Foundations for the Economy of Tomorrow
by Tim Jackson
Published 8 Dec 2016

Neither do we attempt here to model Minsky-like behaviour in which progressive overconfidence amongst lenders leads to an expansion of credit, over-leveraging and eventual financial instability (Keen 2011; Minsky 1994). 45 See Jackson and Victor (2015: figure 8). 46 It was Keynes who introduced the idea that economic behaviour is in part the result of ‘a spontaneous urge to action’ rather than a fully considered rational response to circumstances. When things are going well, ‘animal spirits’ can lead to overinvestment. When things are going badly, they can lead to underinvestment. The interplay of these behaviours is one of the causes of business cycles (Keynes 1936: 161–162). 47 We simulated this phenomenon by increasing the ‘accelerator coefficient’ in our investment function, so that firms invest more readily when they expect future growth and less readily when they expect a recession (Jackson and Victor 2015). 48 See Scenario 8 in our online version of the FALSTAFF model: www.prosperitas.org.uk/FALSTAFF (accessed 10 May 2016). 49 Minsky (1986, 1992). 10 The progressive State 1 Letter to the Republican Citizens of Washington County, Maryland.

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Hirsch, Fred 1977. Social Limits to Growth, revised edition 1995. London and New York: Routledge. Hobson, K., 2006. ‘Competing discourses of sustainable consumption: does the rationalisation of lifestyles make sense?’ In Jackson (2006a), pp. 305–327. Hodrick, Robert and Edward Prescott 1997. ‘Postwar US business cycles: an empirical investigation’. Journal of Money, Credit, and Banking 29(1): 1–16. Hoekstra, Arjen and Thomas Wiedmann 2014. ‘Humanity’s unsustainable environmental footprint’. Science 344(6188): 1114–1117. Honoré, Carl 2005. In Praise of Slow: How a Worldwide Movement Is Challenging the Cult of Speed.

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

The new policy would precipitate an ugly confrontation with big business and be blamed for causing the worst stock market crash since 1929. None of this was evident in 1961, as the “Kennedy market” bounded ahead. Many mainstream economists went so far as to argue that modern economic theory, as applied by sophisticated government policy makers, would make the business cycle “obsolete.” Recessions would be relics of the past. As might be expected, established growth stocks did quite well in this environment, but concern was expressed by some analysts that there weren’t enough growth shares around to meet demand. Mutual funds and pension funds now accounted for more than 20% of all stockholdings, and were continuing to grow rapidly.

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It is not illogical (or irrational) to assume that greater sophistication on the part of economic policy makers (and built-in safety nets like federal bank deposit insurance) has made such calamities much less likely. In fact, the accompanying chart, “Fluctuations in Real Gross Domestic Product: Annual Percent Change, 1900–2000,” illustrates how the American economy has become much more stable over the past half century. The business cycle has moderated substantially, which in turn means that the earnings streams of corporations (and therefore the stocks of those corporations) should be less volatile (risky). While new, unexpected macroeconomic disasters may loom undetected just beyond the horizon, the likelihood that the old-fashioned “busts” typical of the nineteenth and early twentieth centuries will recur has been significantly reduced.

Can It Happen Here?: Authoritarianism in America
by Cass R. Sunstein
Published 6 Mar 2018

Members of the defeated community would stop expressing their own grievances. They would pretend to share the victor’s interpretations of events. Public discourses would reflect the victor’s prejudices; they would get saturated with claims that the vanquished community considers contemptible. Observing other societies, one sees that shocks to a social system—business cycles, job-replacing technologies, loss of institutional safeguards—can upset an equilibrium, inducing realignments that then feed on themselves. One type of intolerance starts growing at the expense of the other. Turkey’s authoritarian transition exemplifies just such a process. The possibility of an analogous transition in the United States is the question at hand.

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Unlike explanations about distant planets or subatomic particles, therefore, the explanations of social science bear on phenomena about which common sense also has a lot to say. This is not to say that social science can’t discover truths about the world that are not self-evident from our own experience. In a world of billions of people interacting with one another in countless ways to produce all manner of phenomena, from business cycles and financial crises to social norms and political revolutions to cultural fads and fashions, there are plenty of mysteries for science to explore. Yet because common sense has already staked out so much of this terrain for itself, social science seems less like a useful complement and more like an unwelcome interloper.

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire
by Sujeet Indap and Max Frumes
Published 16 Mar 2021

Rowan humbly discussed how Apollo’s ownership of Vail Resorts had demonstrated the firm’s long-term orientation and that according to the firm’s calculations, 92 percent of their investments had demonstrated a positive rate of return. “But rarely is it straight up,” he said. “We often take a detour along the way…there is a business cycle, there is an economic cycle, there is competition. There is a thrust and parry to dealing with all that. And I think having done this over seventeen years, having lived through a number of business cycles, having lived through some pretty catastrophic events including owning a large hotel chain in the aftermath of 9/11 has taught us a great deal of patience…” Halkyard again stated the leverage was manageable, though he shared a new statistic that showed what little slack Harrah’s would have: “The ratio of our total operating cash flow to our annual interest expense which is about 1.5 times also compares quite favorably with a number of transactions that have been done recently…” A ratio below two times historically had been considered on the edge.

Luxury Fever: Why Money Fails to Satisfy in an Era of Excess
by Robert H. Frank
Published 15 Jan 1999

“Determinants of Employee Job Satisfaction,” Human Relations, August, 1993: 1011-19. Ainslie, George. Picoeconomics, New York: Cambridge University Press, 1992. Alesina, Alberto, and Dani Rodrik . “Distribution, Political Conflict, and Economic Growth: A Simple Theory and Some Empirical Evidence,” in Political Economy, Growth, and Business Cycles, ed. A. Cuckierman, Z. Hercowitz, and L. Leiderman, Cambridge: MIT Press, 1992: 23-50. Alston, Chuck. “Comp Time’s Time Has Come,” Wall Street Journal, May 15, 1997: A22. Andrews, Cecile. The Circle of Simplicity: Return to the Good Life, New York: Harper Collins, 1997. Argyle, Michael.

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“Study Shows New York Has Greatest Income Gap,” New York Times, December 17, 1997: A1. Perkins, H. W. “Religious Commitment, Yuppie Values, and Well-Being in Post-Collegiate Life,” Review of Religious Research, 32, 1991: 244-51. Persson, T., and Guido Tabellini. “Growth, Distribution, and Politics,” in Political Economy, Growth, and Business Cycles, ed. A. Cuckierman, Z. Hercowitz, and L. Leiderman, Cambridge: MIT Press, 1992: 3-22. Pikus, W., and W. Tarranikova. “The Frequency of Hypertensive Diseases in Public Transportation,” Terapevischeskii Archives 47, 1975: 135-37. Pinker, Steven. How the Mind Works, New York: W. W. Norton, 1997.

As the Future Catches You: How Genomics & Other Forces Are Changing Your Work, Health & Wealth
by Juan Enriquez
Published 15 Feb 2001

Andrews, The Clone Age: Adventures in the New World of Reproductive Technology (New York: Henry Holt, 1999). 11. Juan Enriquez, “Green Biotech and European Competitiveness,” Trends in Biotechnology, April 2001. 12. This process of creative destruction was identified over half a century ago by an Austrian economist turned Harvard professor, Joseph Schumpeter. See Joseph Schumpeter, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process (New York: McGraw-Hill, 1939). 13. Charles J. Whalen, “Today’s Hottest Economist Died Fifty Years Ago,” Business Week, December 11, 2000. Chapter XII: Sleepless … (and Angry) in Seattle 1. Daniel Hecker, “High Technology Employment: A Broader View,” Monthly Labor Review, June 1999. 2.

Toyota Production System: Beyond Large-Scale Production
by Taiichi Ohno and Norman Bodek
Published 1 Jan 1978

And we kept thinking that a Japanese production system like this might even surpass the conventional mass production system. Thus, the principal objective of the Toyota production system was to produce many models in small quantities. ► Slow Growth Is Scary In the periods of high growth before the oil crisis, the usual business cycle consisted of two or three years of prosperity with, at most, six months of recession. At times, prosperity lasted longer than three years. Slow growth, however, reverses this cycle. An annual economic growth rate of 6 to 10 percent lasts at most six months to one year, with the next two or three years realizing little or no growth or even negative growth.

The Wrecking Crew: How Conservatives Rule
by Thomas Frank
Published 5 Aug 2008

This outcome was an ironic one, but there was also a certain cosmic predictability to it. After all, the financial regulatory structure that the banks so hated had been pieced together in the 1930s to mitigate the extremes of the business cycle. Take that structure away for whatever reason—because you think the market can self-regulate, because you believe God has suspended the business cycle, or because you’ve convinced yourself that regulation is an insult to free men everywhere—and before long you’ve restored the nineteenth-century system from which our ancestors worked so hard to escape, complete with its extreme short-sightedness and its terrifying crashes.

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class
by Paul Pierson and Jacob S. Hacker
Published 14 Sep 2010

For thirty years, the good times have just kept rolling. The solution to our mystery, in short, needs to account for a simple fact: The rising share of national income captured by the richest Americans is a long-term trend beginning around 1980. It is a trend, moreover, that is not obviously related to either the business cycle or the shifting partisan occupancy of the White House.5 The partisan to-and-fro and economic ebb and flow surely had some part to play. But something else was at work in creating the winner-take-all economy—something that fostered a sharp divide between broadly shared prosperity and winner-take-all.

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W., 17, 69, 186, 191–93, 199, 208, 210, 217, 265, 267, 293 Bush, George W., 17, 34, 41, 53, 105, 152, 157, 183, 186, 192, 193, 195, 200, 201, 210, 213, 214, 216, 217, 219, 221, 222, 223, 230, 233, 234, 236, 238–39, 245, 250–51, 253, 254–55, 258, 264, 265, 266, 271, 280, 293–94, 304 business: anti-labor agenda of, 55, 121–24, 127–32, 135, 219, 303 conservative support for, 122–23 Democrats supported by, 53, 86, 127, 129–32, 140, 174–88, 220–21, 223–52 economic reforms opposed by, 79–80, 86, 87–88, 130–32 financial resources of, 74, 121–22, 131, 170–72, 179–80, 209 “grassroots” campaigns by, 66, 89, 114, 119–27, 131, 144, 179–80, 274 inside vs. outside strategies of, 121 large, 119–27, 128, 129–32, 179–80, 205–6, 231, 275–78, 279 lobbyists for, 89, 117, 118, 124–26, 135–36, 144, 183–84, 198, 205–7, 218, 238–39, 275–77 organizations for, 88, 104–7, 116–36, 144, 160, 179–80, 205–6, 231, 275–78, 279, 291; see also specific organizations political influence of, 65–66, 74, 79, 84–85, 104–7, 110–12, 116–36, 150–51, 160, 169, 170–72, 179–80, 183–84, 197–98, 207, 230–31, 242–43, 271–75, 282, 292–93, 304 Powell memorandum on, 117–18, 119, 125 regulation of, 55–56, 116–36, 179–80, 187, 205–6, 219–21, 246–47, 273–77 Republicans supported by, 34, 49, 53, 65, 86, 121–26, 129–32, 140, 157, 170, 174–88, 189, 194–222, 230–31, 244–46, 267 small, 119–20, 129–30, 131, 205–6, 243 tax reform opposed by, 47, 49, 50, 64, 106–7, 124–25, 132–34, 177, 179–80, 187, 312n see also corporations business cycles, 17–18 Business-Industry Political Action Committee, 122 Business Roundtable, 120, 121, 125, 126–27, 129–30, 205–6, 231 Byrd, Robert, 130–31 cable networks, 106, 156–57, 158 California, 84, 176, 240, 247, 300 Campaigns and Elections, 203 campaign spending, 66, 118, 121–22, 150–51, 163–64, 166, 167, 169, 170–84, 197–98, 203, 207, 209–10, 219, 223–52, 258–59, 271–75, 276, 304 Campbell, Anne, 176 Canada, 29, 31, 38–39, 52, 58, 60, 68 Cao, Joseph, 337n capital gains, 14, 16, 18, 39, 46, 50–51, 99–100, 133–34, 151, 214, 228–30, 312n Carlson, Tucker, 147 Carlton Group, 133–34 “carried interest” provision, 51, 228–29 Carter, Jimmy, 98–100, 116, 126–27, 130, 131, 132–33, 134, 137, 141, 152, 172–73, 175, 184, 186, 202, 255 Carville, James, 5 Cato Institute, 209 Census Bureau, U.S., 13, 311n Center for American Progress, 266 Center for Responsive Politics, 207, 227 Chafee, Lincoln, 265 Chamber of Commerce, 119, 127, 128, 129–30, 205–6, 231, 275–78, 279 Cheney, Dick, 189–90, 217 chief executive officers (CEOs): autonomy of, 231, 292–93 conflicts of interest of, 55, 66 incomes of, 1, 16, 56, 62, 66–67, 154–55, 198 international comparison of, 62–65 organizations for, 119–21 pay packages for (executive compensation), 2, 57, 61–66, 70, 198, 219–21, 246–47, 279, 319n, 320n, 335n political influence of, 117–19 retirement benefits of, 64 Chiles, Lawton, 131, 181 Christian Coalition, 203 Christian Conservatives; see Religious Right Christian Right, 139, 146–49, 160, 201–4, 205, 234–35 Church, Frank, 175 Citigroup, 71, 226, 249–50, 254, 261 Citizens United case, 293 Civic Culture, The (Almond and Verba), 144 civic groups, 107–12, 139, 143–45, 147, 155, 156, 158 civil rights movement, 95, 138, 139, 190, 202, 235, 275 class divisions, 29, 75–77, 131–32, 148, 151–55 see also specific classes Class War?

Strangers in Their Own Land: Anger and Mourning on the American Right
by Arlie Russell Hochschild
Published 5 Sep 2016

Local Governments: A Story of Accountability and Policy Learning,” Economic Development Quarterly 24, no. 4 (2010): 325–336. 260eight-part 2014 investigative special report Gordon Russell, “Giving Away Louisiana: An Overview,” The Advocate, Special Reports, November 26, 2014, http://blogs.theadvocate.com/specialreports/2014/11/26/giving-away-louisiana. 261leakage out of Louisiana is between 20 and 35 percent Bureau of Economic Analysis, Personal Income and Gross Domestic Product by State [1997–2012 data] (Washington, D.C.: Department of Commerce, 2012) (accessed March 13, 2014). 261gross domestic product has been higher under Democratic presidents Michael Comiskey and Lawrence C. Marsh, “Presidents, Parties, and the Business Cycle, 1949–2009,” Presidential Studies Quarterly 42, no. 1 (2012): 40–59. 261decreased slightly under Democrats Larry Bartels, Unequal Democracy: The Political Economy of the New Gilded Age (Princeton, NJ: Princeton University Press, 2008). 261in other words, some of the correlation is due to factors outside a president’s control Alan S.

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“Frequently Asked Questions.” https://lacoast.gov/new/About/FAQs.aspx. Cockerham, Sean. “Louisiana French: L’heritage at Risk.” Seattle Times (July 6, 2012). Coll, Steve. “Dangerous Gamesmanship.” New Yorker (April 27, 2015). Comiskey, Michael, and Lawrence C. Marsh. “Presidents, Parties, and the Business Cycle, 1949–2009.” Presidential Studies Quarterly 42, no. 1 ( 2012): 40–59. Confessore, Nicholas, Sarah Cohen, and Karen Yourish. “Buying Power.” New York Times (October 10, 2015). Congressional Budget Office. The Distribution of Household Income and Federal Taxes, 2011. Washington, D.C.: Congressional Budget Office, 2014. http://www.cbo.gov/sites/default/files/cbofiles/attachments/49440-Distribution-of-Income-and-Taxes.pdf.

Capital Ideas: The Improbable Origins of Modern Wall Street
by Peter L. Bernstein
Published 19 Jun 2005

Early in 1885, Dow, Jones converted its Afternoon News Letter into The Wall Street Journal, whose format and coverage have changed little over the years. As editor for thirteen years, Dow seldom missed writing the paper’s daily editorial until his death in 1902. In his commentaries Dow expressed his ideas about the stock market and economic conditions and provided an original, sophisticated analysis of the business cycle, a field of study then in its infancy. At heart Dow was a scholar rather than a speculator. He was more interested in interpreting the history of the stock market than in devising a system for predicting its future. The world has read his interpretation otherwise. Underlying the so-called Dow Theory is the assumption that trends in stock prices, once under way, will tend to persist until the market itself sends out a signal that these trends are about to lose their momentum and go into reverse.

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As early as 1919 he had remarked, “If a common stock is a good investment, it is also an attractive speculation.”18 Graham’s emphasis on balance-sheet data rather than on income flows created trouble for investors who were using his approach during the 1950s. As investors grew more optimistic about the future and less concerned about a return of the Great Depression, their expectations of corporate America’s long-run earning power rose and their concerns about the business cycle diminished. Time magazine’s issue of December 31, 1958, exulted: “In the new economy, many of the old classical rules of economics no longer apply; over the years the U.S. has made and learned new rules all its own.” At the end of 1958, stock prices averaged eighteen times current earnings per share, a huge jump from thirteen times in the autumn of 1957.

The Man From the Future: The Visionary Life of John Von Neumann
by Ananyo Bhattacharya
Published 6 Oct 2021

‘In Germany,’ Morgenstern wrote after Edgeworth’s death the following year, ‘every beginner believes … that he should create entirely “new” foundations and a completely new methodology. In England, however, the use of mathematics is more common than elsewhere, a further circumstance to frighten away dilettantes who are only half interested in economics.’ During his fellowship, Morgenstern developed an interest in the ebb and flow of business cycles. After stints with experts at Harvard and Columbia, Morgenstern made the subject the focus of his habilitation thesis, which would earn him the right to teach and become a tenured professor. The professors in America had sought to explain booms and busts by careful analysis of economic statistics with the eventual goal of anticipating downturns.

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Soon after the university term began that year, he met von Neumann. Morgenstern and von Neumann. ‘It is curious,’ Morgenstern noted, that years later neither of us could ever remember where we met the first time, but we did remember where we met the second time: I gave an after-luncheon talk on the 1st of February 1939 on business cycles at the Nassau Club, and he was there with Niels Bohr, Oswald Veblen, and others. Both he and Bohr invited me that afternoon for tea at Fine Hall, and we sat several hours talking about games and experiments. This was the first time that we had a talk on games, and the occasion was heightened by Bohr’s presence.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics
by Rod Hill and Anthony Myatt
Published 15 Mar 2010

Thaler (1985) ‘The relevance of quasi rationality in competitive markets’, American Economic Review, 75(5): 1071–82. Salam, A. (1990) Unification of Funda­mental Forces: The first of the 1988 Dirac memorial lectures, Cambridge: Cambridge University Press. Samuelson, P. A. (1973) Economics, 9th edn, New York: McGraw-Hill. — (1998) ‘Summing up on business cycles: opening address’, in J. Fuhrer and S. Schuh (eds), Beyond Shocks: What causes business cycles, Boston, MA: Federal Reserve Bank of Boston, pp. 33–6. — (2004) ‘Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization’, Journal of Economic Perspectives, 18(3): 135–46. Samuelson, P. A. and W. D. Nordhaus (1992) Economics, 14th edn, New York: McGraw-Hill.

Hedgehogging
by Barton Biggs
Published 3 Jan 2005

“Why would anyone want to own a mediocre company just because it’s cheap, when you can own and live with great companies?” He defined a growth stock as follows: “A share in a business enterprise which has demonstrated long-term growth of earnings, reaching a new high level per share at the peak of each subsequent major business cycle and which, after careful research, gives indications of continuing growth from one business cycle to the next, at a rate faster than the rise in the standard of living.” Bob Barker of Capital Guardian, another very successful growthstock investor, puts it a little differently.“In my firm, we concentrate on finding those few companies that have clear prospects of very rapid earnings-per-share growth over a protracted period ahead.These are the companies in which our portfolio is entirely invested.We pay no atten- ccc_biggs_ch17-239-246.qxd 11/29/05 7:05 AM Page 241 Three Investment Religions 241 tion to all the other companies there are.Think of the time we save by this concentration.”

The Rise of the Network Society
by Manuel Castells
Published 31 Aug 1996

The dramatic improvements in computing power and communication and information technology appear to have been a major force behind this beneficial trend … The sharp acceleration in capital investment in advanced technologies beginning in 1993 reflected synergies of new ideas, embodied in increasingly inexpensive new equipment, that have elevated expected returns and have broadened investment opportunities. More recent evidence remains consistent with the view that capital spending has contributed to a noticeable pick-up in productivity –and probably by more than can be explained by usual business cycle forces.30 In fact, only a substantial productivity increase could explain the economic boom in the US in 1994–9: 3.3 percent of annual GDP growth, with inflation below 2 percent, unemployment under 5 percent, and an increase, albeit moderate, in average real wages. Figure 2.1 Productivity growth in the United States, 1995–1999 (index of output per hour of all people in non-farm businesses; 1992 = 100, seasonally adjusted Source: US Bureau of Labor Statistics as reported by Uchitelle (1999) While business circles, in America and in the world, appeared to embrace the notion of a new economy, along the lines I suggested above, some respected academic economists (including Solow, Krugman, and Gordon) remained skeptical.

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Networks of production and distribution formed, disappeared, and reformed on the basis of variations in the world market, through the signals transmitted by flexible intermediaries often using a network of “commercial spies” in the main world markets. Very often the same person would be entrepreneur or salaried worker at different points in time, according to the circumstances of the business cycle and his own family needs. Taiwan’s exports during the 1960s came also mainly from a similar small and medium enterprise system, although in this case the traditional Japanese trading companies were the main intermediaries.31 Granted, as Hong Kong prospered, many of the small enterprises merged, refinanced, and grew bigger, sometimes linking up with large department stores or manufacturers in Europe and America, to become their surrogate producers.32 Yet, by then, medium–large businesses subcontracted much of their own production to firms (small, medium, and large) across the Chinese border in the Pearl River Delta.

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Schor, Juliet (1991) The Overworked American, New York: Basic Books. Schuldt, K. (1990) “Soziale und ökonomische Gestaltung der Elemente der Lebensarbeitzeit der Werktätigen”, unpublished dissertation, Berlin; cited in Bosch et al. (1994). Schuler, Douglas (1996) New Community Networks: Wired for Change, New York: ACM Press. Schumpeter, J.A. (1939) Business Cycles: a Theoretical, Historical, and Statistical Analysis of the Capitalist Process, New York: McGraw-Hill. Schweitzer, John C. (1995) “Personal computers and media use”, Journalism Quarterly, 68(4): 689–97. Schwitzer, Glenn E. (1995) “Can research and development recover in Russia?”, Business World of Russia Weekly, May 15–20: 10–12; reprinted from Journal of Technology and Society, 17(2).

Liberalism at Large: The World According to the Economist
by Alex Zevin
Published 12 Nov 2019

Finally, what was the role to be accorded by liberal political economy to activities not regarded as productive of value – neither agriculture, nor industry, nor trade, but lending and borrowing, and speculation? Was money a commodity like any other, with banks no different from farms or factories? If business cycles were normal in a market economy, what of longer-lasting crises and depressions? How, in other words, would liberals respond to the rise of democracy, the expansion of empire, and the ascendancy of finance, none of which figured in the core doctrine? The Economist as Touchstone Other studies have examined a single point in this triad.

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Pennant-Rea stepped down in 1993 just as the ‘new economy’ of the Clinton years got underway – to its boosters a break from all precedent, as information technology unleashed investment and growth alongside low inflation, low unemployment and near-constant productivity gains, which were bound to attenuate or even eliminate the business cycle itself.1 Since then, three points have connected the constellation of liberal ideas at the Economist: the planetary primacy of finance, vast enough to be shared out between Wall Street and the City of London; the American Empire, as both policeman and journalistic training ground; and globalization, its precondition the prior two, as cornucopia for former colonies and satellites.

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Closing tax loopholes, lowering marginal rates, and moving ‘“to Basel 3 and higher capital requirements” is not a catchy slogan, but it would do far more to shrink bonuses on Wall Street than most of the ideas echoing across from Zuccotti Park.’ In his Buttonwood column, Coggan mooted reforms of this kind after 2008, urging readers dissatisfied with efficient market theory to look at Hayek and his teacher Ludwig von Mises – whose theories of the business cycle helped to explain the crisis as one of low interest rates leading to a credit boom, followed by misallocation of resources and a protracted slump.129 Paper Promises: Money, Debt, and the New World Order in 2011 suggested the Austrian school offered the best solutions as well: ‘there is nothing to be done except to let prices and wages fall to adjust to the new reality.’130 Coggan and Lucas were more extreme, or simply more rigorous, than their colleagues; but the goal of deepening austerity they had in common with them.

Magical Urbanism: Latinos Reinvent the US City
by Mike Davis
Published 27 Aug 2001

As Maria de los Angeles Torres points out in "Working Against the Miami Myth," "The facts show that while many Cubans did make it, many more MAGICAL URBANISM 98 did not - despite the unprecedented welfare benefits, English-lan- guage university and business loans, and covert classes, money that flowed into South Florida." Spanish-surname households as a whole vulnerable to the business cycle. ily whose national epicenter barrios. fell The are also extraordinar- early 1990s recession, was Los Angeles County, devastated the The median household income of 30 miUion US Latinos by nearly $3000 between 1989 and 1996 - the biggest registered by any ethnic same CIA group since the Depression.

Socialism Sucks: Two Economists Drink Their Way Through the Unfree World
by Robert Lawson and Benjamin Powell
Published 29 Jul 2019

Our immediate surroundings at the decaying hotel were mostly offset by the nice ocean view, as long as you ignored the litter-strewn beach and the abandoned oil tank half-submerged in the rocky sand. Before the revolution, Cuba had a thriving urban middle class, along with widespread rural poverty. Twentieth-century socialists claimed socialism would deliver greater equality and out-produce capitalism by ending wasteful competition, business cycles, and predatory monopolies. Socialism hasn’t delivered the goods it promised in Cuba or anywhere else. Today, Cuba is a poor country made poorer by socialism. Here’s why: almost a hundred years ago, the Austrian economist Ludwig von Mises explained that socialism, even if run by benevolent despots and populated with workers willing to work for the common good, could still not match capitalism’s performance.

Automation and the Future of Work
by Aaron Benanav
Published 3 Nov 2020

Meanwhile, in Italy, the economy has completely stagnated. 3 See William Baumol, “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis,” in American Economic Review, vol. 57, no. 3, June 1967, pp. 415–26; Robert Rowthorn and Ramana Ramaswamy, “Deindustrialization: Causes and Implications,” IMF Working Paper 97/42, 1997, pp. 9–11; Dani Rodrik, “Premature Deindustrialization,” Journal of Economic Growth, vol. 21, no. 1, 2016, p. 16. 4 Data on capital stock derives from the Penn World Table 9.1, last updated September 2019, retrieved from FRED, Federal Reserve Bank of St. Louis on May 9, 2020. 5 See Joseph Schumpeter, Business Cycles, vol. 1, McGraw-Hill, 1939, pp. 93–4. 6 Some economists have attempted to theorize tendential economic stagnation and its relationship to rising inequality. See, for example, Thomas Piketty, Capital in the Twenty-First Century, Harvard University Press, 2014; Robert J. Gordon, Rise and Fall of American Growth, Princeton University Press, 2016; and the essays collected around Lawrence Summers’s hypothesis in Coen Teulings and Richard Baldwin, eds., Secular Stagnation: Facts, Causes, and Cures, Vox, 2014. 7 For the original account of this phenomenon, see Nicholas Kaldor, Causes of the Slow Rate of Economic Growth in the United Kingdom, Cambridge University Press, 1966.

Red-Blooded Risk: The Secret History of Wall Street
by Aaron Brown and Eric Kim
Published 10 Oct 2011

In one of Fischer’s last communications to me he wrote that he did not expect to live to see the book published, and “It will probably be remaindered before the Fall because economists do not take criticism well.” I lobbied hard for years to get MIT Press to reissue this book, and I also nagged John Wiley & Sons to reissue his Business Cycles and Equilibrium. I was finally successful with Wiley in 2009 and MIT in 2010, so both books are now easily available. In the process of doing this, I appealed for help from one of Fischer’s daughters, Alethea Black (whose book of short stories, I Knew You’d Be Lovely, is wonderful, but has nothing to do with anything in this book, except perhaps for an autobiographical story featuring a little-known side of Fischer).

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See also Probability betting/probability and foundation of frequentism and in history/law “prior beliefs” and risk defining capital technology startups and Beat the Dealer (Thorp) Beat the Market (Thorp and Kassouf) Behavioral Game Theory (Camerer) Bennet, Rick Bernoulli, Jakob Berns, Gregory Bernstein, Peter Betting: Kelly bets probability and public sports Beyond Counting (Grosjean) Beyond Individual Choice (Bacharach) Big Short, The (Lewis) Black, Alethea Black, Fischer Black-Scholes-Merton model Black Swan, The (Taleb) Black Wednesday Bloom, Murray Teigh Bogle, John Bond ratings Bookstaber, Richard Born Losers (Sandage) Bounds of Reason, The (Gintis) Brenner, Reuven and Gabrielle Bringing Down the House (Mezrich) British Treasury Broke, (Adams) Bronze Age Bronze Age Economics (Earle) Bubble investors Bulls, Bears, and Brains (Leitzes) Burton, Robert Alan Business Cycles and Equilibrium (Black) Busting Vegas (Mezrich) Calvet, Laurent E. Camerer, Colin Capital: allocation at-risk formation requirement Capital asset pricing model (CAPM) Capital Ideas (Bernstein) Capital Offense (Hirsh) Carnap, Rudolph Cash, Lehman Brothers and Cash Nexus (Ferguson) Chance, Luck, and Statistics (Levinson) Chances Are (Kaplan) Change of numeraire Checklist Manifesto, The (Gawande) Chernow, Ron Chicago Board Options Exchange Volatility Index (VIX) Chief risk officer (CRO) Chiles, James Cincinnati Kid, The ( Jessup) Citibank Clearinghouses CMOs.

Capitalism: the unknown ideal
by Ayn Rand
Published 15 Aug 1966

I have discussed a flagrant example of this policy: the charge that capitalism leads to the establishment of coercive monopolies. The most notorious instance of this policy is the claim that capitalism, by its nature, inevitably leads to periodic depressions. Statists repeatedly assert that depressions (the phenomenon of the so-called business cycle, of “boom and bust”) are inherent in laissez-faire, and that the great crash of 1929 was the final proof of the failure of an unregulated, free-market economy. What is the truth of the matter? A depression is a large-scale decline in production and trade; it is characterized by a sharp drop in productive output, in investment, in employment, and in the value of capital assets (plants, machinery, etc.).

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It is typical of the manner in which interventionism grows that the Federal Reserve System was instituted as a proposed antidote against those earlier depressions—which were themselves products of monetary manipulation by the government. The financial mechanism of an economy is the sensitive center, the living heart, of business activity. In no other area can government intervention produce quite such disastrous consequences. For a general discussion of the business cycle and its relation to government manipulation of the money supply, see Ludwig von Mises, Human Action.30 One of the most striking facts of history is men’s failure to learn from it. For further details, see the policies of the present Administration. (AUGUST 1962.) THE ROLE OF LABOR UNIONS DO LABOR UNIONS RAISE THE GENERAL STANDARD OF LIVING?

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis
by Anatole Kaletsky
Published 22 Jun 2010

The ideological rivalry with the collectivist Soviet Union was symbolized perfectly by the neoclassical view of the macroeconomy: a collection of independent, atomistic individuals who cooperate as cogs in a vast Fordist social machine but do this of their own free will, responding to the natural incentives of economics. Better still, the neoclassical synthesis, in contrast to the classical economics of the nineteenth-century, made room for the post-Depression political realities of welfare safety nets and active demand management to stabilize business cycles, by explaining that the Fordist economic machine needed occasional lubrication, “pump-priming,” and “kickstarting” by a benignly probusiness government. Thus the new paradigm was able to co-opt both the Left and the Right. Conservatives were happy to describe the new orthodoxy as the neoclassical synthesis, while progressives such as Paul Samuelson and Robert Solow felt able to call it neo-Keynesian economics.

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Mellon quotation from Herbert Hoover’s autobiography, The Memoirs of Herbert Hoover: Vol. 3, The Great Depression, 31-32. For more details, see Chapter 11. 4 This accelerator-multiplier concept, first proposed by Sir Roy Harrod, was later refined by Paul Samuelson and Sir John Hicks and became the standard Keynesian business cycle model. 5 Justin Lahart, “In Time of Tumult, Obscure Economist Gains Currency,” Wall Street Journal, August 18, 2007. 6 George Soros, The Soros Lectures: At the Central European University. 7 Alan Greenspan, “The Challenge of Central Banking,” remarks at the Annual Dinner and Francis Boyer Lecture of the American Enterprise Institute for Public Policy Research, Washington, DC, December 5, 1996.

The Personal MBA: A World-Class Business Education in a Single Volume
by Josh Kaufman
Published 2 Feb 2011

—SAM WALTON, FOUNDER OF WALMART ATransaction is an exchange of value between two or more parties. If I have something you want and you have something I want, we’d both be better off if we agreed to trade. The Transaction is the defining moment of every business. Sales are the only point in the business cycle where resources flow into the business, which makes completing Transactions critically important. Businesses survive by bringing in more money than they spend, and there’s no way to do that without completing Transactions. You can only transact with things that are Economically Valuable. If you don’t have anything your prospective customers want, they won’t buy from you.

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A simple blood test by your doctor can verify the levels of many essential nutrients—always consult with your MD before making any major changes to your diet or supplement intake. 4 For more on the neurophysiology of the brain, check out Kluge: The Haphazard Construction of the Human Mind by Gary F. Marcus (Faber & Faber, 2008). 5 http://macfreedom.com. 6 http://www.proginosko.com/leechblock.html. 7 http://www.timessquarenyc.org/facts/PedestrianCounts.html. 8 http://en.wikipedia.org/wiki/Austrian_business_cycle_theory. 9 http://en.wikipedia.org/wiki/Tulip_mania. 10 http://en.wikipedia.org/wiki/Dot-com_bubble. 11 http://en.wikipedia.org/wiki/United_States_housing_bubble. CHAPTER 8: WORKING WITH YOURSELF 1 http://www.pomodorotechnique.com/. 2 http://www.pnas.org/content/103/31/11778.abstract. 3 http://www.ingentaconnect.com/content/hfes/hf/2006/00000048/00000002/art00014. 4 http://www.paulgraham.com/makersschedule.html. 5 http://crashcourse.personalmba.com. 6 Personally, I work with the folks at Timesvr.com—they’re skilled, fast, friendly, and cost effective. 7 http://davidseah.com/pceo/etp. 8 http://govleaders.org/powell.htm. 9 For a complete look at my personal productivity system, visit http://book.personalmba.com/bonus-training/. 10 http://www.markforster.net/autofocus-system/. 11 For an example of how I do this, visit http://book.personalmba.com/bonus-training/.

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies
by Judith Stein
Published 30 Apr 2010

His inflation policy of wage restraint, meager budgets, and high interest rates was not working. Even if it had brought down inflation, growth and productivity would not have improved.97 Carter had the misfortune to be a Keynesian president with pre-Keynesian instincts in a post-Keynesian era. Managing aggregate demand to stabilize the business cycle was no longer sufficient. Addressing long-term supply-side problems and raising productivity in the new global environment required new thinking and perhaps new institutions.98 Meager productivity was not simply an American problem. It fell in all OECD nations, from 5.2 percent (1969–73) to 2.8 percent (1973–79).

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Although the recession officially ended in November 2001, the economy had not made up for job losses at the time of Bush’s reelection campaign of 2004. The recovery was puny. In the eight years of the Bush presidency, the economy grew over 3 percent in only one year. Job growth slowed, too. In previous business cycles, the economy added jobs at a rate of 2 percent a year; during the period 2001–7, this rate was only 0.6 percent. Wage growth stalled too, falling from 1.5 percent a year in the late 1990s to 0 percent by 2003. The median hourly wage plummeted by more than 1 percent from 2003 to 2005. Only 3.4 percent of the workforce had increased earnings.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

THOSE IN AN EFFICIENTLY INEFFICIENT MARKET Neoclassical Finance and Economics Efficiently Inefficient Markets Modigliani–Miller Irrelevance of capital structure Capital structure matters because of funding frictions Two-Fund Separation Everyone buys portfolios of market and cash Investors choose different portfolios depending on their individual funding constraints Capital Asset Pricing Model Expected return proportional to market risk Liquidity risk and funding constraints influence expected returns Law of One Price and Black–Scholes No arbitrage, implied derivative prices Arbitrage opportunities arise as demand pressure affects derivative prices Merton’s Rule Never exercise a call option and never convert a convertible, except at maturity/dividends Optimal early exercise and conversion free up cash, save on short sale costs, and limit transaction costs Real Business Cycles and Ricardian Equivalence Macroeconomic irrelevance of policy and finance Credit cycles and liquidity spirals driven by the interaction of macro, asset prices, and funding constraints Taylor Rule Monetary focus on interest rate policy Two monetary tools are interest rate (the cost of loans) and collateral policy (the size of loans) II.

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See also fundamental quantitative investing; high-frequency trading; statistical arbitrage quantitative global macro investing, 185 random walk hypothesis, 173 RAROC (risk-adjusted return on capital), 31–32 reactive risk management. See drawdown control real assets, in strategic asset allocation, 168, 171 real bond yield, 197 real business cycles, 7t real estate boom, 203 real estate investment trusts (REITs), 261 realized average return, 32 realized cost, 67, 68 reallocation. See tactical asset allocation rebalancing of portfolio, 169–70; in managed futures strategy, 224, 224f, 225; in time series momentum strategy, 213; trading against trends, 211.

The Dying Citizen: How Progressive Elites, Tribalism, and Globalization Are Destroying the Idea of America
by Victor Davis Hanson
Published 15 Nov 2021

For the Founders, these precautions would preclude an unelected, all-powerful caste, even though since the age of Aristotle political theorists had warned that once democratic man achieves political equality, he naturally soon expects additional equality in all realms of life—economic, social, and cultural—a dream that by definition demands legions of government regulators and interventionists.8 In addition, the deep state functionary is antithetical to the elected citizen official. Bureaucracies comprise workers with set hours. The pay of the bureaucrat is mostly guaranteed. Indeed, it is often higher than in the private sector. The regulator’s success or failure is not predicated on the weather, the business cycle, finance, labor, or all the extraneous criteria that can destroy or elevate the self-employed amid a mercurial business cycle. Or it is worse still, given that the regulator’s salary is paid by those he regulates—a source of often envy and mistrust? The crisis is not just the canard that bureaucrats are frustrated utopians or failed entrepreneurs who resent the greater success of the businesspeople they so often regulate, fine, or indict.

The Great Transformation: The Political and Economic Origins of Our Time
by Karl Polanyi
Published 27 Mar 2001

The most significant category, however, was that of “casual-stagnation,” mentioned above, which included not only craftsmen and artists exercising occupations “dependent upon fashion” but also the much more important group of those unemployed “in the event of a general stagnation of manufactures.” Bentham’s plan amounted to no less than the levelling out of the business cycle through the commercialization of unemployment on a gigantic scale. Robert Owen, in 1819, republished Bellers’s more than 120-year-old plan for the setting up of Colleges of Industry. Sporadic destitution had now grown into a torrent of misery. His own Villages of Union differed from Bellers’s mainly by being much larger, comprising 1,200 persons on as many acres of land.

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Between 1923, when the German mark was pulverized within a few months, and the beginning of 1930, when all the important currencies of the world were back to gold, Geneva used the international credit mechanism to shift the burden of the incompletely stabilized economies of Eastern Europe, first, to the shoulders of the Western victors, second, from there to the even broader shoulders of the United States of America.* The collapse came in America in the course of the usual business cycle, but by the time it came, the financial web created by Geneva and Anglo-Saxon banking entangled the economy of the planet in that awful capsize. But even more was involved. During the 1920s, according to Geneva, questions of social organization had to be wholly subordinated to the needs of the restoration of the currency.

People, Power, and Profits: Progressive Capitalism for an Age of Discontent
by Joseph E. Stiglitz
Published 22 Apr 2019

Indeed, even as the economy was failing to deliver prosperity for large parts of the population, the champions of a new era of financialization, globalization, and technological advances were bragging about the “new economy” that was destined to bring ever-greater prosperity, by which they seemed to mean simply a higher level of GDP. Some of our economic leaders—including successive heads of the Federal Reserve—bragged about the “great moderation,” how we had finally tamed the business cycle, the fluctuations in output and employment that had marked capitalism from the start.1 The financial crisis of 2008 showed that our seeming prosperity had been built on a house of cards, or more precisely, a mountain of debt. As new data came in giving a deeper picture of the economy, it became increasingly clear that there were long-standing and deep-seated problems.

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We’ve described how Trump has attacked the very pillars of our civilization, those that have in fact made us great, and are the basis of the remarkable advances in standards of living. How We Arrived at This Juncture The narrative for how we got here is well known: Globalization, financialization, and new technologies proceeded in ways that have left many workers behind, and the way they proceeded was largely shaped by economic policies.14 Even during the bullish turn the business cycle took in 2018, the economy failed to deliver improvements to the well-being of too many, to restore them to where they had been a decade earlier, before the onslaught of the financial crisis. Inequality of wealth is now far worse than it was before the Great Recession of 2008, when it was bad enough already; and with the 2017 tax law and the mania for deregulation in the current administration, it is likely to get both more extreme and more painful.

Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom
by Grace Blakeley
Published 11 Mar 2024

In the 1980s, Scott Lash and John Urry claimed that neoliberalism meant the “end of organized capitalism,” arguing that this era of stability had come to an end.117 But while crises certainly did become more frequent with the advent of neoliberalism, this was not because planning had become less prevalent—it was because capitalists had figured out how to privatize the gains from economic booms, while socializing the losses from the busts.118 Neoliberals discouraged policymakers from attempting to attenuate the ups and downs of the business cycle, and instead argued that their efforts should be focused on cleaning up after the crash.119 The idea was that the economic cycle should be allowed to run its course, rather than face interference from unaccountable state bureaucrats. In reality, this new approach to crisis management simply meant that powerful capitalists were able to reap all the benefits of booming financial markets, while being protected during the bust.120 Workers were the ones forced to bear the consequences in the form of unemployment, lower wages, and cuts to public services and social security.121 Naomi Klein’s account of disaster capitalism in The Shock Doctrine shows exactly how the most powerful firms and states often work together during moments of crisis to manage events in their interests.122 Nobody planned the financial crisis.

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Ortenca Aliaj and George Hammond, “WeWork to Make Belated Arrival on Stock Market after Spac Merger,” Financial Times, October 19, 2021, https://www.ft.com/content/258121b8-299e-4993-91d9-cb2a18d387f4. 25. Pavel Alpeyev, “SoftBank’s Vision Fund Loses $17.7 Billion on WeWork, Uber,” Bloomberg, May 18, 2020, https://www.bloomberg.com/news/articles/2020-05-18/softbank-vision-fund-books-17-7-billion-loss-on-wework-uber. 26. Hyman P. Minsky, Induced Investment and Business Cycles (New York: Levy Economics Institute of Bard College, 2004); Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Boston: Beacon Press, 2001). 27. Ann Pettifor, The Production of Money: How to Break the Power of Bankers (London: Verso, 2017). 28. Dayen, Monopolized. 29.

The Art of Profitability
by Adrian Slywotzky
Published 31 Aug 2002

“I see,” Zhao replied thoughtfully. “And how powerful are the businesses Delmore has created in each area?” Steve was familiar with the numbers. “Sales in plastics and auto parts have drifted downward over the past year,” he responded. “And so have profits. Of course, the management says that’s purely a matter of the business cycle. They expect revenues to bounce back early next year, assuming the economy perks up. As for telecommunications equipment, it’s been growing pretty fast—over twenty-five percent a year, compounded, over the past five years—with impressive margins. Tom Kennedy—the CEO, you know—likes to point to telecom as the big success story at Delmore.”

The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer
by Dean Baker
Published 15 Jul 2006

The people who lose are those in the middle and the bottom – sales clerks, factory workers, custodians, and dishwashers. These are the workers who don’t get hired or get laid off when the economy slows or goes into a recession. The unemployment rate for everyone rises when the economy goes into a downturn, but unemployment rises most for those with the least education. For example, at the peak of the last business cycle in 2000, the unemployment rate for workers with just a high school degree had fallen as low as 3.2 percent. It had risen by 2.5 percentage points to 5.7 percent by early 2003. By contrast, the unemployment rate for workers with college degrees rose by just 1.7 percentage points over the same period, topping out at 3.2 percent in 2003.4 African Americans and Hispanics also suffer disproportionately when the unemployment rate rises.

Working the Street: What You Need to Know About Life on Wall Street
by Erik Banks
Published 7 Feb 2004

You already know what the final picture is going to look like, because you’ve seen the cover of the box—but it’s much more meaningful when you have to put it all together for yourself. That’s when you really feel like you understand the dynamics, and mechanics, of Wall Street. When you’re working at headquarters you become very attuned to the rhythm of different business cycles because these determine your own workload and deadlines: daily cycles, which drive trades, deals, crises, and other emergencies; monthly cycles, which influence short-term markets, roadshows, and deal-related activity; quarterly cycles, which revolve around financial reporting; and yearly cycles, which are devoted to performance reviews, bonuses, audits, and regulatory visits.

The End of Loser Liberalism: Making Markets Progressive
by Dean Baker
Published 1 Jan 2011

The investment share of GDP at its peak in the 1990s cycle (which was in 2000) was somewhat higher than it had been in the 1980s but was still below its 1970s’ peak (Figure 4-2).[25] Furthermore, the uptick in productivity growth in the 1990s, which many associate with an “investment boom,” began before investment had recovered even to the 1980s level. In short, the good economic news in the 1990s had little to do with the deficit reduction measures of the Clinton administration. The fuel for the business cycle was consumption, not investment, which was in turn the result of the wealth effect attributable to $10 trillion of stock bubble wealth. This ephemeral wealth increased annual consumption by $300-400 billion a year, or 3 to 4 percent of GDP. The household savings rate fell to what were at the time record lows.

The New Class War: Saving Democracy From the Metropolitan Elite
by Michael Lind
Published 20 Feb 2020

In the United States, this phenomenon is evident in the construction and meatpacking sectors, among other industries.21 Robert Shapiro argued in 2019 that much of the unexpected contraction in employment among native white Americans in recent years had been the result of direct competition of white workers who shared higher wage expectations with immigrants as well as members of minority groups willing to work for lower wages: A final critical reason why many employers are more inclined to hire Hispanics, Asians, and blacks than whites in this business cycle is the economics of wages. At every educational level, except people without high school degrees, whites’ wages are higher than the wages of blacks, Hispanics and, in some cases, Asians. There is a long history of immigrants and minorities working for less than others with the same education, sometimes willingly and often unwillingly.

Last Best Hope: America in Crisis and Renewal
by George Packer
Published 14 Jun 2021

The turn of the millennium was the high-water mark of Smart America. Clinton’s speeches became euphoric—“We are fortunate to be alive at this moment in history,” he said in his final State of the Union message. The new economy had replaced “outmoded ideologies” with dazzling technologies. The business cycle had practically been abolished, along with class conflict. The answer to all problems of social class was education. Clinton’s wish list to Congress that year included more money for Internet access in schools and college-test-prep courses for poor kids. In April 2000 Clinton hosted a celebration called the White House Conference on the New Economy.

Where We Are: The State of Britain Now
by Roger Scruton
Published 16 Nov 2017

Any such work of conciliation will depend on building a flourishing economy, which in turn will need us to leave behind some of the stultifying restrictions of the EU machine. The project of ‘ever closer union’ was conceived at a time when economic activity was centred on industrial manufacture, and required large-scale capital investment in industries that are inherently volatile and vulnerable to business cycles. The state was often involved in the national economy, either in rescuing key industries from bankruptcy, or in capitalizing industrial ventures that lay beyond the capacity of ordinary investors. Industry was localized in places where raw materials and cheap labour were readily available, and the whole had a character that was both gargantuan and inflexible, with the state and its agencies playing as large a role in stimulating consumption as they played in organizing production.

Firefighting
by Ben S. Bernanke , Timothy F. Geithner and Henry M. Paulson, Jr.
Published 16 Apr 2019

The auction loans and swaps did help ease the liquidity crunch in the U.S. financial system, but the underlying conditions were getting worse, and the breakdown of the credit engine was starting to damage the broader economy, worsening the stresses created by the unwinding of the housing bubble. Hank warned the White House in December that the economy was hitting a wall. (The official arbiters of the business cycle at the National Bureau of Economic Research would later determine that a recession started that month.) The feedback loop of fear and fire sales within Wall Street was contributing to a feedback loop of credit contractions and business contractions between Wall Street and Main Street. Worsening financial conditions were creating worse economic conditions, which in turn were accelerating the subprime meltdown and the financial panic.

Rendezvous With Oblivion: Reports From a Sinking Society
by Thomas Frank
Published 18 Jun 2018

Declining to mess with a good thing, the Federal Reserve kept interest rates relatively low, simultaneously stoking the euphoric culture of the New Economy. Thanks to a brand-new thing called the Internet, it was said, humankind had entered an entirely new era. Information was now perfect, the business cycle was suspended, the boom would go on forever, and the world’s weak and marginalized would embrace free trade and be lifted up by the loving kindness of markets. Or whatever. The ecstatic style of the moment was so widespread that even the sober and responsible economist Kevin Hassett—now the chair of Trump’s Council of Economic Advisers—coauthored a hyperventilating book called Dow 36,000.

Angrynomics
by Eric Lonergan and Mark Blyth
Published 15 Jun 2020

Quite simply, having handed all the levers of policy to central banks, they now appear to be saying, “we’ve done all we can, over to you”. Now why is there a crisis in the regime of technocrats? Well, firstly, just as they pronounced their greatest achievement, the so-called “Great Moderation”, which eliminated the business cycle, the wheels truly fell off the wagon and we had the most severe recession since the Great Depression. But there also seems to be another problem that has come to the fore in the last three to four years, which is that interest rates don’t seem to work anymore. Increasingly, the central banks are declaring their impotence.

Wealth and Poverty: A New Edition for the Twenty-First Century
by George Gilder
Published 30 Apr 1981

But as John Kendrick has shown, inclusion of investments by the government and nonprofit sectors and in human and intangible capital such as training, research, and mobility, reveals an expansion of total investment spending in recent decades.17 Such intensifications of capital are characteristic of the initial inflationary phases of the business cycle. What Warsh, in essence, did, with the help of the pioneering researches of Phelps-Brown and Hopkins, was to project these now familiar phases of the business cycle onto the vast historic panorama of social and institutional change. Where does that leave us today, in “Tudor” America, launching our ships of multi-national enterprise around the world and into space and mobilizing through government a similar one-third of the gross national income?

Profiting Without Producing: How Finance Exploits Us All
by Costas Lapavitsas
Published 14 Aug 2013

While Hilferding believed that crises were an integral part of the behaviour of the capitalist economy, he dismissed the notion that capitalism would inevitably collapse of its own accord, as Schumpeter has noted approvingly.40 He also discussed the role of credit and money capital in exacerbating the business cycle. Of greater significance, however, was his analysis of the changed form of crises due to the emergence of finance capital, hinting at his later concept of ‘organized capitalism’. Cartels and large banks make banking crises less likely as well as less severe by suppressing competition. Since cartels and banks operate on an enlarged scale of accumulation, they can guarantee a minimum volume of production and circulation, thus also reducing the disruption of credit in a crisis.

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Rogoff, Kenneth, ‘The Optimal Degree of Commitment to an Intermediate Monetary Target’, Quarterly Journal of Economics 100:4, 1985, pp. 1169–90. Rogoff, Kenneth, ‘Reputational Constraints on Monetary Policy’ in Carnegie-Rochester Conference Series on Public Policy 26, Spring 1987, pp. 141–81. Revised and reprinted as ‘Reputation, Coordination and Monetary Policy’, in Modern Business Cycle Theory, ed. Robert J. Barro, Cambridge, MA: Harvard University Press, 1989. Rosdolsky, Roman, The Making of Marx’s ‘Capital’, London: Pluto Press, 1977. Rubery, Jill, ‘Part-Time Work: A Threat to Labour Standards’, in Part-Time Prospects: An International Comparison of Part-Time Work in Europe, North America and the Pacific Rim, ed.

The Age of Em: Work, Love and Life When Robots Rule the Earth
by Robin Hanson
Published 31 Mar 2016

We should similarly expect that random drift in capital holdings will result in most em clans holding most of their wealth in the form of their ability to work, while some em clans hold most of their wealth in other forms of capital. Thus productive em ventures often require the cooperation of several clans; some clans contribute more capital while others contribute more labor. In Chapter 21, Governance section, we saw that em business cycle fluctuations may be larger due to city governance fluctuations. Today, a cost of cycles is labor-hoarding, wherein firms keep paying workers during downturns even when there isn’t enough work. As ems can slow down and pause when there is less work, the em economy less suffers this cost of cycles.

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Index A abstraction 102, 278, 281, 340 adaptations 128, 179, 180, 227, 313, 335 behavior 25–6 to new situations 2 adiabatic gates 79 advice 180, 187, 208–9, 356 on call 315–18 legal 271 on-call 315–18 prediction markets 255 relationship 172 safe-based 173 age 5, 10, 162, 201, 291, 325 peak productivity 11, 202–4, 356 agglomeration 215 aggression 175 aging 128, 129, 136, 169, 208, 358 air 75, 90–2, 95, 326, 360 pressure 95, 218 aliens 154, 364–5 alms 302 ancestors 1, 2, 29, 132, 310, 330, 358, 383 see also farming era; foragers animals 5, 16, 22, 24, 28, 73, 74, 87, 128, 147, 302 emulations of 105, 160–1 anti-messages 82 appearances 99–107 comfortable 101–3 merging real and virtual 105–7 of shared spaces 103–5 of virtual reality 99–101 application teams 210 archives 72, 80, 229, 271 frequency made 71 memory costs 70 message 81 art 203 artificial intelligence 6, 355, 370, 382 intelligence explosion 347–50 research 51–4, 60 artificial light 18 asexuality 10 assets 116, 181, 183, 196, 261, 273, 274, 363, 377, 378 assumptions 45–54 alternative 354–9 artificial intelligence 51–4 of brains 45–7 complexity of emulations 49–51 of emulations 47–9 attacks 106, 252, 354–5 auctions 220–1 see also combinatorial auctions audits 132, 172 authenticity 113, 305 autonomy 320, 321 B bacteria 62, 92 baseline scenarios 7, 36–7, 38, 44, 354, 359 base speed 70–1, 131, 222, 265 beauty 163 behavior, energy-efficient hardware and 80 beliefs, false/biased 261 bets 116, 173, 183, 187, 360 biases 40–4, 174 bipolar disorder 165 birth cohort 202, 325 bits 78, 80 blackmail 274 bodies 72–4, 103, 106, 167 quality of 74 bosses 172, 176, 200 bots 113–14 brain cells 46 brain emulations see emulations brain scanners 46 brain, the 6, 45–7, 341, 342, 346, 349 aging of 128 cell models 46 complexity of 49 emulating brain processes 59 function of 45 modeling 364 reaction time 72 size changes 357 synapses 78 brand loyalty 304 breach of contract 274 buildings 92–5, 191 bulk buying 231 Burj Khalifa, Dubai 93 business 179–88 combinatorial auctions 184–6 cycle fluctuations 197 institutions 179–80 new institutions 181–4 organizations 201 prediction markets 186–8 C capacities 341, 342, 343, 345, 346, 347 capital 190, 191, 193, 361 careers 199–202 castration 285 celebrities 212, 298, 299 charity 302–3, 376–7 childhood 11, 48, 208, 210–2 children 210–2, 303, 383 see also youth choices, regarding em world 367–79 charity 376–7 evaluation of 367–70 policies 372–6 quality of life 370–2 success 377–9 cities 17–18, 85–6, 215–17, 245, 303, 374 air-cooled 90–2 auctions 220–1 centers 86, 89, 90, 93–5, 137, 217–19, 232, 238, 251, 257, 290, 324 first em 360–1, 362 optimal size 216 peripheries 89, 217–19, 223, 324 structure of 217–19 transport of items 226 water cooled 90–2 civilization 131, 132, 133, 135 clans 9–10, 144, 227–9, 291, 299 clan-specific computer hardware 355 concentration 155–6, 160, 237, 238, 244–5 and finance 195 firm-clan relations 235–7 governance 258, 260–4 identity 304–7, 317 inequality between 248 managing 229–31, nostalgia 308 one-name em 155 sexuality 286 signals 300, 301, 302 stories 333–4 voting via mindreading 265 classes 10, 12, 16, 258, 268, 310, 326 lower 312, 313 upper 312, 313 Cleisthenes 269 climate 85–98 clumping 215–26 clutter 103 CMOS (complementary metal–oxide–semiconductor) materials 77 coalitions 266–8 cold war 252 collaboration 309–20 combinatorial auctions 93, 184–6, 220, 261–2 communication 28, 58, 65, 71, 76, 89, 126, 183 hardware 85, 86, 147 networks 65, 81, 125 commuting 224 competition 144, 149, 151, 168, 189 clan 155 efficiency 156–9 complexity 49–51, 340 computer capital 193 computer chips 77 computer gates see logic gates computers 46 computer security 61 conceptual art 203 conflict 243–55 congestion 182, 215, 216 conscientiousness 163, 165 consciousness 48, 49, 343 consensus theories 37–9 conservatives 327 consortiums 363–4 construal level theory 24, 38, 42, 318 contract law 275 conversations 314–15 cooling 86–9, 126 fluids 90–2 systems 88 towers 90 coordination 200, 231, 234 copies 51, 71, 112, 113, 229 copy identity 305–8 copying 119–21, 144, 151, 323 cosmic rays 58 costs 60, 131, 233, 234, 236, 238, 240 and bulk buying 231 business cycle 197 communication 353 of cooling 357 and speed 70 critics 381–3 cultures 25, 41, 321–3 attitudes toward death 137 fragmentation 18, 258, 326 future 28, 29 global 29 identity 303, 305, 307 proto-industry 18 D data centers 91 data redundancy 71 death 112, 134, 135, 136–8, 312 accidental 71 decentralization 183, 185 decision markets 187–8, 260–1 decisions 262 defense 354, 355 democracy 264–6 demographic transitions 25 descendants 1–2, 29, 365, 381, 383, 384 development, cost of 355 research and 359 disasters 112, 369 discrimination see inequality diversity 368 divisions 323–6 doubling time, of economy 190, 191, 192, 193–4, 201–2, 221 drama 332 dreamtime 23–6, 29, 186 Drexler, K.

The Power of Gold: The History of an Obsession
by Peter L. Bernstein
Published 1 Jan 2000

No matter how intense the pain, the political arms of the governments-parliaments or executives-never dreamed of intervening, because the pain was for the Greater Good.40 Remember that this was the age of Queen Victoria and King Edward VII. The type of political outcry that we would expect today was in large part absent in the nineteenth-century environment of Europe, or, to the extent that voices were raised, men in positions of power paid little heed to them. Even among economists, macroeconomic considerations and business cycle analysis did not occupy the attention of mainstream theorists; it was only in the underworld of such people as Karl Marx that those concerns were expressed. The doctrine of laissez-faire and minimal government interference in business and financial affairs was the ruling philosophy for most of the period.

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.* Inflation was the only force that should have threatened the viability of the dollar under these circumstances. And here is where questions began to be raised. True, the U.S. economy had been free of inflationary pressures, despite high rates of economic growth, during the first half of the 1950s; in fact, consumer prices had fallen during 1954. Signs of trouble first appeared in 1956-1957, as the business cycle approached its peak and inflation bubbled up to around 3 percent. Even that rate of inflation might have been tolerated in the late phases of an economic expansion, but the increase of 2.7 percent in consumer prices from the end of 1957 to the end of 1958 came as a shock. By then the boom was over, and a serious decline in business activity had begun.

More: The 10,000-Year Rise of the World Economy
by Philip Coggan
Published 6 Feb 2020

Ibid. 110. Source: http://www.conspicuousconsumption.org/ 111. Source: http://www.woolworthsmuseum.co.uk/aboutwoolies.html 112. Tom Standage, A History of the World in Six Glasses 113. For a more technical explanation, see Christopher Freeman and Carlota Perez, “Structural crises of adjustment, business cycles and investment behaviour”, http://www.carlotaperez.org/downloads/pubs/StructuralCrisesOfAdjustment.pdf Chapter 9 – Immigration 1. The words were written by poet Emma Lazarus, and were added in 1903. 2. That is the view of the Ancient History Encyclopaedia, https://www.ancient.eu/Huns/ 3.

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“Causes of the 1980s slump in Europe”, https://core.ac.uk/download/pdf/6252244.pdf, 1986 Fogel, Robert “The impact of the Asian miracle on the theory of economic growth”, NBER working paper 14967, https://www.nber.org/papers/w14967.pdf, 2009 Ford, Christopher The Mind of Empire: China’s History and Modern Foreign Relations, University Press of Kentucky, 2010 Frankopan, Peter The Silk Roads: A New History of the World, Bloomsbury, 2015 Freeman, Christopher, and Perez, Carlota “Structural crises of adjustment, business cycles and investment behaviour”, http://www.carlotaperez.org/downloads/pubs/StructuralCrisesOfAdjustment.pdf Freeman, Joshua B. Behemoth: A History of the Factory and the Making of the Modern World, W.W. Norton, 2018 Friedel, Robert A Culture of Improvement: Technology and the Western Millennium, MIT Press, 2010 Frieden, Jeffrey Global Capitalism: Its Fall and Rise in the Twentieth Century, W.W.

The Retreat of Western Liberalism
by Edward Luce
Published 20 Apr 2017

That is an outmoded way of measuring growth in today’s world. Since 2009, the US economy has expanded by roughly 2 per cent a year. Yet it took until 2015 for the median income to regain the level it enjoyed before the Great Recession. Perhaps ‘enjoyed’ is the wrong word. The median income in 2007 was below what it was in 2002, at the start of the business cycle that lasted for most of George W. Bush’s presidency. What is good for Apple may not be good for America. It shuttered its last US production facility in 2004. The Bush expansion was the first on record where middle-class incomes were lower at the end of it than at the start. Today, the US median income is still below where it was at the beginning of this century.

Corporate Finance: Theory and Practice
by Pierre Vernimmen , Pascal Quiry , Maurizio Dallocchio , Yann le Fur and Antonio Salvi
Published 16 Oct 2017

Berger et al., Loan sales and the cost of corporate borrowing, IMF Working Paper 05/201, 2005. D. Brounen, A. de Jong, K. Koedijk, Capital structure policies in Europe: Some evidence, Journal of Banking and Finance, 30(5), 1409–1422, May 2006. M. Campello, Capital structure and product market interactions: Evidence from business cycles, Journal of Financial Economics, 68(3), 353–378, June 2003. S. Chava, M. Roberts, How does financing impact investment? The role of debt covenants, Journal of Finance, 63(5), 2085–2121, October 2008. D. Chew et al., Stern Stewart roundtable on capital structure and stock repurchase, in J. Stern and D.

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Murfin, The supply-side determinants of loan contract strictness, Journal of Finance, 67(5), 1565–1601, October 2012. M. Roberts, A. Sufi, Renegotiation of financial contracts: Evidence from private credit agreements, Journal of Financial Economics, 93(2), 159–184, August 2009. J. Santos, A. Winton, Bank loans, bonds, and information monopolies across the business cycle, Journal of Finance, 63(2), 1315–1360, June 2008. A. Saretto, H. Tookes, Corporate leverage, debt maturity, and credit supply: The role of default swaps, Review of Financial Studies, 26(5), 1190–1247, May 2013. E. Séverin, The choice of debt maturity, Bankers, Markets & Investors, 101, 49–58, July–August 2009.

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Potential targets The transactions we have just examined are feasible only with certain types of target companies. The target company must generate profits and cash flows that are sufficiently large and stable over time to meet the holding company’s interest and debt payments. The target must not have burdensome investment needs. Mature companies that are relatively shielded from variations in the business cycle make the best candidates: food, retail, water, building materials, real estate, cinema theatres and business listings providers are all prime candidates. THE WORLD’S 10 LARGEST LBOs Target Date Sector Equity sponsor Value ($bn) TXU 2007 Energy KKR/TPG 45 Equity Office 2006 Real Estate Blackstone 36 HCA 2006 Health Bain/KKR 33 RJR Nabisco 1988 Food KKR 30 Heinz 2013 Food Berkshire Hathaway/3G Capital 28 Kinder Morgan 2006 Energy Carlyle 27 Harrah’s Entertainment 2006 Casino Apollo/TPG 27 First Data 2007 Technology KKR 27 Clear Channel 2006 Media Bain/Thomas Lee 27 Alltel 2007 Telecom TPG/Goldman Sachs 27 Source: Thomson Financial The group’s LBO financing already packs a hefty financial risk, so the industrial risks had better be limited.

The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
by David S. Landes
Published 14 Sep 1999

In any event, foreign capital flows depended as much on supply conditions abroad as on Argentine opportunities. During World War I, the British needed money and had to liquidate foreign assets. Although remaining Argentina’s biggest creditor, they no longer played the growth-promoting role of earlier decades. The United States and others picked up some of the slack, but here, too, politics and the business cycle abroad called the tune, so that Argentina found itself in intermittent but repeated difficulty both for the amount and terms of foreign investment and credit. All of this promoted conflict with creditors, which led in turn to reactive isolationism—restrictive measures that only aggravated the stringency and dependency.

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What unfortunate timing! Some readers rejoiced at my imagined discomfiture: if culture was so important, why were these culturally advantaged societies, these allegedly successful societies, having so much trouble? My answer would be that economic prowess has never exempted anyone from the ups and downs of the business cycle, indeed, that success is its own worst enemy and a temptation to greed and folly. Rectifying mistakes has to be painful. Take Thailand: in December 1997, the government finally agreed to close fifty-six of fifty-eight finance companies, but selling the assets of these companies was another matter.

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On this persecution, see Takekoshi, Economic Aspects, III, 233-35. 32. See Keene, Japanese Discovery, pp. 21-22, on the dissection of “Old Mother Green Tea.” 33. Cited ibid., pp. 26-27’. 34. Totman, Early Modern Japan, p. 519. 35. Craig, Chsh in the Meiji Restoration, p. 71. 36. Tsuru Shigeto, “Development of Capitalism and Business Cycles in Japan” (MS, Harvard University), cited in Brown, “Okubo Toshimichi,” p. 186. CHAPTER 23 1. On these and other episodes of these years of reciprocal trial and measure, see Miyoshi, As We Saw Them, ch. 4: “Lives.” 2. Brown, “Okubo Toshimichi,” p. 190. 3. On all this, see Shimada, “Social Time and Modernity in Japan.” 4.

Numbers Rule Your World: The Hidden Influence of Probability and Statistics on Everything You Do
by Kaiser Fung
Published 25 Jan 2010

Unsurprising, such asymmetric costs coax loan officers into rejecting more good customers than necessary while reducing exposure to bad ones. It is no accident that these decisions are undertaken by the risk management department, rather than sales and marketing. The incentive structure is never static; it changes with the business cycle. During the giant credit boom of the early 2000s, low interest rates pumped easy money into the economy and greased a cheap, abundant supply of loans of all types, raising the opportunity cost of false positives (missed sales). At the same time, the economic expansion lifted all boats and lessened the rate of default of the average borrower, curtailing the cost of false negatives (bad debt).

Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa
by Dambisa Moyo
Published 17 Mar 2009

Indeed, the correlation of key emerging-market spreads (the difference between the risk-free rate and the rate charged to a riskier concern) and US bond returns is typically negative – moving in the same direction when the global economy is universally bad. Emerging-market debt has the advantage of being countercyclical to the developed business cycle, since, in a global recession, poor countries can find it cheaper to repay their debts. As global interest rates decline, which often occurs on the back of a global economic slowdown, the debt service costs for poor countries (denominated in the foreign currency) goes down. Differences in economic fundamentals between developed and developing countries also provide support for the diversification argument.

Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup
by Andrew Zimbalist
Published 13 Jan 2015

The question in this case is whether there are other investments that would have the same salutary short-run impact but would also be more likely to raise productivity in the longer run. Because public debt is being incurred, it is important to evaluate the long-run effect of public spending. Beyond these considerations, it is necessary to keep in mind that the bidding process for the Olympics or the World Cup is not synchronized with a country's business cycle. When a city or country bids, it bids on the IOC's or FIFA's timetable. It would be a fool's errand to bid to host either the Olympics or the World Cup on the assumption that when the bulk of construction took place, the local labor markets would be slack. Finally, the sheer volume of sport and infrastructure construction for a host of the games usually results in a shortage of construction labor.

To Sell Is Human: The Surprising Truth About Moving Others
by Daniel H. Pink
Published 1 Dec 2012

Inventors with new technologies and upstart competitors with fresh business models regularly capsize individual companies and reconfigure entire industries. Research In Motion, maker of the BlackBerry, is a legend one day and a laggard the next. Retail video rental is a cash cow—until Netflix carves the industry into flank steak. All the while, the business cycle itself swooshes without much warning from unsustainable highs to unbearable lows like some satanic roller coaster. A world of flat organizations and tumultuous business conditions—and that’s our world—punishes fixed skills and prizes elastic ones. What an individual does day to day on the job now must stretch across functional boundaries.

So Good They Can't Ignore You: Why Skills Trump Passion in the Quest for Work You Love
by Cal Newport
Published 17 Sep 2012

The 2010 Conference Board survey of U.S. job satisfaction found that only 45 percent of Americans describe themselves as satisfied with their jobs. This number has been steadily decreasing from the mark of 61 percent recorded in 1987, the first year of the survey. As Lynn Franco, the director of the Board’s Consumer Research Center notes, this is not just about a bad business cycle: “Through both economic boom and bust during the past two decades, our job satisfaction numbers have shown a consistent downward trend.” Among young people, the group perhaps most concerned with the role of work in their lives, 64 percent now say that they’re actively unhappy in their jobs. This is the highest level of dissatisfaction ever measured for any age group over the full two-decade history of the survey4.

The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony
by David G. W. Birch
Published 14 Apr 2020

A Bank of England working paper on the topic says (among other things) that (Barrdear and Kumhof 2016): We find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilize the business cycle. GDP growth aside, there is another excellent reason to take this step: cash has no API. Writing for the Bank of England’s Bank Underground blog, Simon Scorer from the central bank’s digital currencies division made a number of very interesting points about our need for some form of digital fiat (Scorer 2017).

100 Baggers: Stocks That Return 100-To-1 and How to Find Them
by Christopher W Mayer
Published 21 May 2018

His personal net worth fell by more than 80 percent. He then had a great conversion. Trading the market demanded “abnormal foresight” and “phenomenal skill” to work, he concluded. “I am clear,” the new Keynes wrote in a memorandum, “that the idea of wholesale shifts [in and out of the market at different stages of the business cycle] is for various reasons impracticable and undesirable.” After the crash, he became an investor, rather than a speculator. His new ideas on investing began to presage those of value-investing icons Ben Graham and Warren Buffett. Interestingly, the crash hurt Graham too and motivated him also to think deeply about the process of investing.

Blockchain Chicken Farm: And Other Stories of Tech in China's Countryside
by Xiaowei Wang
Published 12 Oct 2020

A Taobao village is a place where more than 10 percent of the village households are manufacturing at home for Taobao.com. To accomplish this, Alibaba has a whole branch of its company focused on rural development, rural finance, and rural Taobao. It also has its own rural research institute, AliResearch, which examines the business cycles of Taobao villages to understand their successes and failures. Dinglou was officially designated by Alibaba in 2012 as the first Taobao village. Since then, the number of Taobao villages has soared from 1,311 in 2016 to 3,202 across twenty-four provinces in China in 2018. When I talked to one researcher at AliResearch, he was hopeful that the number would grow.

Daring to Rest
by Karen Brody

I thought of practicing yoga nidra while she was at church, but instead, I sat on the hotel bed eating a plate of french fries. I wasn’t ready to feel. In the coming weeks, I stopped practicing yoga nidra, and after a few months, and then years, I had forgotten all about yoga nidra. How could I forget it, my favorite rest tool for years? I forgot because I got caught in the too-busy cycle. We lived in a hotel for a month with small children, ages five and seven. They started school. I thought Faith needed me more than I needed me. So I pushed yoga nidra away for a long time. And slowly I sank into total darkness. I had post-traumatic stress for two years following Tanzania. We returned to the United States with no possessions because we had sold everything to realize our dream of living in Africa.

The Price of Inequality: How Today's Divided Society Endangers Our Future
by Joseph E. Stiglitz
Published 10 Jun 2012

But deceptive credit card practices and predatory lending have made every American understand that the banks are not to be trusted. One has to read the fine print—and even that won’t be enough. Shortsighted financial markets, focusing on quarterly returns, have also been central in undermining trust within the workplace. In old economics, most firms held on to their good workers through the ups and downs of the business cycle, and those workers returned the favor with loyalty and investment of human capital in the firm, to increase the firm’s productivity. This was called “labor hoarding,” and it made good economic sense.9 But as markets became more shortsighted, such humane polices no longer seemed profitable. The extra profitability—from investments in human capital, from lower turnover costs, and from greater loyalty among workers—wouldn’t be felt for years to come, especially if the downturn went on for some time.

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Solow, “Distribution in the Long and Short Run,” in The Distribution of National Income: Proceedings of a Conference Held by the International Economics Association at Palermo, ed. Jean Marchal and Bernard Ducrois (New York: St. Martin’s Press, 1968), pp. 449–66. See also Truman Bewley, Why Wages Don’t Fall during Recessions (Cambridge: Harvard University Press, 1999); and Craig Burnside, Martin Eichenbaum, and Sergio Rebelo, “Labor Hoarding and the Business Cycle,” Journal of Political Economy 101, no. 2 (April 1993): 245–73. 10. See the discussion in chapter 4 and the references cited there. 11. This, as we noted in chapter 4, is one of the central tenets of efficiency wage theory. For broader discussions of what is sometimes called the “high quality workplace,” see chapter 4.

The Technology Trap: Capital, Labor, and Power in the Age of Automation
by Carl Benedikt Frey
Published 17 Jun 2019

Defoe, [1724] 1971, A Tour through the Whole Island of Great Britain. 46. Crouzet, 1985, The First Industrialists, 4. Chapter 3 1. On Schumpeterian versus Smithian growth in the preindustrial world, see J. Mokyr, 1992a, The Lever of Riches: Technological Creativity and Economic Progress (New York: Oxford University Press). 2. J. A. Schumpeter, 1939, Business Cycles (New York: McGraw-Hill), 1:161–74. 3. T. Malthus, [1798] 2013, An Essay on the Principle of Population, Digireads. com, 279, Kindle. 4. H. J. Habakkuk, 1962, American and British Technology in the Nineteenth Century: The Search for Labour Saving Inventions (Cambridge: Cambridge University Press), 22. 5.

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“The Size of the Economy and the Distribution of Income in the Roman Empire.” Journal of Roman Studies 99 (March): 61–91. Schlozman, K. L., S. Verba, and H. E. Brady. 2012. The Unheavenly Chorus: Unequal Political Voice and the Broken Promise of American Democracy. Princeton, NJ: Princeton University Press. Schumpeter, J. A. 1939. Business Cycles. Vol. 1. New York: McGraw-Hill. Schumpeter, J. A. [1942] 1976. Capitalism, Socialism and Democracy. 3rd ed. New York: Harper Torchbooks. Scoville, W. C. 1960. The Persecution of Huguenots and French Economic Development 1680–1720. Berkeley: University of California Press. Shannon, C. E. 1950.

A Mathematician Plays the Stock Market
by John Allen Paulos
Published 1 Jan 2003

Interest rates, for example, have an impact on unemployment rates, which in turn influence revenues; budget deficits affect trade deficits, which sway interest rates and exchange rates; corporate fraud influences consumer confidence, which may depress the stock market and alter other indices; natural business cycles of various periods are superimposed on one another; an increase in some quantity or index positively (or negatively) feeds back on another, reinforcing or weakening it and being reinforced or weakened in turn. Few of these associations are accurately described by a straight-line graph and so they bring to a mathematician’s mind the subject of nonlinear dynamics, more popularly known as chaos theory.

Why Information Grows: The Evolution of Order, From Atoms to Economies
by Cesar Hidalgo
Published 1 Jun 2015

Winter (An Evolutionary Theory of Economic Change [Cambridge, MA: Harvard University Press, 1982]) and emphasizes the tacit nature of the knowledge embedded in firms, the ability of firms to absorb tacit knowledge, and the recombination of knowledge, which is inspired by ideas from Schumpeter (for example, Joseph A. Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle [Cambridge, MA: Harvard University Press, 1934]). A good review comparing the evolutionary economic geography literature to other approaches is Ron A. Boschma and Koen Frenken, “Why Is Economic Geography Not an Evolutionary Science? Towards an Evolutionary Economic Geography,” Journal of Economic Geography 6, no. 3 (2006): 273–302. 2.

Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs
by Andy Kessler
Published 1 Feb 2011

“Let alone antibiotics, stents for heart attacks—he either died young of tuberculosis or, worse, watched as one of his kids died young. This guy was one of the richest in the world but he’d be considered living under the poverty line in our day.” “I’m going to the next museum by myself.” THE EXPERIENCE GOT me thinking. I’ve been around the investment business for way too many years, trying to understand business cycles and product cycles, assessing management, picking stocks that go up, avoiding those that go down, but it wasn’t until I gawked my way through Monsieur Elite’s home off Boulevard Haussmann that I put my mind to the creeping change over the last one hundred years. You and I are nowhere as rich, on a relative basis, as this guy was, the envy of all, but in almost every other way, we have and do things every day that all the riches in the world back then couldn’t buy.

Different: Escaping the Competitive Herd
by Youngme Moon
Published 5 Apr 2010

In addition, these brands leave an indelible mark on their categories even after copycats emerge. In fact, this is what I tel my students: When you witness the birth of a breakaway brand, you are often witnessing the birth of an entirely new subcategory, one that is likely to alter the complexion of that industry wel beyond the next business cycle. The Swatch gave birth to a new subcategory in the watch industry that today booms with fashion accessory brands ranging from Fossil to Coach. The Simpsons spawned a new television genre that eventual y included King of the Hill, Beavis and Butt-Head, and South Park. Kimberly-Clark’s Pul -Ups was responsible for the emergence of a new disposable training pants segment that today includes Procter & Gamble’s Easy Ups.

The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street
by Robert Scheer
Published 14 Apr 2010

He would then go on to pay tribute to Franklin Delano Roosevelt, as he had in his earlier autobiography, for programs that saved the Reagan family during the Great Depression, when his unemployed father was able to find work only at a New Deal agency. For years Reagan had remained committed to that memory of an activist government righting the wrongs of the market and ameliorating the rough swings of the business cycle. During his time at GE, however, Reagan endorsed the viewpoint that what was good for Big Business was good for America. And why not, since GE, under pressure from an aggressive union, provided solid manufacturing jobs that supported a then-growing middle class? Later, though, the conglomerate, mirroring shifts in the American economy as a whole, increasingly became dependent on financial products rather than material ones, such as refrigerators.

The Self-Made Billionaire Effect: How Extreme Producers Create Massive Value
by John Sviokla and Mitch Cohen
Published 30 Dec 2014

Ross was thinking big and using Empathetic Imagination based on his existing knowledge: he imagined a company that married all of the component parts of affordable housing development, including developing new properties, financing mortgages, syndicating existing developments, and obtaining government subsidies for housing and urban development. The challenge was that the development portion of the business required capital—a lot of it—and Ross didn’t have any. He had also seen the way the rapid business cycles of the 1970s and 1980s put a lot of pressure on real estate developers. While developers needed to develop new properties just to get the development fees, even a brief lull in demand could put their entire investment at risk. So Ross knew he urgently needed another source of income to provide the cash flow needed to ensure he could pay his bills while he worked on development deals.

Smart Cities, Digital Nations
by Caspar Herzberg
Published 13 Apr 2017

WHO MAKES THE CITY SMART? There has been considerable criticism of the role of technological leaders moving into the role of city planning. Thanks to its prominent role in Songdo, Cisco has borne the brunt of much of this criticism. Some of it is inevitable, since news cycles move more quickly than business cycles. But there are more fundamental theories that train a skeptical eye on the more ambitious city-building projects, which are worthy of discussion. Anthony Townsend, in his 2013 book Smart Cities, defines a fundamental tension between the methods that can be employed to create a city. He champions the “one app at a time,” bottom-up creation and adaptation of city services.

Gigged: The End of the Job and the Future of Work
by Sarah Kessler
Published 11 Jun 2018

Household income in the United States became noticeably more volatile between the early 1970s and the late 2000s,13 and a Federal Reserve study published in 2014 found that a third of American households experience volatile income swings, mostly due to unpredictable hours.14 In 2004, when the Los Angeles Times reported the results of a survey that followed 5,000 families for 40 years, it concluded that “a growing number of families have found themselves caught on a financial roller coaster ride, with their annual incomes taking increasingly wild leaps and plunges.”15 The paper compared the new economy to the stock market, with an unpredictable schedule of big payouts and big setbacks for workers. This was a theme park ride that few people enjoyed. Labor leader David Rolf and venture capitalist Nick Hanauer, writing in the journal Democracy, explained why: Economic security is what frees us from the fear that one job loss, one illness—one economic downturn amidst a business cycle guaranteed to produce economic downturns—could cost us our home, our car, our family, and our social status. It’s what grants us permission to invest in ourselves and in our children, and to purchase the non-subsistence goods and experiences that make our lives healthier, happier, and more fulfilling.

The Decline and Fall of IBM: End of an American Icon?
by Robert X. Cringely
Published 1 Jun 2014

I am surprised that IBM increased their debt to increase buybacks. They seem now to be addicted to the debt.” (The full analogy is that drugs feel good for a while until the user needs more to sustain the same high, and then the user spirals out of control. It looks like they continued borrowing beyond their ability to re-pay in the same business cycle.) “IBM should consider using its cash to make more acquisitions that will help it grow. It also seems that the Board gave the CEO an EPS target without a revenue or gross margin or operating margin target. These goals shouldn’t be issued in a vacuum. The fact that they’d had year after year of sales declines for eight straight quarters meant that their core businesses were either mature, or not being well executed, or both.”

Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It
by Tien Tzuo and Gabe Weisert
Published 4 Jun 2018

Today people expect services to provide immediate, ongoing fulfillment, from rideshares to streaming services to subscription boxes. They want to be happily surprised on a regular basis. And if you don’t meet those expectations, you get dropped, not to mention trashed on social media. It’s that simple. Forrester Research thinks we’re at the beginning of a new twenty-year business cycle it calls “The Age of the Customer.” Forrester sees a broad, systemic shift in capital models pivoting toward serving a newly empowered generation of customers who have the ability to price, critique, and purchase anytime, anywhere. Here’s how Forrester describes the new customer mindset: “The expectation that any desired information or service is available, on any appropriate device, in context, at your moment of need.”

The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay
by Emmanuel Saez and Gabriel Zucman
Published 14 Oct 2019

In contrast to other wealthy countries, where they have stabilized over the last decades, taxes in the United States have fallen. The macroeconomic tax rate is significantly lower today than at the end of the twentieth century. It is only recently, with the tax cuts of 2018, that this trend has become fully apparent: in the short run, tax revenues rise with economic expansions and fall in recessions, and these business cycle effects can obscure the trend line. But the medium-run trend is now clear. During the second half of the 1990s, the overall US tax rate peaked at about 31.5%. In 2019, following nine years of economic growth, and with unemployment at a historically low level, it is almost four points lower, at around 28%.

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan
by Ben Carlson
Published 14 May 2015

Myth 3: If Only You Can Time the Next Recession, You Can Time the Stock Market Since 1928, the U.S. economy has been in a recession on average one out of every five years or 20 percent of the time. In that time, the longest the economy has ever gone between recessions is 10 years, from 1991 to 2001. Recessions can be painful, but somehow every time we're in the midst of a strong economic recovery, people forget that they're a natural outcome in the ebb and flow of the business cycle. Table 4.4 shows how common recessions are in the United States. Table 4.4 U.S. Recessions since 1929 Recession GDP Contraction August 1929–March 1933 –26.7% May 1937–June 1938 –18.2% February–October 1945 –12.7% November 1948–October 1949 –1.7% July 1953–May 1954 –2.6% August 1957–April 1958 –3.7% April 1960–February 1961 –1.6% December 1969–November 1970 –0.6% November 1973–March 1975 –3.2% January1980–July 1980 –2.2% July 1981–November 1982 –2.7% July 1990–March 1991 –1.4% March 2001–November 2001 –0.3% December 2007–June 2009 –4.3% Source: National Bureau of Economic Research.

Antifragile: Things That Gain From Disorder
by Nassim Nicholas Taleb
Published 27 Nov 2012

The most depressing part of the Greenspan story is that the fellow was a libertarian and seemingly convinced of the idea of leaving systems to their own devices; people can fool themselves endlessly. The same naive interventionism was also applied by the U.K. government of Fragilista Gordon Brown, a student of the Enlightenment whose overt grand mission was to “eliminate” the business cycle. Fragilista Prime Minister Brown, a master iatrogenist though not nearly in the same league as Greenspan, is now trying to lecture the world on “ethics” and “sustainable” finance—but his policy of centralizing information technology (leading to massive cost overruns and delays in implementation) instead of having decentralized small units has proven difficult to reverse.

…

Indeed, the U.K. health service was operating under the principle that a pin falling somewhere in some remote hospital should be heard in Whitehall (the street in London where the government buildings are centralized). The technical argument about the dangers of concentration is provided in Chapter 18. These attempts to eliminate the business cycle lead to the mother of all fragilities. Just as a little bit of fire here and there gets rid of the flammable material in a forest, a little bit of harm here and there in an economy weeds out the vulnerable firms early enough to allow them to “fail early” (so they can start again) and minimize the long-term damage to the system.

Bourgeois Dignity: Why Economics Can't Explain the Modern World
by Deirdre N. McCloskey
Published 15 Nov 2011

By all means, dig holes and fill them up and then dig them again, and pay the diggers/fillers with newly printed currency. (On the other hand, estimates of the “multiplier” on government expenditure even in 1933 have come in at below 1.0.) But in a more typical year of mismatched jobs and skills, the Keynesian argument is incorrect. Nor is it correct from peak to peak of the business cycle, for which only a creativist view makes economic sense. In the long run we get better off only by betterment, not by spending.14 If spending worked, we could enrich ourselves endlessly by printing money and handing it out in steadily increasing sums to those high-spending poor—an unlimited miracle achieved merely by printing little portraits of George Washington.

…

The economists want to reduce motivation to predictable Max U. If a graduate student in economics can in retrospect come up with a simple, “institutional” explanation of a phenomenon, it seems plausible that the people on the scene at the time could have spotted the $100 bill too. Yet the modern world, like the business cycle (and for the same reason), was not predictable. It depended on the new liberal notion of liberty and dignity, and their unpredictable results in betterment for all. Postulate in charity, though, the partial failure of routinely predictable incentives. It is high charity, because virtues other than knowable, routine prudence obviously matter too.

…

The Oxford English Dictionary attributes its first use in sense 5, “introducing a new product into the market,” to Joseph Schumpeter in 1939, which seems implausibly late (the OED is conservative in such dating). And one can quarrel, too, with the lexicographer’s understanding of what Schumpeter was up to in the book quoted, Business Cycles. In the word “innovation” Schumpeter included, as all economists do when they use it, betterments in making products too, and in financing them and in trading them and in inventing them de novo, not merely the introducing of a new product. Betterment is any new good or service or any new way to do an old one.

The New Ruthless Economy: Work & Power in the Digital Age
by Simon Head
Published 14 Aug 2003

Even before the terrorist attacks of September 11, 2001, weakened the economy, the IT industries had already become a severe drag.2 Investment in sectors such as telecommunications and the Internet had collapsed, and companies like Cisco, Lucent, and Nortel, once flagships of the IT revolution, were laying off tens of thousands of workers and writing off tens of billions of dollars worth of inventory. It's now clear that the "new e n- I 2 THE NEW RUTHLESS ECONOMY omy" and its industries have not been immune from the excesses of investment that have always driven the business cycle. In the space of two and a half years, the near boundless optimism of Bill Clinton's second term has given way to this new age of anxiety, surely among the most dramatic changes in the U.S. economic climate to have taken place since the Harding-Coolidge boom gave way to the Hoover bust between 1928 and 1930.

Personal Investing: The Missing Manual
by Bonnie Biafore , Amy E. Buttell and Carol Fabbri
Published 24 May 2010

For example, the Charles Schwab website has a risk profile questionnaire (http://tinyurl.com/ schwabriskprofile) that analyzes your risk tolerance and investment timeframe to determine what type of investor you are. 160 Chapter 9 But because your stocks need time to recover from the bottom of a business cycle or bad news about a company, you also need other types of investments. Enter fixed-income investments, which deliver more dependable returns. Although bond returns sometimes don’t beat inflation, you use bonds and other fixed-income investments for overall portfolio stability. In effect, you take on small risks, like interest rate risk and reinvestment risk, to counteract the risks from stocks.

The Handbook of Personal Wealth Management
by Reuvid, Jonathan.
Published 30 Oct 2011

They are now being joined by falls in the United States, Britain, Ireland, New Zealand, Denmark and Germany, according to The Economist. Added to this, there is an obvious but often neglected caveat. Art is a lagging indicator, which responds slowly to recovery and recession. In a study of the UK art market, Rachel Campbell et al (2005) found that art price returns tend to be higher during the upward consumption phase of a business cycle. Following that, when asset prices fall, people feel less rich and eventually stop buying art, which is usually between four and 18 months after a stock market crash. In response to the growing interest in art investment, a Barclays’ equity and gilt study in 2004, for the first time since 1956, included art as a medium to long-term investment based on the Mei and Moses research.

Money Mischief: Episodes in Monetary History
by Milton Friedman
Published 1 Jan 1992

The three broken curves after t0, the date at which the quantity of money starts to rise, illustrate alternative possible transitional paths: curve A shows a single overshooting and then a gradual return to the permanent position; curves B and C show an initial undershooting, then an overshooting, followed by either a gradual return (curve B) or a damped cyclical adjustment (curve C). Figure 2 The necessity for overshooting in the rate of price change and in the rate of income change (though not necessarily in the level of either prices or income) is, I believe, the key element in monetary theories of business cycles. In practice, the need to overshoot is reinforced by an initial undershooting (as in curves B and C). When the helicopter starts dropping money in a steady stream—or, more generally, when the quantity of money starts unexpectedly to rise more rapidly—it takes time for people to catch on to what is happening.

Blindside: How to Anticipate Forcing Events and Wild Cards in Global Politics
by Francis Fukuyama
Published 27 Aug 2007

Participants worked closely with the computer to identify groups of futures—key scenarios—where their initially proposed policy was vulnerable. These scenarios helped sketch a potentially bold and careful approach to sustainable development for the twenty-first century. Recrafting Scenario Practice for the Twenty-First Century The United States government significantly improved its management of the economy and business cycle over the course of the twentieth century. The advent of new analytical concepts and methods, such as national income accounting and standard procedures for tracking gross domestic product, provided one important impetus. These tools gave both experts and the lay public a simple quantitative metric they could use to monitor national performance.

Broken Markets: A User's Guide to the Post-Finance Economy
by Kevin Mellyn
Published 18 Jun 2012

These add up to zero, being mirror images of each other, and it is natural to assume that this is a zero-sum game where surplus countries win and deficit countries lose. However, bilateral trade is actually almost never in balance because countries have different stages of economic development and different business cycles, as well as different advantages in producing specific goods, services, and commodities. 94 Chapter 5 | Global Whirlwinds This is even more true when looking at multilateral trade, since every country actually trades and invests with many other countries at once. It is quite common for a country to enjoy a large bilateral trade surplus with one country and bilateral deficits with several others.

Overdressed: The Shockingly High Cost of Cheap Fashion
by Elizabeth L. Cline
Published 13 Jun 2012

Two law professors, Kal Raustiala and Chris Sprigman, have argued against the design piracy act on the grounds that the American apparel industry “may actually benefit” from copying, as it speeds up the creation and exhaustion of trends. As they put it in their paper to Congress, “The fashion industry’s entire business cycle is driven forward by consumer demand for the new, and the entire process is fueled by copying.”28 Its easy to view copies and near copies as justified and even fair in the face of high markups and steep designer fees. Writer Christine Muhlke recounted in the New York Times her adventure to track down Zara’s rip-offs of the Céline collection.

Kicking Awaythe Ladder
by Ha-Joon Chang
Published 4 Sep 2000

Social welfare institutions are, however, much more than 'safety nets'; if carefully designed and implemented they can enhance efficiency and productivity growth.122 Cost-effective public provision of health and education can bring about improvements in labour force quality that can, in turn, raise efficiency and accelerate productivity growth. Social welfare institutions reduce social tensions and enhance the legitimacy of the political system, thus providing a more stable environment for long-term investments. Inter-temporal smoothing of consumption through devices like unemployment benefit can even contribute to dampening the business cycle. And so on. All these potential benefits of social welfare institutions have to be set against their potential costs. First, there are the potentially corrosive effects of social welfare institutions on the work ethic and the sense of self-worth felt by the recipients of benefits. Second, apparently technical issues can significantly determine the effectiveness and legitimacy of these institutions.

Tyler Cowen-Discover Your Inner Economist Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist-Plume (2008)
by Unknown
Published 20 Sep 2008

Some economists focus on the statistical measurement of human behavior. Steven Levitt of Freakonomics 10 I DISCOVER YOUR INNER ECONOMIST fame made his name by studying statistics about unusual or underexplored walks of life, such as crime, real estate agents, and sumo wrestling. Other economists try to predict the next business cycle or tomorrow's stock prices. Yet others build ever more complicated mathematical models of human behavior, sometimes under the heading of "game theory." Economists in think tanks agitate for one public policy over another. At a simpler level, many textbooks teach basic terminology and how to manipulate graphs and symbols.

The 80/20 Principle: The Secret of Achieving More With Less
by Richard Koch
Published 15 Dec 1999

Invest most when the stock market is low Although its value goes up over time, the stock market is cyclical, partly as a function of the economic cycle but mainly because moods fluctuate. It is amazing, but irrational concerns driven by fashion, animal spirits, hope, and fear can drive prices up or down. Pareto himself observed this phenomenon: There is a rhythm of sentiment which we can observe in ethics, in religion, and in politics as waves resembling the business cycle… Whereas during the upward trend every argument produced in order to demonstrate that an enterprise will produce money is received with favour; whereas such an argument will be absolutely rejected during the downward trend…A man who during the downward trend refuses to underwrite certain stocks believes himself to be guided exclusively by reason and does not know that, unconsciously, he yields to the thousand small impressions which he receives from the daily economic news.

The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders
by Kate Kelly
Published 2 Jun 2014

up to 10 percent of active, or “open,” contracts: David Cho, “A Few Speculators Dominate Vast Market for Oil Trading,” Washington Post, August 21, 2008, http://online.wsj.com/news/articles/SB10001424052748704285104575491981967381818. close to 10 percent apiece: “World Economic Outlook, April 2008: Housing and the Business Cycle,” International Monetary Fund, p. 81. http://www.imf.org/external/pubs/ft/weo/2008/01/pdf/text.pdf. the most severe winter weather in fifty years: John Liu and Li Xiaowei, “China Tries to Restore Power; Storms Forecast to Ease,” Bloomberg, February 4, 2008, http://www.bloomberg.com/apps/news?

The New Elite: Inside the Minds of the Truly Wealthy
by Dr. Jim Taylor
Published 9 Sep 2008

But perhaps most important, they were not likely to be in the same product business in which they began, while still operating with the same spirit and commitment. The values of a founder transcend time in great products and brands, and those values continue to convey meaning across centuries. These great brands exhibit tremendous resilience, surviving product faults, marketing missteps, and the natural vacillation of business cycles. Strong brands can endure a potentially branddiluting influx of lower-quality, lower-priced products. To use a fineart metaphor, simply because Picasso produced perhaps the greatest quantity of art in the modern era, including many relatively ‘‘low quality’’ pencil drawings, does not tarnish the fact that his greatest works are among the most desired in history (and from a purely monetary perspective, have held their value remarkably well).

Borrow: The American Way of Debt
by Louis Hyman
Published 24 Jan 2012

Couzens’s “warning against the continuance of practices which everyone who has had any experience at all knows to be unsound, unwise, and dangerous” went happily ignored as long as the economy chugged stably along. Those who grumbled, like the economist C. Reinhold Noyes writing in the Yale Review, about “financing prosperity on tomorrow’s income” and the inevitability of the business cycle were unheeded.28 Noyes held “the motor industry to be the storm centre of the next period of depression, and it will be entirely to blame” for infusing installment credit so thoroughly into the economy. The Depression, which he correctly predicted in 1927 to be “two or three years” away, would be “automatic and inevitable” as it was the result of “retribution for economic sin.”29 The “various bubbles” of cars and houses would burst and drag down the economy.

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed
by John Peet , Anton La Guardia and The Economist
Published 15 Feb 2014

But some countries that could have signed up for stage three of EMU (adopting the single currency) deliberately chose not to. The UK and Denmark had treaty opt-outs. Although Tony Blair seemed for a time hopeful of joining after he became prime minister in 1997, his chancellor of the exchequer, Gordon Brown, was against. The “five tests” that Brown devised for membership (on business cycles, flexibility, investment, financial services and growth) may have been more sensible than the Maastricht criteria, but they also proved impossible to pass. Denmark put the matter to a referendum in September 2000, which returned a negative majority. Sweden, which was legally obliged to join by the terms of its accession treaty, chose also to put the issue to its people, who voted no in September 2003.

Dead Companies Walking
by Scott Fearon
Published 10 Nov 2014

Sometimes I hit a home run. Sometimes I lose. But I always do everything I can to stay open-minded and willing to adapt to new information or circumstances. I believe this mental limberness is why my fund has consistently earned good returns, even though it has lived through some of the most volatile and unproductive business cycles in generations. Look at the 2000s. The stock market—after two massive collapses—was essentially flat for the entire decade. And yet my fund, even with a calamitous 2009 (which I will talk about later), managed to rise more than 100 percent after all fees during that lost decade for US stocks.

Scrum: The Art of Doing Twice the Work in Half the Time
by Jeff Sutherland and Jj Sutherland
Published 29 Sep 2014

They’d gather all the requirements from the customer, then go away for eighteen months and deliver on time and on budget exactly what the customer had asked for. They were one of the very, very few companies in the entire world that could pull that off. The problem was, at that point the customer no longer wanted what they’d said they wanted. Circumstances had changed. Business cycles were getting shorter, and customers were demanding more responsive services. I was brought in to see if I could help BellSouth figure out what they were doing wrong. I soon realized it was the entire way they were working. This can be tough to hear when it seems as if you’re doing everything right.

Shadow Work: The Unpaid, Unseen Jobs That Fill Your Day
by Craig Lambert
Published 30 Apr 2015

Customers work hand-in-hand with robots as technologies like kiosks team up with them to complete transactions. The new check-in kiosk in the hotel lobby, for example, means one less person behind the desk. This pincer movement spins off unemployment that may be permanent, because technology, not the business cycle, drives it. Historically, automation has eliminated jobs at the point of production—for example, in factories. Shadow work instead deletes jobs at the point of sale—for example, at drugstore checkouts. There are no statistics yet on shadow work, so it is hard to say how much unemployment it causes.

How to Predict the Unpredictable
by William Poundstone

PE valuations have too much to do with the latest news cycle, the latest quarter, and the last few years. Yale economist Robert Shiller devised a better way of gauging stock market valuation. It’s the current S&P 500 price divided by a ten-year moving average of earnings. This has the merit of smoothing out business cycles and much of the duplicity in corporate earnings reports — for there are cycles of candor as well as profit. A ten-year average of corporate earnings is about as truthful as these things get. Shiller’s idea wasn’t entirely new. At least as far back as 1934, pioneering value investor Benjamin Graham recommended using five to ten years of earnings in computing PE ratios.

Start With Why: How Great Leaders Inspire Everyone to Take Action
by Simon Sinek
Published 29 Oct 2009

All companies are in business to make money, but being successful at it is not the reason why things change so drastically. That only points to a symptom. Without understanding the reason it happened in the first place, the pattern will repeat for every other company that makes it big. It is not destiny or some mystical business cycle that transforms successful companies into impersonal goliaths. It’s people. Being Successful vs. Feeling Successful Every year a group of high-performing entrepreneurs get together at MIT’s Endicott House just outside Boston. This Gathering of Titans, as they call themselves, is not your average entrepreneurial conference.

99%: Mass Impoverishment and How We Can End It
by Mark Thomas
Published 7 Aug 2019

Although Okun’s Law was derived from statistical observation, and therefore has some grounding in reality, it has not stood up well to long-term scrutiny. When Edward S. Knotek II of the Federal Reserve Bank of Kansas City examined the data, he found that: Okun’s Law has not been useful as a stable relationship, since its parameters have varied considerably over time and over the course of the business cycle. In addition, it has not always been a reliably strong relationship, especially in quarterly data.24 But despite this lack of stability, Okun’s Law has not been renamed Okun’s conjecture or Okun’s heuristic, which might more accurately describe its status. Instead it retains its status as an economic law.

What's Wrong With Economics: A Primer for the Perplexed
by Robert Skidelsky
Published 3 Mar 2020

Saul, John Ralston (2004). ‘The Collapse of Globalism’, Harper’s Magazine, March. Schlesinger, Arthur M. (1986). The Cycles of American History, London: Penguin. Schumpeter, Joseph (1983 [1934]). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, New Brunswick: Transaction Publishers. Solow, Robert (1985). ‘Economic History and Economics’, American Economic Review, Vol. 75 (2): 328–31. Chapter 12 Alkire, Sabina, Foster, James E., Seth, Suman, Santos, Maria Emma, Roche, Jose M. and Ballon, Paola (2015). Multidimensional Poverty Measurement and Analysis, Oxford: Oxford University Press.

How Boards Work: And How They Can Work Better in a Chaotic World
by Dambisa Moyo
Published 3 May 2021

A CEO who excels in a period of growth has different priorities than a CEO guiding their company through a recession. In an environment of declining sales, margin compression, shrinking market share, persistently slow growth, and poor stock performance, the question of whether the CEO is working must be considered, but the board-approved strategy also requires careful examination. Business cycles can be discussed using an analogy of war and peace: a poor business environment is likened to wartime while a period of growth is like peacetime. Ben Horowitz, cofounder of the Silicon Valley venture capital firm Andreessen Horowitz, contrasted the attributes of wartime and peacetime CEOs in a 2011 article.

Two and Twenty: How the Masters of Private Equity Always Win
by Sachin Khajuria
Published 13 Jun 2022

Mutual funds, index funds, and ETFs might cut it for one year or over a run of years, but such instruments often encounter volatile periods during which the returns are negative or insufficient. That’s not good enough to build a retirement around. Pension money needs high, stable returns through the ups and downs of the market and business cycles. It needs the returns that private equity keeps delivering to investors. The best private equity funds minimize risk while delivering annual returns in excess of, say, fifteen percent—with the top firms generating even higher returns while presiding over very few investments that fail to work out.

The Making of Global Capitalism
by Leo Panitch and Sam Gindin
Published 8 Oct 2012

The bitter class conflict that took off in 1934 ranks in American history only with that of the early 1890s, the main difference being that in the mid thirties the government was much less willing, and business much less able—despite employing corporate armies of industrial “detectives”—to repress industrial militancy. After 1934 “the number of strikes annually never fell below 2,000 and every upturn in the business cycle and tightening of the labor market stimulated greater unrest.”53 Moreover, the 20 percent growth in union membership in 1934 was registered in the increased voter turnout, which reinforced the Democrats’ triumph in the midterm elections of that year, described by the New York Times as “the most overwhelming victory in the history of American politics.”54 But it was at this point hardly clear what exactly the New Deal could achieve.

…

Gordon and Thomas E. Weisskopf, Beyond the Waste Land, New York: Anchor Books, 1984, to Robert B. Reich, The Work of Nations, New York: Vintage, 1992. 95 Michael Ignatieff, “The American Empire: (Get Used To It),” New York Times Magazine, January 5, 2003; James H. Stock and Mark W. Watson, “Has the Business Cycle Changed and Why?” NBER Working Paper 9127, September 2002. 96 As Fine et al. put it: “Obsessive preoccupation with the level of the rate of profit is entirely inappropriate, and Marx himself placed much more emphasis on the capacity to continue to accumulate the mass of surplus value produced (as opposed to the rate of profit at which it is realised).”

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal
by Ludwig B. Chincarini
Published 29 Jul 2012

If there were a recession in one country, for instance, that country would want to lower interest rates and stimulate its economy. Dissimilar countries, however, might be doing quite well and would worry about stimulation and lower rates bringing rising inflation. Similar economies make it more likely that members will experience synchronous business cycles. If the economies have different shocks, then it is important that the system can automatically handle shocks, without involving the common central bank. U.S. states don’t have identical economies, though they are more similar than are European countries. If people can move easily from one member country to another, for instance, they will flee high unemployment by moving to more prosperous countries.

…

The United States doesn’t have a true free-market economy. The government sector controls a vast part of the market. We must decide how much government control is best. A system full of regulation might have fewer crises, but might also offer a slow route to long-term prosperity. A system with less regulation might have more agitated business cycles, more innovation, and higher long-term growth. We must consider the economic impact of universal health care, where the healthier and wealthier substantially subsidize the poor and less healthy, as well as the effects of affirmative action policies that may lead to less efficient workers in the workplace or less able students in the universities.21 Politicians should also concern themselves with system choices rather than easy, rhetorical sound bites that only distract and misinform the general population.

Business Metadata: Capturing Enterprise Knowledge
by William H. Inmon , Bonnie K. O'Neil and Lowell Fryman
Published 15 Feb 2008

For each of these sources, at a minimum you will have to consider the following issues when you scope the effort: ✦ Stability of the source metadata ✦ Frequency and timing of the source metadata acquisition 5.5 Summary 87 ✦ Quality, controls, and audit checks for the metadata as well as the acquisition processes ✦ Requirements for maintaining history, versioning, and archiving of the metadata ✦ Metadata integration requirements ✦ Business usage and presentation of the metadata ✦ Timing and business cycle for presenting metadata ✦ Security for access of the metadata ✦ Security of the reporting and printed versions of the metadata Planning and scoping the metadata project is not always a simple issue. Actually, it can often be more difficult than planning for a standard data integration effort.

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments
by Charles Goyette
Published 29 Oct 2009

It is called Austrian economics not because it is practiced in Austria—it isn’t—but because many of its founders and proponents such as Ludwig von Mises and Nobel laureate F. A. Hayek were Austrian. From the perspective of a humane appreciation of free people and free markets, the Austrian school economists provided clear explanations of the business cycle of booms and busts that bedevil our economy and showed how they are needlessly caused by central bank policies. They advanced a theory of money and credit that accounted for inflation and deflation and much more. But even more important for investors, Austrian economics has great predictive power.

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover
by Katrina Vanden Heuvel and William Greider
Published 9 Jan 2009

Tom Schlesinger, director of the Financial Markets Center, a monetary-policy watchdog, thinks the lopsided economy is the most disturbing hallmark of Greenspan’s governance. “The Fed has said almost nothing about this, except [vice chairman] Roger Ferguson says there’s nothing the Fed can do particularly,” Schlesinger complains. “The jobless recovery appears to be a new feature of the U.S. business cycle. Yet the principal agent of economic management says nothing.” In fact, Americans seem to be confronted with the very conditions Keynes warned against: an economy performing, more or less permanently, far below its potential. That situation proves satisfactory for the affluent and for business enterprise, since wage pressures are muted, but it makes life insecure or miserable for most everyone else.

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives)
by David Birch
Published 14 Jun 2017

In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle. I find the observations of the authors compelling (although my knowledge of relevant economic theory is limited) and I have come to similar conclusions from the technological direction. Since the observations of the Bank of England from an economic perspective correlate so closely with my observations from the technological perspective, I think the concept must have some validity.

The Armchair Economist: Economics and Everyday Life
by Steven E. Landsburg
Published 1 May 2012

But if you talk to people who lived through the Great Depression you will find that virtually all of them would have preferred to spread the pain, taking a smaller cut in living standards over a longer period of time. If people don't like having their bad fortune concentrated into a few years by the vagaries of the business cycle, why should they like it any better when it is imposed on them by government fiat? Fortunately, people can and would protect themselves from the Rohatyn Plan. Precisely because they prefer to smooth out their consumption, people would borrow more (or equivalently, save less) in order to get through the temporary period of high taxes that he prescribes.

$2.00 A Day: Living on Almost Nothing in America
by Kathryn Edin and H. Luke Shaefer
Published 31 Aug 2015

.” [>] how desperate the need: Some states take an active role in perpetuating this, using “informal diversion practices” that “dissuade people from completing the TANF application process, whether intentionally or not” (Heather Hahn, Olivia Golden, and Alexandra Stanczyk, “State Approaches to the TANF Block Grant: Welfare Is Not What You Think It Is” [Working Families Paper No. 20, Urban Institute, Washington, DC, August 2012], 15, http://www.urban.org/UploadedPDF/412635-State-Approaches-to-the-TANF-Block-Grant.pdf). Florida, for example, requires that applicants engage in work activities for 30 hours before receiving aid. [>] than ever before: Peter Ganong and Jeffrey B. Liebman, “The Decline, Rebound, and Further Rise in SNAP Enrollment: Disentangling Business Cycle Fluctuations and Policy Changes” (NBER Working Paper No. 19363, National Bureau of Economic Research, Cambridge, MA, August 2013), http://www.nber.org/papers/w19363. [>] Democrats and Republicans alike: Republican support for refundable tax credits like the EITC has diminished some as the credits have grown in size. [>] had no work: For a review of the changes in federal means-tested programs, see Shaefer and Edin, “Rising Extreme Poverty,” and Yonaton Ben-Shalom, Robert Moffitt, and John Scholz, “An Assessment of the Effectiveness of Anti-Poverty Programs in the United States,” in Oxford Handbook of the Economics of Poverty, ed.

How to Speak Money: What the Money People Say--And What It Really Means
by John Lanchester
Published 5 Oct 2014

As the British investor John Templeton once said, “The four most expensive words in the English language are ‘this time it’s different.’ ” In everything to do with money, and in many other areas too, it’s important to keep an eye out for those moments that are not just (relatively) harmless bullshit but the much more actively dangerous nonsense. bund German government debt, used as a reference point in the world because it is the safest debt in Europe, analogous to Treasury debt in the USA. business cycle The process in which businesses follow rhythms of expansion and contraction. There is a huge body of theory and study of why and how these cycles happen, but the most important fact is that they do. Laws of supply and demand obviously play a big part: demand for a product (bread, shoes, houses) is strong, so prices rise, so supplies grow as producers try to make money, but then they overproduce and demand weakens and the market crashes.

Propaganda and the Public Mind
by Noam Chomsky and David Barsamian
Published 31 Mar 2015

There’s what’s called “asset inflation”—that is, the value of corporate stock has risen much faster than the economy has. The economy is growing very slowly. This fairy-tale economic boom that they’re talking about is actually the slowest since the Second World War. It’s even slower than the 1970s and 1980s. It’s also the first recovery - there’s a business cycle, so there’s a recovery—in American history in which there has been no increase in income for most of the population, who are also working much longer hours. On the other hand, stock prices are going up very fast, as is debt. Is this personal or corporate, or both? Both. Total debt. Nongovernmental debt.

The Vanishing Middle Class: Prejudice and Power in a Dual Economy
by Peter Temin
Published 17 Mar 2017

This path is difficult, however, and strewn with obstacles that keep the numbers of children who make this transition small. Thirty percent of Americans have graduated from college, and this provides an upper bound of membership in the FTE sector, but a college education does not by itself guarantee a high and rising income. The choice of major, the state of the business cycle, and other less intangible personal characteristics affect the relation between education—called human capital by economists—and income. Just as relocating to the city in the original Lewis model did not guarantee the migrant farmworker would find a good urban job, a college graduate today is not certain to find a job in the FTE sector.

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle
by Dinny McMahon
Published 13 Mar 2018

During most booms, people are not only blind to the risks but they devise explanations for why risks don’t even exist. People assumed the subprime mortgage crisis couldn’t happen, because the United States had never experienced a nationwide decline in housing prices. During the dot-com boom, the delusion was that the new economy had done away with the business cycle. Before the Asian financial crisis, it was assumed that Asian values had created a new, more sustainable type of economic growth. In China, people’s faith in the security of their investments isn’t based on some pseudoscientific theory that somehow things are different this time; their confidence is rooted in the knowledge that someone will bail them out should the need arise.

The Future of Capitalism: Facing the New Anxieties
by Paul Collier
Published 4 Dec 2018

See MacIntyre (2013). 27.I have explained shared identity, reciprocity and purposive actions as an analytic sequence, but the empirical evidence that the three components are jointly necessary for ethical collective behaviour comes from the work of Nobel Laureate Eleanor Ostrom (1990) and her successors. 28.For a fuller discussion of the underlying theory and evidence, see Collier (2018d). 29.A phenomenon known as the political business cycle; Chauvet and Collier (2009). 30.Putnam (2016), p. 221. 3. THE ETHICAL STATE 1.This ‘existential crisis’ was recognized as such by the leaders of Europe’s socialist and democratic parties in inviting me to address their annual conference in October 2017 and their youth conference in June 2018. 2.I set out the model more formally and develop its normative implications in Collier (2018b). 3.Wolf (2013), p. 32.

The Greed Merchants: How the Investment Banks Exploited the System
by Philip Augar
Published 20 Apr 2005

There were profits and there was ROE; we had to hit both targets.’16 A discussion in a recent Morgan Stanley annual report is typical of how management views this ratio: ‘Our return on equity (ROE) of 14.1 percent in 2002 was significantly better than almost all our competitors and is a satisfactory return at a time when 10-year US government bonds yield 4 percent. Even so, our ROE target continues to be 18–20 percent over the course of the business cycle. While we clearly cannot always expect the 30 percent ROE of two years ago, we also do not regard last year’s 14 percent as a permanent condition.’17 Morgan Stanley’s approach suggests a number of questions. • What is the overall trend: is it rising or falling? • How does the ROE achieved compare with that earned by other companies?

The Green New Deal: Why the Fossil Fuel Civilization Will Collapse by 2028, and the Bold Economic Plan to Save Life on Earth
by Jeremy Rifkin
Published 9 Sep 2019

Elected officials are sensing a sea change in public opinion that is quickly moving the issue of climate change from near obscurity to make it the central issue facing the American people. In blue and red states across America, individuals, families, workers, and businesses are becoming frightened about the violent changes in the weather and the deteriorating impact that climate change is having on ecosystems, causing widespread property damage, disruption of the business cycle, and loss of human life. A December 2018 public opinion poll conducted by the Yale Program on Climate Change Communication and the George Mason University Center for Climate Change Communication found that 73 percent of respondents think global warming is happening—an increase of 10 percentage points since 2015—and nearly half (46 percent) say they have experienced the effects of global warming—an increase of 15 percentage points since 2015.

Restarting the Future: How to Fix the Intangible Economy
by Jonathan Haskel and Stian Westlake
Published 4 Apr 2022

Explorations in Economic History 64 (April): 1–20. https://doi.org/10.1016/j.eeh.2016.11.002. Johnstone, Bob. 1999. We Were Burning: Japanese Entrepreneurs and the Forging of the Electronic Age. New York: Basic Books. Jorda, Oscar, Moritz Schularik, and Alan Taylor. 2017. “Macrofinancial History and the New Business Cycle Facts.” In NBER Macroeconomics Annual, vol. 31, edited by Martin Eichenbaum and Jonathan A. Parker, 213–63. Chicago: University of Chicago Press. Kaoru, Hosono, Daisuke Miyakawa, and Miho Takizawa. 2017. “Intangible Assets and Firms’ Liquidity Holdings: Evidence from Japan.” Research Institute of Economy, Trade and Industry discussion paper no. 17053. https://ideas.repec.org/p/eti/dpaper/17053.html.

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

The “Shiller P/E,” also known as a cyclically adjusted P/E, or CAPE, mostly gets rid of the problems of corporate margins bouncing up and down that I mentioned earlier and also adjusts for inflation. It does that by taking the current price of the S&P 500 index and dividing it by the real (inflation-adjusted) average earnings of the last ten years. That usually covers at least an entire business cycle. The CAPE has averaged 16.6 times since 1881 and extreme highs or lows have marked major turning points for the stock market. For example, the CAPE got to an all-time low of 4.2 times in December 1920. Stocks would rise by almost 370 percent in the Roaring Twenties rally that followed, and the measure hit a then all-time high of 32.6 in September 1929.

Titan: The Life of John D. Rockefeller, Sr.
by Ron Chernow
Published 1 Jan 1997

As one contemporary observer put it, “It seems indeed strange that in the very midst of apparent health and strength . . . the whole country . . . should suddenly come to a dead stop and be unable to move forward—and that we should suddenly wake up from our dreams of wealth and happiness, and find ourselves poor and bankrupt.”79 A wave of hysterical breast-beating ensued, with President James Buchanan insisting that the crisis came “solely from our extravagant and vicious system of paper currency and bank credits, exciting the people to wild speculations and gambling in stocks.” 80 Rather than blaming the business cycle, many evangelical Christians interpreted the downturn as divine punishment for a society grown lax, worldly, and dissolute. One Boston reformer descried redeeming features in the slump, hoping it would “teach good and much needed lessons . . . and will reduce all things here to a more sober, sound, and healthy condition.” 81 The mood of national self-flagellation prompted a religious upsurge known as the Businessmen’s Revival.

…

By this approach, Rockefeller believed, he could beneficently spare Standard Oil employees the plight of other industrial workers who “find themselves in each period of ten or fifteen years in destitute circumstances, with bankrupt employers, owing to the foolish and universal competitive methods accompanying the excessive production of any and all products.”90 At times, when he railed against cutthroat competition and the vagaries of the business cycle, Rockefeller sounded more like Karl Marx than our classical image of the capitalist. Like the Marxists, he believed that the competitive free-for -all eventually gave way to monopoly and that large industrial-planning units were the most sensible way to manage an economy. But while Rockefeller had faith in such private monopolies, the Marxists saw them as merely halfway houses on the road to socialism.

…

The combine now employed 100,000 people and superintended the export of 50,000 barrels of oil to Europe daily. Rockefeller’s creation could be discussed only in superlatives: It was the biggest and richest, the most feared and admired business organization in the world. Earning steady, reliable profits, year in and year out, Rockefeller could be forgiven for believing he had outwitted the business cycle. For a man who craved order, he had reached his apogee. No longer at the mercy of unpredictable economic forces, he thrived even in recessions. Rockefeller was exceedingly pleased by the harmonious workings of his fantastic machinery and the neat, orderly unfolding of his days. When he arrived at work each morning, he sat at his rolltop desk and examined two stacks of paper, one representing decisions made, the other matters to be thought over, and he slowly burrowed his way through both piles.

A Beautiful Mind
by Sylvia Nasar
Published 11 Jun 1998

Just as games of chance led to probability theory, poker and chess began to interest mathematicians around Göttingen, the Princeton of its time, in the 1920s.9 Von Neumann was the first to provide a complete mathematical description of a game and to prove a fundamental result, the min-max theorem.10 Von Neumann’s 1928 paper, Zur Theorie der Gesellschaftspiele, suggests that the theory of games might have applications to economics: “Any event — given the external conditions and the participants in the situation (provided that the’latter are acting of their own free will) — may be regarded as a game of strategy if one looks at the effect it has on the participants,” adding, in a footnote, “[this] is the principal problem of classical economics: how is the absolutely selfish ’homo economicus’ going to act under given external circumstances.”11 But the focal point of the theory — in von Neumann’s lectures and in discussions in mathematical circles during the 1930s — basically remained the exploration of parlor games like chess and poker.12 It was not until von Neumann met Morgenstern, a fellow émigré, in Princeton in 1938 that the link to economics was forged.13 Morgenstern, a tall, imposing expatriate from Vienna who was given to Napoleonic airs, claimed to be the grandson of the Kaiser’s father, Friedrich III of Germany.14 Tall, darkly handsome, “with cool gray eyes and a sensuous mouth,” Morgie cut an elegant figure on horseback, and caused a sensation among his students by abruptly marrying a beautiful redhead named Dorothy, a volunteer for the World Federalists many years his junior.15 Born in Silesia, Germany, in 1902, Morgenstern grew up and was educated in Vienna in a period of great intellectual and artistic ferment.16 After a three-year fellowship abroad financed by the Rockefeller Foundation, he became a professor and, until the Anschluss, was head of an institute for business cycle research. When Hitler marched into Vienna, Morgenstern happened to be visiting Princeton, and he decided it made sense to stay. He joined the university’s economics faculty, but disliked most of his American colleagues. He gravitated to the Institute, where Einstein, von Neumann, and Gödel were working at the time, angling for, but never receiving, an appointment there.

…

Why not vote instead to give the prize to Robert Lucas, the University of Chicago professor whom the committee had virtually decided to propose for the following year.103 Everybody, he reminded them, was enthusiastic about Lucas, who had invented a theory to explain why governments’ efforts to manage the business cycle were doomed to failure —“rational expectations” — and was clearly one of the most important economists of the century. It was an unassailable choice. Lindbeck, who had at first seemed stunned by the audacity of Stahl’s surprise attack, told the members in no uncertain terms what Stahl was implying.

Understanding Power
by Noam Chomsky
Published 26 Jul 2010

This Clinton recovery—which one kind of wonders about—is the first one certainly in post-war history, maybe in American history, in which most of the population has been left out. I mean, it wasn’t until the end of 1997 that median real income reached the level of 1989, which was the peak of the last business cycle. 69 That’s unheard of: in every other recovery, median income has been way higher this many years after the peak of the last business cycle. But for some sectors, it’s fantastic. And part of the reason is just intimidating working people with job insecurity. So this is a very good book—it’s put out by the Economic Policy Institute. It’s out in paperback, and it’s not that expensive.

How to Fix Copyright
by William Patry
Published 3 Jan 2012

Technology is frequently cited as the culprit for copyright owners’ woes, but most of the problems attributed to technologies—such as LAW IS NOT THE SOLUTION TO BUSINESS PROBLEMS 143 the decline in sales of CDs, DVDs, and print newspapers—are the result of the natural end of product cycles. Laws cannot prevent ordinary operation of product cycles any more than they can stop the ordinary operation of business cycles: You can’t outlaw recessions and you can’t make it a violation of the copyright act not to buy a CD or a DVD. THE NANCY REAGAN JUST SAY NO BUSINESS MODEL In 1982, Nancy Reagan launched the “Just Say No” approach to the drug problem. It didn’t work. Too often copyright owners think if they just say no to any new business models, they can hang on to their old ones.

The Logic of Life: The Rational Economics of an Irrational World
by Tim Harford
Published 1 Jan 2008

The idea of using rents to measure the externalities in cities was proposed by Robert Lucas in 1985. Lucas was speaking, appropriately enough, at the prestigious Marshall Lectures, named in honor of Alfred Marshall. At the time, Lucas was world-famous for his study of monetary economics and the business cycle. But rather than talking about the subjects that made him famous, he instructed the Cambridge dons on the implications of Marshall’s theory of innovation. Lucas titled his lectures “On the Mechanics of Economic Development.” He wanted to know why some countries grow rich while others stay poor.

Grave New World: The End of Globalization, the Return of History
by Stephen D. King
Published 22 May 2017

Periods of rising interest rates penalized debtors even as they rewarded savers: and as debtors tended to be more spendthrift than savers, periods of rising rates typically led to weaker aggregate demand. In contrast, periods of falling interest rates had the reverse effect, triggering stronger aggregate demand. Over time, and reflecting the ups and downs of the business cycle, these effects tended to cancel each other out. Since the global financial crisis, however, interest rates have been either at or, increasingly, below zero. The ‘symmetry’ associated with past economic cycles is no longer valid: interest rates have fallen a long way, but subsequently have scarcely risen at all.

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It
by Timothy Noah
Published 23 Apr 2012

Meyerson is a political liberal strongly sympathetic to the labor movement, but his source was impeccably pro-capital: Michael Cembalest, chief investment officer at JP Morgan Chase. In a July 2011 newsletter for Morgan clients, Cembalest stated, “U.S. labor compensation is now at a 50-year low relative to both company sales and U.S. GDP.” During the period from 2000 to 2007, Cembalest calculated, from the peak of one business cycle to the peak of the next, pretax profits for the Standard & Poor’s 500 had increased by 1.3 percent. “Reductions in wages and benefits explain the majority of the net improvement,” Cembalest wrote. That “majority” was more like 75 percent. “Profits are up,” Meyerson translated, “because wages are down.”

The Impulse Society: America in the Age of Instant Gratification
by Paul Roberts
Published 1 Sep 2014

Here, too, was the other, less expected part of the Impulse Society and its merger of self and marketplace: the corporation, free now to focus entirely on its own narrow gratification, could behave less like a social, collective institution and more like a self—an individual ego obsessed with its own agenda and utterly unmoved by the interests of others. You could see this rising industrial egoism most clearly in the wave after wave of cutbacks, whose severity and duration went well beyond the traditional pattern of the business cycle. In previous recessions, there were layoffs, but they were always followed by surges in job growth during the recoveries. That wasn’t the pattern now. Many of the eliminated jobs never came back, especially in the manufacturing sector, traditionally the biggest source of stable, mid-wage middle-class jobs.

Inventing the Future: Postcapitalism and a World Without Work
by Nick Srnicek and Alex Williams
Published 1 Oct 2015

Workers Living Paycheck to Paycheck Continues Decline from Recession-Era Peak, Finds Annual CareerBuilder Survey’, CareerBuilder, 25 September 2013, at careerbuilder.com; 8 Million People One Paycheque Away from Losing Their Home, Shelter, 11 April 2013, at england.shelter.org.uk. 73.Saskia Sassen, Expulsions: Brutality and Complexity in the Global Economy (Cambridge: Harvard University Press, 2014), p. 54. 74.Carlos Nordt, Ingeborg Warnke, Erich Seifritz and Wolfram Kawohl, ‘Modelling Suicide and Unemployment: A Longitudinal Analysis Covering 63 Countries, 2000–11’, Lancet, 2015, p. 5; Justin Wolfers, Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing, Working Paper, National Bureau of Economic Research, 2003, at nber.org; Nikolaos Antonakakis and Alan Collins, ‘The Impact of Fiscal Austerity on Suicide: On the Empirics of a Modern Greek Tragedy’, Social Science & Medicine 112 (July 2014); Karen McVeigh, ‘DWP Urged to Publish Inquiries on Benefit Claimant Suicides’, Guardian, 14 December 2014. 75.Ben Bernanke, ‘The Jobless Recovery’, paper presented at the Global Economic and Investment Outlook Conference, Carnegie Mellon University, Pittsburgh, Pennsylvania, 6 November 2003, at federalreserve.gov. 76.Olivier Coibon, Yuriy Gorodnichenko and Dmitri Koustas, Amerisclerosis?

Digital Bank: Strategies for Launching or Becoming a Digital Bank
by Chris Skinner
Published 27 Aug 2013

For example, in a recent academic paper reviewing Bitcoin[19], several key inhibitors to data currencies were identified: Improper usage Superior alternatives Government blockage Abandonment due to deflation Technology failures leading to theft or a loss of anonymity Similarly, the European Central Bank (ECB) issued a report on Virtual Currency Schemes, with case studies on Second Life and Bitcoin. In the report, the ECB calls Bitcoin “the most successful — and probably most controversial — virtual currency scheme to date.” The ECB goes on to say that the concept of Bitcoin stems from the Austrian school of economics, where business cycle theory developed by Mises, Hayek and Bohm-Bawerk floated the idea that virtual currencies could be the starting point for ending central bank money monopolies. Why does the ECB bother to write a report and an in-depth analysis of Bitcoin and other virtual currencies? Because they are worried that they are unregulated value exchanges that could represent a challenge for public authorities and have a negative impact on the reputation of central banks.

The Structure of Scientific Revolutions
by Thomas S. Kuhn and Ian Hacking
Published 1 Jan 1962

Unlike the engineer, and many doctors, and most theologians, the scientist need not choose problems because they urgently need solution and without regard for the tools available to solve them. In this respect, also, the contrast between natural scientists and many social scientists proves instructive. The latter often tend, as the former almost never do, to defend their choice of a research problem—e.g., the effects of racial discrimination or the causes of the business cycle—chiefly in terms of the social importance of achieving a solution. Which group would one then expect to solve problems at a more rapid rate? The effects of insulation from the larger society are greatly intensified by another characteristic of the professional scientific community, the nature of its educational initiation.

The Connected Company
by Dave Gray and Thomas Vander Wal
Published 2 Dec 2014

As more competitors enter the niche, one company will begin to dominate, forcing others to specialize so they can differentiate and attract customers. Thus every competitive niche has a tendency to split into more niches as competition increases. The greater the competition and the faster the business cycles, the more niches will be created. As more niches are created, the overall diversity in the system will increase. Greater diversity means more kinds of interactions. More interactions means more complexity. Complexity is a function of three things: the number of unique nodes (in this case, companies); the number of connections and potential connections (not just competitors but partners and other allies); and the rate of change in the system.

The Vanishing Neighbor: The Transformation of American Community
by Marc J. Dunkelman
Published 3 Aug 2014

That sort of misanalysis isn’t limited to the world of sports. The same misapprehension prevents us from accurately interpreting complex situations across the board. When we think about the economy, for example, we’re conventionally plied with statistics—potential demographic shifts or changing interest rates—that invariably affect the business cycle. Alternatively, we seek out individual stories—how Steve Jobs managed to lead Apple to the top of the tech heap, for example—and ask how they apply to the broader economy. From these two strategies, we try to develop a more comprehensive understanding of how the economy works. And in some cases that strategy works.

Reskilling America: Learning to Labor in the Twenty-First Century
by Katherine S. Newman and Hella Winston
Published 18 Apr 2016

For college graduates as a whole, the underemployment rate has held steady at around 33 percent over the past two decades—meaning that about one in three college-educated workers typically holds a job that does not require a degree. The fact that the rate has remained fairly uniform at different points in the business cycle suggests that it is not unusual for a significant share of college graduates to work in jobs that do not require a degree. “For recent college graduates, the picture looks quite different. First, in all years, the underemployment rate is higher for recent college graduates than for college graduates as a whole, indicating that underemployment is consistently more widespread for this group.

Winning Now, Winning Later
by David M. Cote
Published 17 Apr 2020

I begged for time, and with a bit of scrambling on our part we were able to prevent the lawsuit from materializing. But it wasn’t just this team, and it wasn’t just customers. Leaders at Honeywell hadn’t studied their operational processes in any depth. They didn’t understand the fundamentals of their technologies, their markets, or their business cycles. They didn’t know their supply chains. They weren’t in touch with how rank-and-file employees viewed the business. They didn’t understand key liabilities, such as the environmental lawsuits we faced. And they didn’t understand why their businesses were generating so little cash. No wonder our company was performing so poorly.

AI Superpowers: China, Silicon Valley, and the New World Order
by Kai-Fu Lee
Published 14 Sep 2018

Instead of laying off a portion of workers, companies reduced hours for several workers by 20 to 40 percent. The local government then compensated those workers for a certain percentage of their lost wages, often 50 percent. This approach worked well in some places, saving employees and companies the disruptions of firing and rehiring at the whim of the business cycle. It also potentially saved local governments money that would have gone to paying full unemployment benefits. Work-share arrangements could blunt job losses, particularly for professions in the “Human Veneer” quadrant of our risk-of-replacement graphs, where AI performs the main job task but only a smaller number of workers are needed to interface with customers.

The Fourth Age: Smart Robots, Conscious Computers, and the Future of Humanity
by Byron Reese
Published 23 Apr 2018

It peaked at 67 percent in 2000 and is down about four points now. The theory is that more people are completely withdrawing from the job market. Giving it all up, calling it quits. (The unemployment rate reflects only people who are looking for work, so these folks are not counted.) It turns out that cyclical business cycle factors and the retirement of the baby boomers explain most of the drop, but not about 1 percent of it. Is that 1 percent a harbinger of things to come? Of course, we would expect the workforce participation number to decline as we get wealthier, right? Maybe both spouses no longer have to work, or perhaps someone’s bonus was so big this year that he or she is taking a year’s sabbatical.

Lying for Money: How Fraud Makes the World Go Round
by Daniel Davies
Published 14 Jul 2018

That means it is not worth it for most analysts too. Frauds are rare. Frauds which can be spotted by careful analysis are even more rare. And frauds which meet both the preceding criteria and are also large enough to offer serious rewards for betting against them come along roughly once every business cycle, in waves. Analysts are also subject to very similar pressures to those which cause auditors to compromise their principles. Anyone accusing a company publicly of being a fraud is taking a big risk and can expect significant retaliation. It is well to remember that frauds generally look like very successful companies and there are sound accounting reasons for this.

Copenhagenize: The Definitive Guide to Global Bicycle Urbanism
by Mikael Colville-Andersen
Published 28 Mar 2018

The subtle, poetic elegance of casual signalling in Copenhagen. Most Copenhageners seem to arrive at work at 8:00, 8:30, or 9:00 a.m., with the peak coming at 9:00 a.m. We all assumed that the morning would be when people would take liberties with the laws, due to the sheer volume in the allocated cycling space on the busy cycle tracks. We were wrong. Most of the deviant behavior occurs in the afternoon rush hour, which spreads out over a longer period of time than it does in the morning. It would appear that, as herd animals, cyclists in the morning rush are less likely to break out of the herd and do things considered socially unacceptable.

Underwater: How Our American Dream of Homeownership Became a Nightmare
by Ryan Dezember
Published 13 Jul 2020

A common theme emerged from the cases: just like the people who programmed Wall Street’s mortgage-backed security pricing models, no one in south Alabama seemed to have given much thought to what might happen if real estate prices stopped going up. Early in his first term, in April 2009, President Barack Obama gave a speech at Georgetown University. The subject was the economy. Foreclosures were endemic. Unemployment was at its highest rate in a quarter century. “This recession was not caused by a normal downturn in the business cycle,” the president said. “It was caused by a perfect storm of irresponsibility and poor decision-making that stretched from Wall Street to Washington to Main Street.” Home prices actually perked up the month that Obama made that speech. It was the first time they hadn’t declined from one month to the next in almost three years.

Green Swans: The Coming Boom in Regenerative Capitalism
by John Elkington
Published 6 Apr 2020

ExxonMobil, which had topped the chart in 2009, fell to ninth place by 2018, and a similar fate hit companies like Walmart (dropping from second to thirteenth position), P&G (fourth to twenty-third), and Coca-Cola (tenth to twenty-fifth).4 Intriguingly, the top four by 2018 were Apple, Amazon, Alphabet, and Microsoft, with Facebook—not even listed in 2009—in sixth position, ahead of long-established companies like Johnson & Johnson, ExxonMobil, and Bank of America. The top-tier carnage has been even more striking than might at first appear, according to the McKinsey Global Institute team that compiled the rankings. About half of the top 10% of companies fell out of the top tier every business cycle, with 40% of these dropouts falling all the way down to the bottom 10%.5 Such shocking market volatility may have opened up some minds to the threats of disruption, but it has also shut others down—or at least focused them even more intensely on ramping up business-as-usual. It also encourages manipulative behaviors.

A History of the World in Seven Cheap Things: A Guide to Capitalism, Nature, and the Future of the Planet
by Raj Patel and Jason W. Moore
Published 16 Oct 2017

Journal of Politics 61, no. 1: 29–53. Schneider, Mindi, and Philip McMichael. 2010. “Deepening, and Repairing, the Metabolic Rift.” Journal of Peasant Studies 37, no. 3: 461–84. Schumpeter, Joseph Alois. 1961. The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Translated by Redvers Opie. Oxford: Oxford University Press. ———. 1976. Capitalism, Socialism and Democracy. 5th ed. London: Allen and Unwin. Schwartz, Stuart B. 1978. “Indian Labor and New World Plantations: European Demands and Indian Responses in Northeastern Brazil.” American Historical Review 83, no. 1: 43–79. ———. 1985.

Carmageddon: How Cars Make Life Worse and What to Do About It
by Daniel Knowles
Published 27 Mar 2023

The daily traffic news on the radio I listen to each morning in Chicago invariably reports unpredictable delays caused by crashes, bad weather, or damage to roads. A quarter of British drivers admit to chasing another road user to hurl abuse at them. More than 500 Americans a year are murdered in gun road-rage incidents. The need to have a car also drains people’s finances. Rising gas prices, which are an inevitable part of the business cycle, even setting aside climate change, squeeze people’s living standards suddenly. Car loans raise people’s monthly bills too: It now takes seven years to pay back the typical one. Americans owe $1.3 trillion on car loans. Subprime car lending is one of the main reasons people go bankrupt in America now.