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The Mystery of the Business Cycle: What's Behind the Booms and Busts?
The business cycle refers to the alternating period of expansion and recession in economic performance. This phenomenon not only affects the overall economy, but also is related to the well-being of the people, the operation of government agencies and the development of private enterprises. Traditionally, a recession is usually defined as two quarters of negative GDP growth. The U.S. National Bureau of Economic Research (NBER) defines recession in more detail, emphasizing that it is a significant decline in economic activity, which is usually visible in indicators such as real GDP, real income, unemployment rate, and industrial production.
Individual phases of business cycles vary in timing and intensity, typically ranging from approximately 2 to 10 years.
Because business cycles are affected by a variety of factors, including rapid and significant changes in oil prices and fluctuations in consumer confidence, these factors are often unpredictable and viewed as random "shocks" to cyclical patterns. For example, during the financial crisis of 2007-2008 and the COVID-19 epidemic, the direction of the business cycle changed drastically.
History and Theory
The study of business cycles can be traced back to the 19th century, when economist Sismondi proposed a theory of equilibrium that was relatively mainstream at the time and systematically explored the existence of economic crises. He pointed out that business cycles are caused by overproduction and underconsumption, especially due to wealth inequality. Although he and his contemporary Robert Owen failed to attract enough attention from the mainstream economics circles at the time, his insights laid the foundation for subsequent Keynesian economics.
The formation of the business cycle is part of the operation of the capitalist economy, and every birth is prompted by some internal or external driving force.
Classification of business cycles
In 1860, French economist Clement Jugla was the first to identify an economic cycle of approximately 7 to 11 years. Since then, economist Joseph Schumpeter further divided the cycle into four stages: expansion, crisis, recession and recovery. The development of these theories has allowed scholars to begin to realize that different business cycles can be named and classified according to their periodicity, such as the Kitschitz cycle and the Kuznets cycle.
The current economic cycle
Since the Second World War, business cycles in OECD countries have become more stable, especially between 1945 and 2008, with few global economic recessions. However, market stability does not mean the absence of crises, especially over the past few decades when many economies have faced ongoing challenges due to the breakdown of the social contract and income imbalances.
Every fluctuation in the business cycle, whether it is a boom or a recession, is the result of the interweaving of multiple factors both internal and external to the economic system.
Interpretation of signals and indicators
To assess the business cycle, economists usually refer to a variety of economic indicators, such as consumer confidence index, retail trade index and unemployment rate. These indicators play a vital role in helping us identify where the economy is heading. As data collection and technology develop, the accuracy of retrospective assessments and indicators increases, allowing us to understand the dynamics of business cycles more quickly and accurately.
Review and Outlook
In today's world, the advancement of networking and globalization has made economic fluctuations more unpredictable. The epidemic, geopolitical turbulence and technological progress may all have an important impact on the business cycle, and the interaction of these impacts often makes the future economic trend more complex and multifaceted.
Can we find hope to guide the future in the cycles of history?
