BOOM AND BUST

In economics, the term '''boom and bust''' refers to the movement of an economy through economic cycles.

Contents

Boom

Example

Source

Boom

During booms, there is a high level of aggregate demand, inflation increases, unemployment falls, and growth in national income accelerates. During busts, or recessions, when aggregate demand is low, inflation decreases, unemployment rises and national income falls. In extreme recessions deflation (a sustained fall in the general price level) may occur. The causal relations between these indicators have been the subject of much debate from which ideas such as the NAIRU (non-accelerating inflation rate of unemployment) have emerged.
Due to its relevance to public policy, the economic cycle has been an important political issue since the Great Depression. Prior to this, classical economic theory denied the existence of the economic cycle (Mike Jones).
Keynesian economics, which gained popularity during the Great Depression, aimed to prevent recessions. This was done by providing demand stimulus to safeguard employment. However, it was only applicable when there were surplus resources of labour and capital.
Neoclassical or Monetarist economics returns to the pre-depression belief that recessions are natural, and government intervention can only delay and worsen them. It holds that only central banks can regulate demand in any helpful way through the money supply.
It has been the case that Keynesian economics has been popular with left wing parties, as it encourages greater use of taxation and spending. Neoclassical economics, on the other hand has been associated with the New Right, Margaret Thatcher, Ronald Reagan, and the Neoconservatives of today.
Although to date this has led to low and steady inflation and low unemployment, some critics claim it will lead to lower growth over the long term.
The Austrian School of economics suggests instead that the business cycle of boom and bust is avoidable but inevitable after monetary manipulations by a central banking authority.
The term "DotCom Bust" is more of a generalization rather than factual business failure.
Marxist economists contend that the boom and bust cycle is a problem endemic to Capitalism, rather than economics in general. Marxists instead postulate that integrated, organized economic planning can generate considerable growth (even "booms") without the corresponding bust cycle. They attribute this to the fact that "boom and bust" cycles only occur because Capitalist production is uncoordinated, and thus inherently inefficient, accumulating wealth quickly only for a decline to occur subsequently.
Most states established along Marxist lines did consistently experience constant and relatively high economic growth, although Soviet economic reforms in the 1960s and 1970's, and the corresponding changes in Soviet allies to fit the Soviet norm, led to much curbed economic growth and, eventually, disaster in the 1990s following a complete return to Capitalist economics.
On the other hand, the People's Republic of China under Chairman Mao also experienced constant economic growth, even under the failed Great Leap Forward and Cultural Revolution programs, although changes in the Deng Xiaoping era allowing Capitalism have led to very fast growth, rather than the steady but comparatively slow growth that planned economics allowed, while utilizing state planning as a means of avoiding any significant "bust" portion of any boom and bust cycle.
The advent of Keynesianism, Marxists contend, only softens busts, and has proven unable to eliminate them. Neoclassical and Austrian schools of thought, they feel, serve the interests of Capitalists (who are enriched much more in the "boom" than they are hurt by the "bust"), and only hasten the onset of a working class revolution.

Example

The Nebraska Territory town of Saratoga, Nebraska was a boom and bust town that was created, developed and busted within a year between 1856-57.

Source

★ Robert Sobel ''The Great Boom 1950-2000: How a Generation of Americans Created the World's Most Prosperous Society'' (2002)

★ America's Great Depression by Austrian School economist Murray Rothbard.

★ History of Money and Banking in the United States

★ The Panic of 1819

★ ''The Austrian Theory of the Trade Cycle and Other Essays'', by Richard M. Ebeling. ISBN 0-945466-21-8.