Monday, June 14, 2010

Sin and the Business Cycle

Many people feel the need to describe suffering as the wages of sin. This includes the suffering of people without wages. So there are moralistic theories of the business cycle. I think that much work remains to be done in this field. The liquidationist view (google Andrew Mellon, Joseph Schumpeter and Friedrich von Hayek) ascribes recessions to Greed and Pride.

Straw man real business cycle theorists and maybe Casey Mulligan ascribe them to epidemics of sloth.

But what about anger, gluttony, envy and lust ? It seems to me that the moralistic modellers of the business cycle aren't even half done as they have only 3 of 7 deadly sins covered.

OK gluttony is easy if it is considered to be over-consumption in general and not food specific. One can say we are in recession because spendthrifty consumers spent beyond their means, are up to their chins in debt and must deleverage. Then the liquidationist logic is that if this isn't painful enough, they will just borrow again as soon as they can.

Envy has been managed. It is very obscure and unpublished, but Andrei Shleifer's first attempt to translate Schumpeter's story of the businenss cycle into math was based on fads. More generally, one can get over-consumption from keeping up with the Joneses. It doesn't matter why people went deep in debt, what matters is they are at their credit limit and jonesing.

Anger almost goes without saying. The liquidationist will not note this, but everyone else should be able to see that a large part of the business cycle is due to them. They get angry at sinful excess and smite the economy with tight money and fiscal austerity.

Hmm now lust. That is a tricky one. I think I have to turn to Andrei again and quote him (I think this is word for word)

"We have a new model of the business cycle. It starts with optimistic expectations and a rapid expansion, then there is a supply shock, followed by a period of involuntary unemployment." -- Andrei Shleifer 1983.

Needs work.

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