From: thompson@atlas.socsci.umn.edu (T. Scott Thompson)
Subject: Re: Boom Boom Boom Boom :)
Reply-To: thompson@atlas.socsci.umn.edu
Organization: Economics Department, University of Minnesota
Distribution: usa
Date: Thu, 27 Aug 1992 16:05:42 GMT

garrett@Ingres.COM (QUOTE OF THE YEAR) writes:

[stuff from previous posts deleted]

> I think we have now completed the circuit on economic theory. Here's a
>brief summary.
>1) The recessions weren't really all that bad, except for the 30's.
>	(When the evil government took comtrol)
>2) The evil government is totally responsible. The recessions happened
>	when the government interfered with the economy.
>3) The evil businesses are responsible because they are greedy and short-
>	sighted.
>4) The evil consumers are responsible because they are greedy and short-
>	sighted.
>5) And now, it's the evil and disembodied "business cycle".

The "business cycle" is not a theory but rather is the phenomena
itself.  That is, it is the observation that (for at least the past
200 years) the level of economic activity tends to oscillate at
irregular intervals around a (generally upward) long-run trend.
Different macroeconomic variables oscillate differently, but the
evidence that some kind of cyclical behavior exists is very strong.

_Why_ business cycles happen is perhaps the biggest open question in
economics today, and has been since at least the turn of the century.
No professional economist of whom I am aware considers the question of
causality for business cycles to be a closed topic.  This is an area
of great controversy and very active research within the profession,
so it should come as no surprise that there is so much controversy and
confusion about it among the general population.  The available data
are inconclusive enough to support many opposing viewpoints.

>	All these theories, and yet not a single person saw a 
>correlation between the tax cuts and the following recessions. Amazing.
>Well, I'm going to advance a theory that I am sure everyone will 
>disagree with, on both sides. Here goes...

Unfortunately, correlation does not imply causality.  Furthermore, the
more complex the system under study, the less likely it is that
correlation provides evidence either for or against causality.

[details of Garrett's theory deleted]

>	That's right, someone with no economic schooling has just
>put an inflamitory post that will be sure to anger every red-blooded
>American. So start flaming.

Maybe you should write this up and send it off to the American
Economic Review.  In order to get serious consideration for
publication from the editors you will have to make your arguments more
precise.  (i.e. define terms precisely, describe causal mechansims in
some detail).  It would also help if you could document the
statistical evidence that you cite (the correlation) and use some
elementary mathematical notation, say at the level of an introductory
macroeconomics text.
---------------------------------------------------------------------
Food for another thread: I have said here and in another post that the
evidence for/against various theories of the business cycle is fairly
weak.  However, I remember once seeing a graph that suggested that the
amplitude of the cycles has on average been much lower since the end
of WW II than before.  The speaker who presented this graph
interpreted it as evidence that economists and policy makers had in
fact learned something about business cycles since the turn of the
century.  Comments?

--
T. Scott Thompson              email:  thompson@atlas.socsci.umn.edu
Department of Economics        phone:  (612) 625-0119
University of Minnesota        fax:    (612) 624-0209
Newsgroups: misc.headlines,talk.politics.misc,alt.activism,sci.econ