…[S]o long as markets are free and human beings exhibit swings of euphoria and distress, the business cycle will continue to plague us. But even granting human imperfections, flexible economic institutions appear to significantly ameliorate the amplitude and duration of the business cycle. The benefits seem sufficiently large that special emphasis should be placed on searching for policies that will foster still greater economic flexibility while seeking opportunities to dismantle policies that contribute to unnecessary rigidity.
Alan Greenspan, Before the HM Treasury Enterprise Conference, London, England
January 26, 2004 (Via Albion’s Seedling’s)
Back in the naive old days when people first started developing system theory it used to be an article of faith that all natural systems eventually found a stable point of equilibrium. It’s now know that for a lot of systems the natural state is oscillation.
I’ve long believed that oscillation is the natural state for free markets, and that’s the underlying source of the boom/bust cycle.
Economics is a social science. I find it doubtful that there is any such state as an equilibrium, or natural state, for that matter. We’re not mechanical systems. Do you think econometricians will ever find a Grand Unified Theory of Economics?