Boom and bust

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This article is about periods of rapid growth with an increase in investment and consumption and that are followed by sudden collapses in economic activity. For a more general description of fluctuations in economic activity, see Business cycle.
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In economics, boom and bust is a process characterized by sustained increases in several economic indicators followed by a sharp and rapid contraction. It refers to a severe business cycle.[1] The phrase “boom and bust” pertains to capitalism.[2] Times of increased business and investment have seen these collapse leaving widespread poverty such as the depressions of 1837 and 1857 in the United States.[3] For example, in the early 1800s in Ohio people were buying land on credit to sell at twice the price but land became too expensive to buy. At the same time, wheat prices became too low to transport wheat to market. Wheat was $1.50 per bushel in 1816; by 1821, 20 cents.[4] In 1894 someone wrote, “Of course it stood to reason that the music hall boom would bust sooner or later . . . In fact the boom has busted and according to the published balance sheet the Alhambra has suffered as much as the rest in consequence.[5] Business leaders such as automaker Paul Hoffman have used the phrase in calling for increased civic responsibility toward taming the business cycle; he also said, “we cannot live with a crash” in reference to 26 depressions over 100 years including “the bust” of the 1930s.[6] Some authors have used “boom and bust” to define the business cycle.[7] Other ways of saying unwanted changes sales have been used, such as “more volatile cycle.”[8] William Forbes uses the phrase in his textbook on finance, in which he identifies credit characteristics of boom and of bust:

1. Indicators of boom include banks extending more credit

  • for domestic consumption activities
  • for “investments” in the commodities, stock, and housing markets
  • and for imports of goods made in developing countries

2. Indicators of bust include banks extending less credit

  • from lower domestic consumption activities and resulting unemployment
  • from fewer investments made
  • from less demand for imports causing companies in developing countries to have trouble paying their loans
  • and from bank portfolio deterioration from non-performing loans; for example, there was a credit boom and bust in the early 1990s in the United Kingdom. In 1956 Changing Times blamed boom and bust on demand being too high and too low, with business needing to sell things to customers and customers needing to be employed to afford to buy things.[9] In the early 21st century, after entire poor neighborhoods in U. S. cities were evicted from their homes, Edward M. Gramlich used “boom and bust” in the title of his book about the decline of anti-usury laws meeting variable-rate sub-prime mortgages.[10]

See also[edit]

Case studies:

References[edit]

  1. ^ Yoshikawa 1995, p. 30.
  2. ^ Bandelj & Sowers 2010, p. 16.
  3. ^ Blumenthal 1959, p. 110.
  4. ^ Hatcher 1949, p. 116 - 117.
  5. ^ Randolph 1894, p. 52.
  6. ^ Hoffman 1948, pp. 46 - 54.
  7. ^ Sherman et al. 2008, p. 446.
  8. ^ Kaminsky, Reinhart & Végh 2005, pp. 27 - 29.
  9. ^ Changing Times 1956, pp. 33 - 38.
  10. ^ Gramlich 2007, pp. 105 - 113.
  • Bandelj, Nina; Sowers, Elizabeth (2010). Economy and State, A Sociological Perspective. Economy and society 3. Cambridge, UK: Polity Press. ISBN 9780745644547.  <
  • Blumenthal, Henry (1959). A reappraisal of Franco-American relations. Chapel Hill: The University of North Carolina Press. LCCN 59065128.  <
  • Changing Times (December 1956). "This Thing Called Our Economy: Ups & Downs, Boom & Bust". In Kiplinger, W. M. Changing Times, The Kiplinger Magazine (Washington, DC: The Kiplinger Washington Agency, Inc.) 10 (12).  <
  • Gramlich, Edward M. (2007). "Booms and Busts: The Case of Subprime Mortgages". Economic Review Fourth Quarter 2007 (Kansas City, MO: Federal Reserve Bank of Kansas City).  <
  • Hatcher, Harlan (1949). "Chapter eleven: Business and Banks". The Western Reserve: The Story of New Connecticut in Ohio. Indianapolis, IN: Bobbs-Merrill Company. LCCN 49009476.  <
  • Hoffman, Paul G., President, The Studebaker Corporation (1948). "Productivity – A Joint Responsibility of Management and Labor". A Series of Lectures jointly sponsored by the University of Pittsburgh and the Pittsburgh Chamber of Commerce. Pittsburgh, PA: Institute of Business and Economic Problems. LCCN 47029998.  <
  • Kaminsky, Graciela L.; Reinhart, Carmen M.; Végh, Carlos A. (April 2005). "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies". In Gertler, Mark; Rogof, Kenneth. NBER Macroeconomics Annual 2004 19. Cambridge, MA: National Bureau of Economic Research and MIT Press. pp. 27–29. ISBN 0262072637.  <
  • Randolph (17 February 1894). "Stageland. Letters of a Candid Playgoer.". In Jerome, Jerome K. To-day: A weekly Magazine-Journal. (London: W. A. Dunkerley) II. LCCN unk83018345.  <
  • Sherman, Howard J.; Hunt, E. K.; Nesiba, Reynold F.; O’Hara, Phillip A.; Wiens-Tuers, Barbara (2008). Economics: An Introduction to Traditional and Progressive Views (illustrated) (7th ed.). Armonk, NY: M.E. Sharpe. ISBN 9780765616685.  <
  • Yoshikawa, Hiroshi (1995). Macroeconomics and the Japanese Economy. Oxford, UK: Oxford University Press. ISBN 9780198233268.  <