What We Know About Recessions Might Be Wrong

Some economists are reconsidering the role Keynes's "animal spirits" might have downturns.

Sometimes it just rains, and rains, and rains, and rains.

Photographer: Timothy A. Clary/AFP/Getty Images

What are business cycles? Many people think that booms naturally lead to busts -- that excesses built up during good times lead inevitably to a crash. Today’s economists don’t see it that way. Modern macroeconomists think that recessions and booms are random fluctuations around a trend. These fluctuations tend to die out -- a deep recession leads to a fast recovery, and a big expansion tends to evaporate quickly. Eventually, the trend re-establishes itself after maybe five years. No matter what happens -- whether the central bank lowers interest rates, or the government spends billions on infrastructure -- the bad times will be over soon enough, and the good old steady growth trend will reappear.

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