most people don't "sock" it away
do you prefer boom-bust cycles?
- Thread starter blackjack007
- Start date
I think of a bust cycle as a big reset button, its great to catch the boom, but be aware everything retraces back to a mean. I hope this last move can lower some outrageous prices back to realistic levels.
I am reminded of the dot com boom, laptops used to sell for 5k+ now you can get one 3-4 times more powerful for 299.00
I am reminded of the dot com boom, laptops used to sell for 5k+ now you can get one 3-4 times more powerful for 299.00
He isn't as wrong as he seems. He is correct that monetary policy is the main factor in the appearance of large GDP numbers. Where he is wrong is by saying the only true catalyst is population growth. Increase in GDP in the absence of loose monetary policy is population growth + gains in productivity. The latter usually being the more significant of the two.
I've been thinking about this topic for a bit now and have a question hopefully someone can answer. What are the consequences of sharp boom-bust cycles?
Take the following:
@ year 1, GDP is x amount
@ year 5, GDP is y amount
In a boom-bust scenario, GDP starts at x in year 1, booms to z by year 3, and then busts to y by year 5.
Conversely, in a steady growth scenario, GDP starts at x in year 1 and slowly grows to y by year 5.
Why is a steady growth scenario better? If after 5 years GDP ends up at y either way, who cares how it gets there? Does anyone have any answers?
Take the following:
@ year 1, GDP is x amount
@ year 5, GDP is y amount
In a boom-bust scenario, GDP starts at x in year 1, booms to z by year 3, and then busts to y by year 5.
Conversely, in a steady growth scenario, GDP starts at x in year 1 and slowly grows to y by year 5.
Why is a steady growth scenario better? If after 5 years GDP ends up at y either way, who cares how it gets there? Does anyone have any answers?
Your analysis is correct that in the end of a cycle GDP will have risen its actual value, or pop+change_in_prod. I think that most people desire the steady over the boom/bust because people crave order and security. People fear the unknown and when they go from having excess to having less it scares them. I think people are just less afraid of straight line appreciation. I tend to agree that it is healthier for a populous, they tend to require less government security if they have economic security.
Economic cycles are natural and essential. And while the extremes can be mitigated with fiscal and monetary policy, the idea is not to employ these measures at the drop of a hat. The powder should be kept dry and reserved for use only when genuinely required. Uninterrupted growth is about as natural as breathing only by inhaling. Proper management of the economy is not unlike proper forest management. You don't put out every forest fire. If you did, then the accumulated deadwood would eventually result in an unstoppable blaze. The idea is to mitigate the extremes.
A "gain in productivity" increases output in one spot at the expense of another. Output greater than the population's ability to consume cannot be sustained, overall. Therefore, real GDP growth is limited by population growth.