GROWTH PATH OR CYCLES?

GROWTH PATH OR CYCLES? Kids, I asked here how you think about the economy: Are booms and busts the natural state of the economy? When I posed the question, I should have pointed out that there is at least one other way of looking at the economy—that there are no cycles, but human nature creates frequent booms and busts. Two years ago, I posted here on this article by Larry Summers in which, in December of 2006, he pointed out that “financial markets are pricing in an expectation of tranquility as far as the eye can see”—in other words, the markets were taking the view that the smooth paths of the Great Moderation would continue. Summers wondered about what would happen in 2007 and listed seven financial crises between 1987 and 2007, saying that “While each of these events is unique, the record does suggest that crises occur in about in one out of every three years.” Every three years is pretty frequent.