Boom and bust

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Boom and bust is a colloquial term for what is often known as the "regular business cycle." Economies, in general, tend to go through periods of excessive growth followed by retrenchment. In the 1800s these cycles were spectacularly harsh.[1] Many modern regulations have helped smooth the edges of the business cycle. The FDIC and Federal Reserve, for example, have helped to prevent widespread bank failures that would plunge the economy into downward spirals and harsh deflationary recessions. Data collected by the NBER shows post-World War II business cycles to be much more moderate than pre-war cycles.[2] In 2002, economist James Stock coined the term "Great Moderation" to describe the relative stability of the business cycle over the previous 20 years. The term was later popularized by Ben Bernanke.[3] This was later seen as poor timing considering the events that followed soon after.

There are many other government actions that help to regulate the "business cycle", despite intentions to the contrary. Income taxes pull in more revenue during a boom, thus tamping down excessive growth, and less during a bust, helping to stimulate it. Unemployment insurance works similarly, pulling in plenty of revenue when unemployment is down and putting stimulative government spending into the economy when the bust strikes. These are known as "automatic stabilizers" in econo-speak.

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  1. Evidenced by the number of California towns that sprang up around the gold rush and just as quickly turned into ghost towns
  2. NBER business cycle data
  3. Great Moderation