This unfortunate policy cycle delays the rebalancing of world accounts that is needed to restore economic equilibrium, and it can freeze the kind of private investment that is needed to get the developed economies going and to boost supply in the emerging markets where there is currently an excess of demand.
Then, after privatization, the government goes back to a laissez faire policy, starting the cycle over again.
The current Chairman of the Fed, Ben Bernanke, is a leading specialist on monetary policy and the business cycle.
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LSE's Mr Layard argues that the stability and growth pact will not constrain the role of fiscal policy in stabilising the economic cycle, because the British budget is in balance.
Adjusting for the economic cycle, fiscal policy has been much tighter in the euro area than in America or Britain, thanks to the stability and growth pact, which forced governments to raise taxes even during a downturn.
The use of fiscal policy to fine-tune the business cycle in any more than this passive way went out of fashion around 30 years ago.
The Euro area equivalent of the NBER, the Centre for Economic Policy Research, also has a business cycle dating committee (full disclosure, I have recently joined this committee).
While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.
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Long-run growth rates are driven by structural factors not monetary policy, which mainly affects output over the cycle.
One should not confuse the conditional linkage of easier monetary policy with tighter fiscal policy with the unconditional view that the easing cycle is near its end.
Here the financial crisis has blown apart the fragile consensus between purists and Keynesians that monetary policy was the best way to smooth the business cycle.
In a 24-hour news cycle, waiting for oral statements on policy matters in Parliament was "quite difficult", as the days when people got their news from the parliamentary pages in the newspapers was "long gone".
Of course, these social phenomena are both symptoms of and contributors to economic circumstances, a vicious cycle that requires a structural solution at the policy level.
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I'm not party to the detail (so none of this is confirmed) - but broadly the policy in London has already moved towards safe, segregated cycle lanes.
Since discretionary spending is the only sort that can be adjusted quickly to the state of the economic cycle, this will tend to make fiscal policy an even blunter tool than it already is.
Regulatory policy could also be adjusted in a discretionary way over the cycle.
The morning papers say that Mr. Trichet, President of the ECB, is poised to raise the policy rate later this week for the second time in the present cycle, but the European economy has slowed since his first tightening move, making the timing more awkward.
The stable monetary policy disciplined by fixed exchange rates also minimized the boom and bust business cycle, with its periodic sharp recessions hampering long term growth.
His theory asserts that private sector decisions sometimes lead to unexpected downturns in the economic cycle and, therefore, the public sector, including monetary policy actions by the central bank and fiscal spending by the government are needed to stabilize output.
Patrick Callan of the National Centre for Public Policy and Higher Education points out that state universities experience extremes of the economic cycle pampered in good times, spurned when budgets turn red.
About one-quarter of organizations have a written policy on political activities, according to a survey conducted during the last presidential election cycle by the Society for Human Resource Management, an Alexandria, Va.
Wind the clock back to 1979, and no one, not a single pundit, policy wonk, or economist, forecast the economic boom that came from the last such cycle.
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There will be no change in policy, just a slow painful attempt to keep economies afloat and little change in a chronic cycle of retraction.
Yet the progressive economic policy-making coming out of Washington today rests on the futile attempt to escape the corporate cycle of life that lies at the heart of capitalism.
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But for the rest, the recovery in manufacturing and housing in swing states owes more to the rhythms of the business cycle and global conditions, or to broad-based federal stimulus and easy monetary policy.
It is irrefutable that eventually the link with the dollar must be given up, otherwise Argentina will continue to suffer the same cycle of boom and bust which it has suffered over the past decade, owing to a monetary policy determined in Washington, rather than Buenos Aires.
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