Recessions and Depressions: Understanding Business Cycles

Recessions and Depressions: Understanding Business Cycles

Recessions and Depressions: Understanding Business Cycles

Recessions and Depressions: Understanding Business Cycles

Synopsis

The economy of any nation is an intricate web of relationships among the factors determining supply and demand--and everything that affects them, from inflation to taxes to the stock market. The study of business cycles attempts to explain why economies grow and contract, experiencing periods of prosperity and pain. Consistent with the popular conception of economics as the "dismal science," economists secretly long for recessions (periods of negative growth) and depressions (severe contractions), not because they enjoy their devastating impact on human welfare, but because these downturns serve as excellent laboratories for observing what happens when markets break down. Despite over two centuries of debate, no one has yet definitively unlocked the secrets of economic downturns and how they might be prevented. In Recessions and Depressions, Todd Knoop takes us on a fascinating journey through the history of economic thought, tracing the evolution of business cycle theory. In the process, he presents an accessible introduction to what makes the economy tick, and offers new insights into understanding such historic economic events as the Great Depression, as well as more recent ones, such as the Asian meltdown in the 1990s, the financial crises in Latin America, and the U.S. recession of 2001, from which the United States is still recovering. Knoop reminds us that economists' track record in forecasting business cycles leaves much to be desired, and the quest to fully understand what causes economic downturns--and their effects on individuals and families--continues.

Excerpt

It has been said that capitalist economies are like drunks—they have trouble moving in a straight line. While that analogy might be amusing, the real consequences of these economic lurches are often devastating. Not only do recessions and depressions reduce standards of living and increase poverty, but they also undermine the public's confidence in the benefits of capitalism and often even of democracy. Understanding the nature and causes of business cycles in an effort to develop policies to eliminate them is a noble endeavor with potentially extraordinary implications for human welfare.

The study of business cycles has greatly contributed not only to our understanding of economic contractions but also to our understanding of macroeconomics in general. While to the uninformed it might seem that economists are no closer today to understanding business cycles than they were 200 years ago, when business cycle theory is examined within a historical context it becomes obvious that major advances have been made. However, our knowledge is still far from complete. Modern depressions in East Asia, Japan, and Argentina as well as recent recessions in developed nations such as the United States point both to the validity of much of our present theory and also to areas that need to be explored further before economists can completely understand business cycles and enact policies to prevent them.

This book covers the empirics, the theory, and specific case studies of recessions and depressions. This book is written in a nontechnical narrative aimed at upper-level undergraduate students or general readers with some background and interest in economics. As a result, it should have broad interest for use in college courses on business cycle

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