Monday, August 21, 2006

Managed business cycles

The Economist of Aug. 19 includes "The uses of adversity: Why some people think that a recession is good for America."

It is the old story. There will be business cycles because investors and others are just human and will, on occasion, plan imperfectly. The good news is that markets correct and life goes on -- mostly to the good. If left alone.

But most economists and many others are so sure that they so thoroughly understand all of the forces involved that they seriously embrace the idea of managing the cycle. But is the cure worse than the disease? When has there ever been an engineered "soft landing?" Or how many have there been? The answers range from very few to none. Yes, Great Depression-type policy debacles have been avoided of late. But why are we so sure that the policy-facilitated business cycles that we now have are better than what we would have without the help?

Perhaps the only answer is that Congress is inevitable and the consequences of its actions can be costly. With luck, central bankers can lean the other way so that policy-induced cycles are not as disastrous as they otherwise might be.