The "Business Cycle" Myth

Economists from both sides of the political spectrum have invoked the specter of the "Business Cycle" to explain the downturns of the American economy for the past century or so. The idea is that normal economic activity leads to increased productivity and wealth until irrational investment and irrational consumption kick in, causing the economy to suffer a downturn. The markets then "correct" themselves, and the cycle starts all over again.

The Business Cycle is beloved by both Democrats and Republicans, but is primarily a creature of the Right. Republicans love it because it is the script they have been regurgitating since the early part of the 20th century. To abandon it now would be to surrender the comfortable premise that anchors their beliefs, and insulates them from the accusations of others that Capitalism is unconcerned for the poor and the downtrodden. The Business Cycle - from their perspective - is the small price society has to pay to benefit from free markets.

Except of course, that the theory is mostly a bunch of crap.

OffHisMeds can't entirely deny the Business Cyclers their due. If we were a completely Capitalist nation, the economy likely would go through such ups-and-downs, albeit in a much milder form, since undiluted free markets automatically sniff out even the most ingenious hanky panky immediately and "correct" it automatically. But since we are only a marginally Capitalist economy, the system is gamed by the Federal government and their cronies, so what we get instead are "cycles" that are much more severe. Simply put, the primary cause of every downturn in the economy in the last century has been Government Spending.

OffHisMed's theory is straightforward: When Politicians steal most of the money and leave little for the citizenry to spend or invest, the economy tanks. This forces the federal government to borrow, yoking the collective wealth of the Private Sector to government debt. The economy only recovers once the government puts enough money back into the system to promote business activity and consumption, which it can only do by borrowing. Once Producers and Consumers are confident that there is enough money back in the system, production and spending resume. This is sustained until such time as government spending has once again sucked too much money out of the system, at which time the economy tanks again.

The evidence is everywhere. Before the Great Depression (the Mother Of All Business Cycles), Public Sector spending (government spending and government mandated insurance) consumed less than 15% of GDP. Now, Public Sector spending consumes 55% of GDP. It doesn't take a genius to understand that if you take all the wealth and plow it into things people don't want, there is nothing left to invest in, grow and consume the things that people do want.

Put up a graph comparing all the times the economy has tanked and milestones showing fresh new government spending initiatives (things like The Great Society, the prescription drug benefit for Medicare recipients, or the election of a Democrat Congress) and the graph of those milestones tracks with recessions with an almost surgical precision. The New Deal begat a decade of economic turmoil, relieved only by WWII. The Great Society led us to hyper inflation and soaring interest rates in the 70s, later named "Stagflation". The Clinton years of unrestrained public spending led to the Recession that started in 1999. The unrestrained spending of Democrat Fellow Traveller George W. Bush, followed by the election of a Democrat congress in 2006 was almost immediately followed by the current mini-Depression.

Which is why Democrats love the concept of the Business Cycle, abetted by a compliant media incapable of criticizing government, and all too adept at knee-jerk reactions to economic downturns. First and foremost, they love the concept of a Business Cycle because it relieves any scrutiny on the true connection between government spending and downturns. Second, Democrats know that Republicans will reflexively invoke this phenomenon to explain a bad economy, which makes it a two-fer, inasmuch as it allows Democrats to dodge the bullet when they're running the show, and is a millstone they can tie around the necks of Republicans when they are running the show. Unmolested by reality, whenever the economy does tank, Democrats are then free to trot out the tried-and-true "lack of government regulation, capitalism run amok" cliché to further Socialize the economy.

Meanwhile, they've got Republicans being their Useful Idiots, reciting the Business Cycle mantra to the detriment of the economy, taxpayers, and ironically, the Republican Party. In case you've missed the point or recent history, clinging to this hoary cliché causes Republicans to be constantly on the Defensive, as they have been for the past generation. Meanwhile, Democrats sink their claws ever deeper into our economic life, to the point that dislodging them will cause economic catastrophe.

Milton Friedman famously declared that he was not near so worried about the current government "deficit" in spending as he was the unfunded future commitments to spend with which government had burdened society. That's already at $56 Trillion and counting. Using House money, Obama has decided to Double Down, taking the unprecedented step of borrowing and spending additional tens of Trillions at the very point that the Economy's capacity to recover is most at peril.

Will the American economy fail? No, it will not. Our new owners - Chinese warlords, Russian Mafias, Middle Eastern oil tyrants and the Belgians who own Budweiser - won't let it happen. We should not take comfort in that.

In the meantime, the concept of the Business Cycle will continue to be used to explain - but mostly mask - the transfer of all wealth in America to the forces of Darkness.