Wednesday, 30 November 2016

Twin pendulums and the business cycle

Time was the business cycle was clear to even people of average intelligence (e.g. me). The world economy oscillated between high and low activity (or boom and bust if you are a journalist or Gordon Brown) over a period of around six years. A government could accentuate (back to Gordon Brown) or attenuate its effects on its national economy, but it could do nothing to affect the regular swing.

But something odd seems to be happening now. I reckon we should be on a marked upswing. I wonder whether the old model has been superseded. It was clearly based on the existence of a single major economy dominating the scene, as the United States arguably has since the Great War and probably the UK before that. When America sneezed, everybody else got the 'flu. With the emergence of China as a big player in the 21st century, we may now have a rather less predictable scenario, much as a twin-pendulum system displays chaotic motion. The worry is that on this model the peaks and troughs would not only be more unforeseeable but also more extreme.

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