The ABCs of the Boom-Bust Cycle

There are four main theories of the business cycle: Keynesian, Monetarist, Supply Side, and Austrian. Let me explain each one, highlight the differences, and suggest which is the best lens for businesses to look through.

The boom-bust cycle—also called “panics” for many decades—has been a recurring phenomenon since the early days of the Republic. There were 13 financial panics from 1792 to 1896,1 and the last official one occurred in 1907.2 Since then, the boom-bust cycle has occurred periodically and the previous panics were renamed, first to depression and then to the milder sounding term, recession.

Soon after the recovery from the Panic of 1907, the U.S. economy boomed during World War I as companies ...

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