M2 Economic cycles

Topic

Economic cycles—part of the "Economy" theme, which the resource regime track fully engages whenever it shifts phases—operate on two distinct time scales: the short-term cycle (or business cycle) and the long-term cycle (known as waves). As long as neither scale of the economic cycle enters a contractionary phase, the economy continues to expand, albeit at different rates depending on whether one views it from a short-term or long-term perspective.

Economic cycles enter their contractionary phase when two factors coincide: a gap between investment and aggregate savings, and an over-accumulation of capital relative to demand—the very same capital over-accumulation previously identified alongside the sustained slowdown in GDP and its rate of change. Neither factor alone is sufficient to trigger the contractionary phase of the economic cycle; it is the combined accumulation of the investment-savings gap and the over-accumulation of capital relative to demand that sets it off.

This confirms a premise already used—alongside GDP and its rate of change—to anticipate the contractionary phase of the economic cycle: capital over-accumulation is not an isolated data point. Rather, it is one of two components which, when accumulated alongside the gap between investment and aggregate savings, cause economic cycles—both short-term and long-term—to enter their contractionary phase.

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