Boom and Bust
Boom and bust refers to the cyclical pattern of economic expansion (boom) followed by contraction (bust). During a boom, there is high economic growth, increased consumer spending, and rising asset prices. However, this is often followed by a bust, characterized by a downturn, decreased consumer confidence, and falling asset prices. These cycles are a natural part of the economic system.
7 Key excerpts on "Boom and Bust"
eBook - ePubBooms and Busts: An Encyclopedia of Economic History from the First Stock Market Crash of 1792 to the Current Global Economic Crisis
An Encyclopedia of Economic History from the First Stock Market Crash of 1792 to the Current Global Economic Crisis
- Mehmet Odekon(Author)
- 2015(Publication Date)
- Routledge(Publisher)
...Booms and Busts Causes and Consequences The historical record reveals certain regularities in alternating periods of widespread economic prosperity and poverty, expansion and recession, and Boom and Bust. But economists—and everybody else affected by the ups and downs of the economy—have long wondered what explains this phenomenon. More recently, since the financial crisis of 2008–2009 and recession of 2007-2009, economists and policy makers have been grappling with the question of whether the crisis and recession were the natural consequences of the previous economic expansion or whether they were simply the result of some bad business decisions. Consideration of the causes and consequences of booms and busts demands a clear definition of just when these booms and busts occur and what they look like, for it is the “stylized facts” or interpretations about sinusoidal, or wavelike, deviations from trend measures of output, employment, wages, interest rates, and the like that provide the focus of what is to be explained. To complicate matters, according to the twentieth-century American economist Victor Zarnowitz, while “business expansions and contractions consist of patterns of recurrent serially correlated and cross-correlated movements in many economic. . . activities,” these alternations in business conditions are not really “cycles” since they involve no unique periodicities—their amplitude, scope, and duration vary considerably over time. So the question of whether booms are even related to busts is an open one. Agricultural Versus Industrial Economies Traditionally, and today, in predominantly agrarian-based market economies, fluctuations in income and employment were and are directly linked to nature’s rhythm...
eBook - ePubValue Economics
The Ethical Implications of Value for New Economic Thinking
- M. R. Griffiths, J. R. Lucas(Authors)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
...© The Author(s) 2016 M. R. Griffiths and J. R. Lucas Value Economics 10.1057/978-1-137-54187-1_6 Begin Abstract 6. Boom or Bust M. R. Griffiths 1 and J. R. Lucas 2 (1) British Institute of Florence, Florence, Italy (2) Merton College, Oxford Somerset, UK Abstract This chapter looks at the Boom and Bust conditions which occur during business cycles. Before the economic crisis of 2008 some experts were claiming that the boom–bust syndrome had been resolved, only to be proved wrong by a crisis which has resulted in a legacy of high unemployment, low economic growth and high levels of sovereign debt. We try to look at Boom and Bust through the eyes of the businessman, call for an analysis of the bubbles that have occurred over the past twenty years, and propose four key questions for new economic thinking, which would also look at how a sample of individual companies from 16 economic sectors have responded to these crises. End Abstract 6.1 Chapter Overview In business the inherent life forces of growth and decay manifest themselves periodically in business cycles, which are characterized from time to time by economic boom–bust conditions, and which can cause havoc to economic prosperity and asset values. Until the most recent financial crisis of 2008 certain experts were starting to claim that the boom–bust problem had been resolved, only to be proved wrong by a crisis which left a legacy of unemployment, low economic growth and high levels of sovereign debt. Reflecting on the hubris of such commentators, the US Nobel Prize-winning economist Joseph Stiglitz made the following observation: “The only surprise about the economic crisis of 2008 was that it came as a surprise to so many”. The causes of the last financial crisis are now well researched, and actions have been taken to prevent or manage such bubbles occurring again, including better financial regulation, new systems of liquidity management, and the control of sovereign debt...
eBook - ePubContemporary Economics
An Applications Approach
- Robert Carbaugh(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...PC producers announced that if demand continued to decline and PC prices fell, the resulting squeeze could trigger a wave of consolidation among the biggest PC makers, as seen in the merger between Hewlett-Packard and Compaq in 2002. Indeed, the history of U.S. capitalism is marked by recurrent periods of Boom and Bust. Sometimes business conditions are robust, with plenty of job vacancies, factories working near maximum capacity, and strong profits. The 1990s was a period of sustained economic expansion for the United States. At other times, goods are unsold and pile up as excess inventories, jobs become scarce, and profits are low. Sometimes a downturn is mild; at times, like the Great Depression of the 1930s, a downturn is prolonged and traumatic. In this chapter, we will explore the nature and effects of macroeconomic instability. We will begin with an overview of the business cycle—the recurrent periods of recession and expansion that characterize our economy—and then we will examine the nature and causes of unemployment and inflation. The Business Cycle In an ideal economy, real gross domestic product (GDP) would increase over time at a smooth and steady pace. Moreover, the price level would remain constant or only increase slowly. However, economic history shows that the economy never grows in a smooth and steady pattern. Instead, it is interrupted by periods of economic instability, as shown in Figure 11.1. Figure 11.1 Historical Business Fluctuations in the United States Source: Data taken from the Economic Report of the President, various issues. The economy may realize several years of expansion and prosperity. Then national output declines, profits and real incomes decrease, and the unemployment rate increases to uncomfortably high levels as many workers lose their jobs. Eventually, the economic contraction vanishes and recovery begins. The recovery may be slow or fast. It may be partial, or it may be so strong that it results in a new era of prosperity...
eBook - ePubEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
...Second, a cycle has an expected sequence of phases representing alternation between expansion and contraction. Third, such phases occur at about the same time throughout the economy—that is, not just in agriculture or not just in tourism but in almost all sectors. Fourth, cycles are recurrent (i.e., they happen again and again over time) but not periodic (i.e., they do not all have the exact same intensity and duration). Finally, cycles typically last between one and 12 years. Although Burns and Mitchell’s definition may appear obvious in part, it indeed remains helpful even more than 60 years after it was written. Many investors like to think that there are simple regularities that occur at exactly the same time, every year or cycle: for example, shares always rally in January and big crashes occur in October. Of course, things are much more complex. The truth, as Burns and Mitchell remind us, is that history never repeats itself exactly, but it certainly has similarities that can be taken into account when analyzing the present and forecasting the future. 2.1. Phases of the Business Cycle A business cycle consists of four phases: trough, expansion, peak, contraction. The period of expansion occurs after the trough (lowest point) of a business cycle and before its peak (highest point), and contraction is the period after the peak and before the trough. 1 During the expansion phase, aggregate economic activity is increasing (aggregate is used because some individual economic sectors may not be growing). The contraction—often called a recession, but may be called a depression when exceptionally severe—is a period in which aggregate economic activity is declining (although some individual sectors may be growing)...
eBook - ePubProperty vs Shares
Discover Your Knockout Investment Strategy
- Peter Koulizos, Zac Zacharia(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
...The pace of growth is maintained and managed by a country’s central bank (in Australia, this is the Reserve Bank of Australia, or RBA). The RBA regulates the speed of economic growth through its monetary and fiscal policies, including using interest rates to stimulate or slow down economic activity, as appropriate, with the goal of managing economic growth to avoid wild swings in growth and slowdown. On occasion, however, and usually because of external influences beyond the control of the RBA, the economy will get ahead of itself, experiencing what is known as a bubble (where growth rises too high, and too fast); or the economy will slow down too much, experiencing either a correction or, if it slows down for too long, a recession. It is these peaks and troughs that we use to define the extreme levels in what is known as the business cycle. The business cycle is, therefore, the periodic and irregular movement of economic activity (from peak to trough), as it is measured by changes in economic growth of a country. Unfortunately, though, the business cycle does not behave in a predictable or sequential cycle, so one stage does not necessarily always lead to the next expected stage of the cycle. A very popular way to describe the business cycle is by using an analogy to an analogue clock. This economic clock, as it is known, is an economic theory that attempts to describe the interaction of the markets and how interest rates affect property and share markets...
eBook - ePub- Edward L. Glaeser, Todd Sinai(Authors)
- 2013(Publication Date)
- University of Chicago Press(Publisher)
...1 House Price Moments in Boom-Bust Cycles Todd Sinai The United States experienced a remarkable Boom and Bust in house prices in the 2000s. According to the Fiserv Case-Shiller ten-city index, house prices grew by 125 percent in real terms from their trough in 1996 to their peak in 2006 and subsequently fell by 38 percent over the next five years. The impacts of this house price cycle have been wide-ranging and severe. Explaining the causes of this episode of house price growth and decline and its effects on the rest of the banking sector and the real economy is the subject of much current research, some of which is collected in this volume. Potential explanations of the Boom and Bust in house prices include changing interest rates, subprime lending, irrational exuberance on the part of home buyers, a shift to speculative investment in housing, contagion and fads, and international capital flows. 1 The goal of this chapter is to describe a set of patterns in house prices among housing markets in the United States and to compile a set of empirical facts that potential explanations of the housing Boom and Bust should seek to explain. While some of the empirical relationships detailed here have been discussed to varying degrees in prior research, this paper seeks to assemble a broad collection of empirical facts. A unified theory of housing booms and busts would presumably be able to explain the entire set of facts. Of course, it is possible that there is no single mechanism that generated all the economic fluctuations that were experienced, and that a combination of causes needs to be explored. For this chapter, I consider only house price dynamics. Evaluating the many potential determinants of these housing market dynamics is generally outside the scope of this chapter. However, the role of demand fundamentals, such as rents, income, and employment, is lightly addressed...
eBook - ePubInequality, Boom, and Bust
From Billionaire Capitalism to Equality and Full Employment
- Howard J. Sherman, Paul D. Sherman(Authors)
- 2018(Publication Date)
- Routledge(Publisher)
...p.55 7 HOW INEQUALITY IS AFFECTED BY Boom and Bust This chapter will show that the overall trend of inequality has been increasing since 1980. It will also show a sometimes-neglected point: that increasing inequality in each business expansion is the most important factor leading to recessions and unemployment. These findings show the need for a policy to reduce inequality, which is detailed in Chapter 15. Inequality means millions of poor women and men trying to feed children on a poverty-level income in old kitchens in small apartments. In America, the wealthiest of all capitalist countries, 22 percent of all children lived in poverty in 2015! Inequality also means a small number of billionaires live in luxury, spending vast sums of money and never having to worry about covering the essentials of life. To explain how these conditions were created, however, one must unearth and explain a statistical portrait of inequality. This chapter will demonstrate that the level of inequality in America is extremely high. Inequality rises during each business expansion because the rapid rise of profits contrasts with the tiny increase in wages and salaries. The next chapter will show how this increasing inequality in the expansion is a major cause of the following recession or depression. The causes of inequality in capitalism have been debated since the beginnings of capitalism. The following sections will show how conservatives see inequality as a result of unchangeable differences among people, while progressives see inequality as the result of capitalist institutions, which can be changed. The conservative view Conservative economists argue that demand is not a major cause of recessions or depressions. They also argue that inequality is not as high as progressives claim. Moreover, they say that inequality is a necessary incentive to get people to work as hard as possible...
