A prominent economist opened his book, The Great Recession, with this observation: “In the years ______, the world economy passed through its most dangerous adventure since the 1930s.” This should sound familiar. “Its world-wide character and the associated bankruptcies and financial disturbances,” he added, “made this episode the long-awaited postwar economic crisis.” But what years was Otto Eckstein in fact describing, so how do you fill in the blank in the first quotation? The correct answer is the great recession of 1973-75. (How did you do on the quiz, esteemed Reader?)
“The capitalist process progressively raises the standard of life for the masses,” wrote the ever-provocative Joseph Schumpeter, but “It does so though a series of vicissitudes.” Further, “Economic progress, in capitalist society, means turmoil.” If Schumpeter is right that progressively raising the standard of living for ordinary people requires vicissitudes and turmoil, then cycles of booms and busts do not just happen, but are necessary in theory to economic progress. They certainly do seem unavoidable so far. Empirically, recessions are reasonably frequent. In the last 100 years, there were 18 recessions in the United States, thus on average about once every 5 1/2 years. In the last 50 years, there have been seven recessions or on average once about every seven years.
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