Business Cycles

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Definitions and Basics

    Business Cycles, from the Concise Encyclopedia of Economics
    The United States and all other modern industrial economies experience significant swings in economic activity. In some years most industries are booming and unemployment is low; in other years most industries are operating well below capacity and unemployment is high. Periods of economic expansion are typically called booms; periods of economic decline are called recessions or depressions. The combination of booms and recessions, the ebb and flow of economic activity, is called the business cycle....
    Recessions, from the Concise Encyclopedia of Economics
    One of the most popular definitions of recessions is that they are periods when real gross national product (GNP) has declined for at least two consecutive quarters. In 1990, real GNP declined between the third and fourth quarters and again between the fourth quarter of 1990 and the first quarter of 1991. Hence, there is general agreement that a recession did occur....
    Great Depression, from the Concise Encyclopedia of Economics
    A worldwide depression struck countries with market economies at the end of the 1920s. Although the Great Depression was relatively mild in some countries, it was severe in others, particularly in the United States, where, at its nadir in 1933, 25 percent of all workers and 37 percent of all nonfarm workers were completely out of work. Some people starved; many others lost their farms and homes. Homeless vagabonds sneaked aboard the freight trains that crossed the nation. Dispossessed cotton farmers, the "Okies," stuffed their possessions into dilapidated Model Ts and migrated to California in the false hope that the posters about plentiful jobs were true. Although the U.S. economy began to recover in the second quarter of 1933, the recovery largely stalled for most of 1934 and 1935....
    Bubbles, from the Concise Encyclopedia of Economics
    What Are Bubbles? In 1996, the fledgling portal Yahoo.com made its stock-market debut. This was during a time of great excitement--as well as uncertainty--about the prosperous "new economy" that the rapidly expanding Internet promised. By the beginning of the year 2000, Yahoo shares were trading at $240 each. Exactly one year later, however, Yahoo's stock sold for only $30 per share....

In the News and Examples

    Kling on Freddie and Fannie and the Recent History of the U.S. Housing Market, podcast on EconTalk. Sept. 29, 2008
    Arnold Kling of EconLog talks with host Russ Roberts about the economics of the housing market with a focus on the role of Fannie Mae and Freddie Mac. The conversation closes with a postscript on the current financial crisis.
    Robert Higgs on the Great Depression, podcast on EconTalk. Dec. 15, 2008.
    Robert Higgs, of the Independent Institute, talks with EconTalk host Russ Roberts about the Great Depression, the New Deal, and the effect of World War II on the American economy. Using survey results, financial data, and the pattern of investment in the 1930s, Higgs argues that New Deal policies created a climate of uncertainty that prolonged the Great Depression. Using consumption data, he argues that prosperity did not return during wartime, but rather after the war when government intervention in the economy subsided....
    Eric Rauchway on the Great Depression and the New Deal, podcast on EconTalk. Dec. 1, 2008.
    Eric Rauchway of the University of California at Davis and the author of The Great Depression and the New Deal: A Very Short Introduction, talks with EconTalk host Russ Roberts about the 1920s and the lead-up to the Great Depression, Hoover's policies, and the New Deal. They discuss which policies remained after the recovery and what we might learn today from the policies of the past....
    Podcasts on the Business Cycles, Recessions, and the Great Depression. EconTalk.
    More podcasts on these and related topics.
    How Depressing Was the Depression?, by Arnold Kling. TCS Daily, June 1, 2007.
    I would have thought that 1929 should have looked pretty good to people living in the depths of the Depression. But one of the many interesting lessons of Amity Shlaes' new history of the Great Depression and Franklin Roosevelt's New Deal is that many Americans, both inside and outside the Roosevelt Administration, thought of prosperity as an aberration. Instead, they saw hard times as the new norm....
    Shiller on Housing and Bubbles, podcast on EconTalk. Sept. 15, 2008.
    Robert Shiller of Yale University talks with EconTalk host Russ Roberts about the current housing mess and related financial market problems. Shiller argues that the decade-long run up in housing prices was a bubble where speculative fervor outweighed any economic fundamentals. He also discusses the genesis of the Case-Shiller housing price index and his idea for how it might be used to reduce risk in the mortgage market....

A Little History: Primary Sources and References

Advanced Resources

    Regulation's effects on recessions and growth: Daron Acemoglu on the Financial Crisis, podcast on EconTalk. Feb. 9, 2009.
    Daron Acemoglu, of MIT, talks with EconTalk host Russ Roberts about the financial crisis and the lessons that need to be learned from the crisis. He argues that economists overestimated the stability of self-interest and ignored the institutional context of financial decision-making. He makes the case for new regulation and worries that political decisions will neglect the importance of growth....
    Selgin on Free Banking, podcast on EconTalk. Nov. 17, 2008.
    George Selgin of West Virginia University talks with EconTalk host Russ Roberts about free banking, where government treats banks as no different from other firms in the economy. Rather than rely on government guarantees to protect depositors (coupled with regulation), banks would compete with each other in offering security and return on deposits. Selgin draws on historical episodes of free banking, particularly in Scotland, to show that such a world need not be unduly hazardous or filled with bank runs. He also talks about Gresham's Law and an episode in British history when banks successfully issued their own currency....

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