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In their view, the economic cycle was not a deviation from the equilibrium, but a balancing of its own fluctuations. So as long as there is balance, there is paretto, and the market does not fail。
There is a general lack of interest in seeing economic downturns, rising unemployment, market collapses and decreases in personal income, but in reality this is always the case. This phenomenon is also known as the economic cycle, which occurs every other time, in three or four years, in the last 10 years, and in the other 50 or 60 years, which is said to be the small, medium, large cycle that the economist yon pitt talks about。
If people don't like the economic cycle, they'll find a way to eliminate it。
The elimination of the economic cycle begins with an analysis of what causes it. There are, in general, two views, one that economic cycles are inherently caused, that is, by imperfect market mechanisms themselves, and the other that economic cycles are external and not related to market mechanisms themselves。
Different analysis of causes leads to different solutions. Keynes, for example, believes that the economic cycle is the result of inadequate market mechanisms and that economic growth can therefore be stimulated and eliminated by increasing fiscal deficits, increasing government investment in public projects and introducing expansionary monetary policies. This exciting genius has dominated many countries, such as the united states, and has become a practical policy tool。
However, later evidence suggests that keynesianism has failed to solve the economic cycle, but instead has sent the wrong signals to the market as a result of excessive government intervention, leading to blind production by firms, excessive credit expansion and more serious economic problems such as “overcapacity”, higher unemployment and rapid price increases. Especially in the face of global stagnation since the 1970s, keynesianism has become even more helpless。
Another view was that economic cycles were caused by external causes. For example, as recorded in the old testament book of genesis, the egyptian pharaoh had two strange dreams of “seven thin cows swallow seven fat cows” and “seven thin ears swallow seven full ears”. Joseph explained pharaoh's dream by saying that it bodes well for egypt's seven years and seven years of waste, which devoured the surplus of the years and allowed pharaoh to plan for it. If this is the earliest economic cycle, joseph is the “external cause agent”。
There is also a common external argument for the solar black theory, which was introduced by the british economist w. S. Jevens in 1875. He attributed cyclical fluctuations in the economy to cyclical changes in solar blacks, arguing that cyclical changes in solar darks every 10 years or so would affect climate cyclical changes, which would affect agricultural harvests, while the poor agricultural harvest would affect the economy as a whole. It coincides with the economic cycle, which is also about every decade. This theory may be justified in times when food production is lagging behind, and it seems somewhat untenable since the beginning of the industrialized era。
With the in-depth study of economics and its own development, the “external causes” generally do not regard the economic cycle as a result of imperfect market mechanisms, which have led to the “real economic cycle theory” based on monetaryism and rational expectations: the economic cycle is a necessary phenomenon of free markets resulting from technological advances, and is hardly surprising。
The real economic cycle theory was co-sponsored by the norwegian economist finn e. Kydland and the american economist edward prescott。
Real economic cyclical theory rejects the argument that the economy is divided into long-term and short-term, that the economic cycle itself is an economic trend or a change in potential or full employment GDP, and that there is no short-term economic deviation from long-term trends. In their view, the economic cycle was largely one of fluctuations in the underlying economic trends, rather than one that revolved around them. It can also be argued that the economic cycle is not a catastrophic decline, but rather a gradual erosion of the positive effects of technological progress and is awaiting the next wave of technological progress。
In their view, the economic cycle was not a deviation from the equilibrium, but a balancing of its own fluctuations. So as long as there is balance, there is paretto, and the market does not fail。
The interpretation of real economic cycle theory is quite powerful and has become a guiding tool for monetary and fiscal policies in many countries. They also jointly received the 2004 nobel prize for economics for this theory。
The only question that needs further explanation for us, ordinary people, is why, since the economic cycle is not a free-market phenomenon worthy of surprise, there have been numerous economic crises in history before keynesianism in the last century. Market monopolies, poor market regulation leading to poor competition and inadequate public welfare are responsible for exacerbating economic cyclical volatility and causing significant social harm。
(by the deputy secretary-general of the institute of advanced studies)
