So, the book say economy run in cycles and waves, there are uphills and downhills, but overall thing get better in the long term.
But why? what is the mechanism behinds it? and, does things always get better cycles after cycles? Is it possible that it’s just the uphill part of a bigger cycle?
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Talking about the economy going in cycles can be a little misleading. What is an economic cycle? It’s things getting better, then getting worse again, then getting better, then getting worse. Perhaps with an overall upward or downward trend, perhaps not. This is something we can see empirically. It has happened in the past, and everything points to it happening in the future.
The thing is, that’s not really much of a pattern. Millions of things get better then get worse, repeatedly. Some of them have a consistent cause behind those changes, others different causes. Perhaps the economy gets worse because of a war, then improves because of peace, then gets worse because of a bubble, then gets better because of technology, then gets worse because of political trouble…
You can see economies running in cycles way back in history, so it’s nothing new. Our current capitalist economy is prone to faster and stronger cycles. That’s probably because it changes faster and takes more risks than most historic economies, and a lot is built on market confidence and on financial leverage – which increases gains but also increases losses.
However attempts to use the idea of cycles to make *predictions*, like “there is a crash roughly every 7 years” have not really proved successful.
It is also entirely possible that the world economy is growing now but will shrink at some point in the future. There’s no law of nature that says it has to keep growing. It has undoubtedly grown and then shrunk in the past (or at least, regional economies have – a “world economy” has only existed for maybe a few centuries, depending on how you define it). Climate change has a fair chance of shrinking the world economy.
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