Macroeconomics—Is It Still Helpful in an Age of Scarcity? - Economics and Ecology: United for a Sustainable World - page 106

The Rise of Disaster Capitalism, 2 and Confessions of an Economic Hit Man 3 by
John Perkins.)
To be sure, the boom and bust tendencies of capitalism have been well
chronicled. The theory of the business cycle goes back at least to the writ-
ings of William Stanley Jevons in the mid 19th century. Thoughtful analysts
realized that market economies were capable of erratic behavior, but we had
always managed to muddle through with the perception that the benefits of
the boom periods would outweigh the pain of recessions and the periodic
financial crises.
The Keynesian Dilemma—Unemployment or Inflation?
So what does compensatory financing look like or amount to? In recogni-
tion of capitalistic instability, compensatory financing seeks to smooth out
the extremes (the peaks and valleys) of the business cycle. Having said that,
we must identify the negative characteristics of these peaks and valleys and
determine why it is desirable to avoid or minimize them.
In the first place, the cycle can be imagined merely as a line going up and
down on a graph, which traces the level of all business activity over time. For
a particular economy, it is something akin to the total economic output of
a given economy, often termed the gross domestic product (GDP). Viewing
it from the other side of the coin, it is like the collective, national income of
the people involved in this economy. More importantly, it symbolizes the
essence of prices, wages, resource needs, employment, and the total volume
of goods and services available to be used in meeting human necessities and
desires of that particular society.
In that context, a peak (boom period) symbolizes high levels of employ-
ment, perhaps even labor shortages, and potential inflation in the form of
upward pressure on both wages and prices. There may also be shortages or
bottlenecks of necessary goods or resources. In the vernacular of economists,
the economy is overheating .
In the valleys, or troughs (bust period) of the cycle, the problem is unemploy-
ment, idle resources, underproduction, and a general failure of the economy
to support the basic material requirements of its citizens. There may even be
wage/price deflation, , which can have consequences as serious as inflation. In
addition, even the rapid fluctuations are deemed to be a problem in that they
undermine certainty and business expectations and thus negatively affect
people's willingness to invest and thereby promote economic growth.
Although there are clearly several possible negative impacts stemming
from fluctuations in the business cycle, the major problems within a capi-
talist economy can be simply summarized as inflation in the peaks and
unemployment in the troughs. Macroeconomic theory and policy begin with