Quote:” Glenn Rudebusch, an economist at the Federal Reserve Bank of San Francisco, studied US recessions as an insurance actuary might study the incidence of death in the population. An 80-year-old person is more likely to die in his 81st year than a 50-year-old person is to die at 51. But expansions don’t behave that way, he found. An expansion in its eighth year was no more likely to end than on in its fifth.”
This is a stereotype of the failure macro-economics. Macro-economists tend to try to find any remote pattern between two selected phenomenons but have no idea of the economic logic. Mr. Rudebusch just forgot the physical constraints are very different between the aging of a person and the economic expansion.
Aging weakens the physical conditions of the body of a person, however, expansions do not weaken the economy. People should pay more attention on figuring out the marginal changes in the objective conditions which genuinely impact the economic progress.
This is a boring and useless comparison.
On the other hand, I think the main causes of the business cycles are transaction costs and the law of diminishing marginal productivity, especially the marginal productivity of the capital.
The transaction costs make people making mistakes on investing, including arrangements of capital, time, and efforts, or the rise of the transaction costs reduces total economic activities and creating economic rents for interest groups and politicians to search.
And the law of diminishing marginal productivity limits the speed of the wealth accumulating. It usually causes financial activities to unhook the real economic activities and breeds possibilities of the future financial crisis.
Free markets are not free. They cost a lot to operate smoothly. Politicians are usually in the way for self-interests. It means that politicians are not the solution to the problems of the economy, but the problems themselves.