Money, Banking, and the Business Cycle by Brian P. Simpson

Author:Brian P. Simpson
Language: eng
Format: epub
ISBN: 9781137331564
Publisher: Palgrave Macmillan
Published: 2014-08-14T16:00:00+00:00

6

THE BUSINESS CYCLE IN LATE TWENTIETH-/EARLY TWENTY-FIRST-CENTURY AMERICA

INTRODUCTION

In this chapter I analyze the time period from 1965 to 2010 or 2012, depending on the variable being analyzed. For the most part I ignore the recession of the early 1980s, since that episode was analyzed in chapter 5. However, I do comment on it when it is necessary to illustrate important points relative to other recessions. I limit myself to this period in this chapter because that is the period for which I have found it easiest to obtain data for gross national revenue (GNR). This period will cover about one-and-one-half decades prior to the early 1980s recession and about three decades after that recession. During this period there were a number of episodes of the business cycle that can help one understand the causes of the cycle and see how Austrian business cycle theory (ABCT) explains the cycle. Besides the recession of the early 1980s, there were recessions in 1970, 1975, the early 1990s, the early part of the new millennium, and in 2008–9. The latter could even be classified as a depression. Let us see what the data reveal.

THE EFFECTS

In this section, as in the equivalent section of chapter 5, I analyze output, business failures, unemployment, and industrial production—the effects of the business cycle. Here we will see effects similar to what we saw during the time period investigated in chapter 5. Except for the 2008–9 recession, the effects are not quite as dramatic as they were in the years surrounding the recession of the early 1980s. The changes in the money supply—and the other causal factors—during the episodes under investigation here are also not quite as pronounced as they were during the mid-1970s and early 1980s. This is true of the 2008–9 recession as well. The latter recession involved a number of other contributory factors—various types of government interference—that made it more severe than the recession of the early 1980s.

Output

Two estimates of output are shown again: real gross domestic product (GDP) and real GNR. As I discussed in chapter 5, GNR is a better measure of spending than GDP because it includes all spending for newly produced goods and services, especially spending for all inventory produced and purchased by businesses. GDP is essentially a measure of only consumer spending. Exhibit 6.1 shows real GDP during the period 1965–2012. One sees here recessions in 1974–75, the early 1980s, 1991, and 2008–9. Even based on real GDP, the recessions of 1974–75 and 1991 were fairly mild compared to the recession of the early 1980s. The latter recession lasted three years while the other recessions lasted only one or two years. During the recession of the mid-1970s, the largest single-year decline in output was 0.6 percent in 1974. Output fell by 0.2 percent in 1975. During the recession of the early 1990s the decline in output as measured by real GDP was 0.2 percent. However, based on real GDP, the largest single-year decline in output in the recession of the early 1980s was 1.

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