DOCSLIB.ORG

What's Real About the Business Cycle?

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
What's Real About the Business Cycle? What’s Real About the Business Cycle? James D. Hamilton This paper argues that a linear statistical model with homoskedastic errors cannot capture the nineteenth-century notion of a recurring cyclical pattern in key economic aggregates. A simple nonlinear alternative is proposed and used to illustrate that the dynamic behavior of unemployment seems to change over the business cycle, with the unemployment rate rising more quickly than it falls. Furthermore, many but not all economic downturns are also accompanied by a dramatic change in the dynamic behavior of short-term interest rates. It is suggested that these nonlinearities are most naturally interpreted as resulting from short-run failures in the employment and credit markets and that understanding these short-run failures is the key to understanding the nature of the business cycle. Federal Reserve Bank of St. Louis Review, July/August 2005, 87(4), pp. 435-52. WHAT IS THE BUSINESS CYCLE? In part, this shift in the profession’s concep- tion of what needs to be explained about business he term “cycle” is used to describe a fluctuations reflects a desire to integrate the deter- process that moves sequentially between minants of long-run economic growth and the a series of clearly identifiable phases in a T causes of short-run economic downturns within recurrent or periodic fashion. Economists of the a single unified theory of aggregate economic per- nineteenth and early twentieth centuries were formance. Since improvements in overall produc- persuaded that they saw such a pattern exhib- tivity are widely acknowledged to be one of the ited in the overall level of economic activity key factors driving long-run growth, and since and enthusiastically sought to characterize the observed regularities of what came to be known such improvements cannot reasonably be expected as the “business cycle.” The most systematic to occur at a constant rate over time, it is natural and still-enduring summaries of what seems to to explore the possibility that variation over time happen during the respective phases were pro- in the rate of technological progress could be a vided by Mitchell (1927, 1951) and Burns and primary cause of variation over time in the level Mitchell (1946). of economic activity. Brock and Mirman (1972) The expression “business cycle theory” were the first to incorporate stochastic variation remains in common usage today, even though, in in the rate of technical progress into a neoclassical most of the modern models that wear the label, growth model, though they clearly intended this there in fact is no business cycle in the sense just as a model of long-run growth rather than a realis- described. These are models of economic fluctu- tic description of short-run fluctuations. Kydland ations, to be sure, but they do not exhibit clearly and Prescott (1982) later took the much bolder articulated phases through which the economy step of proposing that this class of models might could be said to pass in a recurrent pattern. explain variations in economic activity at all fre- James D. Hamilton is a professor of economics at the University of California, San Diego. This research was supported by the National Science Foundation under grant No. SES-0215754. © 2005, The Federal Reserve Bank of St. Louis. Articles may be reprinted, reproduced, published, distributed, displayed, and transmitted in their entirety if copyright notice, author name(s), and full citation are included. Abstracts, synopses, and other derivative works may be made only with prior written permission of the Federal Reserve Bank of St. Louis. FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2005 435 Hamilton quencies, in what has come to be known as “real whether the nineteenth-century economists were business cycle models.” on to something that their modern descendants Although unifying growth and business cycle may have forgotten. Is there really a business cycle, theory holds tremendous aesthetic appeal, this or is the expression an unfortunate linguistic particular solution is not without its detractors. vestige of a less-informed era? I will argue that Indeed, the reasons that Irving Fisher gave in 1932 indeed there is a recurring pattern in the level of for rejecting such an approach have in the opinion economic activity that needs to be explained, but of many yet to receive a satisfying response from that a statistical characterization of this pattern modern real business cycle theorists: requires a nonlinear dynamic representation and calls for an asymmetric interpretation of the forces [I]n times of depression, is the soil less fertile? that cause employment to rise and fall. I further Not at all. Does it lack rain? Not at all. Are the observe that one element of this pattern has often mines exhausted? No, they can perhaps pour been a related cyclical behavior of interest rates. out even more than the old volume of ore, if To the question, “Is the business cycle real?” anyone will buy. Are the factories, then, lamed these findings suggest that, yes, the business cycle in some way—down at the heel? No; machinery is real in the sense that it is a feature of the data and invention may be at the very peak. that needs to be explained. In the other meaning (Fisher, 1932, p. 5) of the term “real,” however—the sense from which Continuing along the lines of Fisher’s reason- springs the label “real business cycle,” namely, a ing, the size of the population places an obvious cycle unrelated to monetary developments—the physical limit on how much a given nation can evidence adduced here for the importance of produce and is certainly a key reason that aggre- comovements between financial and real variables gate output increases over time. But just as surely, suggests that the cycle is not “real” at all or, at the a decrease in population is not the cause of the least, not completely divorced from monetary decrease in employment that we observe in times developments. when the unemployment rate is shooting up dra- matically. There is in this respect an obvious inherent asymmetry in fluctuations in the number THE BEHAVIOR OF of workers employed—the measure must go up UNEMPLOYMENT for different reasons than it goes down. A parallel Figure 1 plots the monthly unemployment rate argument can be made in terms of the capital in the United States from 1948:01 to 2004:03.1 I stock, another key factor determining long-run would suggest that someone looking at such a growth, which again places an upper limit on graph for the first time would indeed be inclined how much a country can produce. Yet in times to identify a repeated sequence of ups and downs, when we see all measures of capacity utilization with each of the obvious sharp upswings in the falling, the natural inference is that some forces unemployment rate occurring during periods that other than the quantity or quality of available the National Bureau of Economic Research (NBER) manufacturing facilities account for the drop in has classified as economic recessions (indicated aggregate output. by shaded regions on the graph). If we agree that these three factors—technol- Although one’s eye is sympathetic to the claim ogy, labor force, and the capital stock—are the that these data display a recurrent pattern, it does three main determinants of long-run economic not appear to be cyclical in the sense of exhibiting growth, we might greet with considerable skepti- strict periodicity. For example, the two consecu- cism the suggestion that the same three factors tive unemployment peaks in 1958:07 and 1961:05 are in a parallel way responsible for producing are separated by less than three years, whereas the drop in real GDP that we observe during a business downturn. 1 This is the seasonally adjusted civilian unemployment rate from The purpose of this paper is to explore the Bureau of Labor Statistics; http://stats.bls.gov. 436 JULY/AUGUST 2005 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW Hamilton Figure 1 Figure 2 U.S. Monthly Civilian Unemployment Rate Estimated Spectrum of U.S. Monthly Civilian and U.S. Recessions, 1948:01–2004:03 Unemployment Rate, 1948:01–2004:03 11 14 10 12 10 9 8 8 6 7 4 2 6 0 5 0 10 20 30 Period of Cycle (years) 4 3 NOTE: Plotted as a function of the period of the cycle in years. 2 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 (2) uyc y y tt=−−φφ11 t−− − 22 t k log12 / log / 2 =+{}ΓΓ()νν − {}[] those of 1982:11 and 1992:06 are separated by a (3) 12/log2 decade. More formally, one can look for any sort −()()σνπ of periodic pattern by examining the spectrum of 2 with respect to θ = (c,φ1,φ2,σ ,ν)′ subject to the the unemployment rate, an estimate of which is constraints3 that σ 2 > 0 and ν > 0. These maximum plotted in Figure 2 as a function of the period of likelihood estimates (MLEs) (with asymptotic the cycle.2 If one tries to decompose the unem- standard errors in parentheses) imply that the ployment series in Figure 1 into a series of strictly unemployment rate yt for month t could be mod- periodic cycles, by far the most important of these eled as follows: are those with the longest period, as opposed to (4) yytt++0.. 060 1 1171 − 0 . 128 yvtt2 + 0., 158 something regularly repeating every 3 to 5 years. ()()0.. 028 0 037 − (()0 . 037 − ()0. 007 Let yt denote the unemployment rate. Consider where vt is distributed Student t with 4.42 degrees an AR(2) representation of these data with Student of freedom, with the standard error for the degrees- t innovations, obtained by maximizing the log of-freedom parameter ν being estimated at 0.74.
Load more

Recommended publications
  • Debt-Deflation Theory of Great Depressions by Irving Fisher
    THE DEBT-DEFLATION THEORY OF GREAT DEPRESSIONS BY IRVING FISHER INTRODUCTORY IN Booms and Depressions, I have developed, theoretically and sta- tistically, what may be called a debt-deflation theory of great depres- sions. In the preface, I stated that the results "seem largely new," I spoke thus cautiously because of my unfamiliarity with the vast literature on the subject. Since the book was published its special con- clusions have been widely accepted and, so far as I know, no one has yet found them anticipated by previous writers, though several, in- cluding myself, have zealously sought to find such anticipations. Two of the best-read authorities in this field assure me that those conclu- sions are, in the words of one of them, "both new and important." Partly to specify what some of these special conclusions are which are believed to be new and partly to fit them into the conclusions of other students in this field, I am offering this paper as embodying, in brief, my present "creed" on the whole subject of so-called "cycle theory." My "creed" consists of 49 "articles" some of which are old and some new. I say "creed" because, for brevity, it is purposely ex- pressed dogmatically and without proof. But it is not a creed in the sense that my faith in it does not rest on evidence and that I am not ready to modify it on presentation of new evidence. On the contrary, it is quite tentative. It may serve as a challenge to others and as raw material to help them work out a better product.
    [Show full text]
  • Inflation and the Business Cycle
    Inflation and the business cycle Michael McMahon Money and Banking (5): Inflation & Bus. Cycle 1 / 68 To Cover • Discuss the costs of inflation; • Investigate the relationship between money and inflation; • Introduce the Romer framework; • Discuss hyperinflations. • Shocks and the business cycle; • Monetary policy responses to business cycles. • Explain what the monetary transmission mechanism is; • Examine the link between inflation and GDP. Money and Banking (5): Inflation & Bus. Cycle 2 / 68 The Next Few Lectures Term structure, asset prices Exchange and capital rate market conditions Import prices Bank rate Net external demand CPI inflation Bank lending Monetary rates and credit Policy Asset purchase/ Corporate DGI conditions Framework sales demand loans Macro prudential Household policy demand deposits Inflation expectations Money and Banking (5): Inflation & Bus. Cycle 3 / 68 Inflation Definition Inflation is a sustained general rise in the price level in the economy. In reality we measure it using concepts such as: • Consumer Price Indices (CPI); • Producer Price Indices (PPI); • Deflators (GDP deflator, Consumption Expenditure Deflator) Money and Banking (5): Inflation & Bus. Cycle 4 / 68 Inflation: The Costs If all prices are rising at same rate, including wages and asset prices, what is the problem? • Information: Makes it harder to detect relative price changes and so hinders efficient operation of market; • Uncertainty: High inflation countries have very volatile inflation; • High inflation undermines role of money and encourages barter; • Growth - if inflation increases by 10%, reduce long term growth by 0.2% but only for countries with inflation higher than 15% (Barro); • Shoe leather costs/menu costs; • Interaction with tax system; • Because of fixed nominal contracts arbitrarily redistributes wealth; • Nominal contracts break down and long-term contracts avoided.
    [Show full text]
  • Interactions Between Business Cycles, Financial Cycles and Monetary Policy: Stylised Facts1
    Interactions between business cycles, financial cycles and 1 monetary policy: stylised facts Sanvi Avouyi-Dovi and Julien Matheron2 Introduction The spectacular rise in asset prices up to 2000 in most developed countries has attracted a great deal of attention and reopened the debate over whether these prices should be targeted in monetary policy strategies. Some observers see asset price developments, in particular those of stock prices, as being inconsistent with developments in economic fundamentals, ie a speculative bubble. This interpretation carries with it a range of serious consequences arising from the bursting of this bubble: scarcity of financing opportunities, a general decline in investment, a fall in output, and finally a protracted contraction in real activity. Other observers believe that stock prices are likely to have an impact on goods and services prices and thus affect economic activity and inflation. These theories are currently at the centre of the debate on whether asset prices should be taken into account in the conduct of monetary policy, ie as a target or as an instrument.3 However, the empirical link between asset prices and economic activity on the one hand, and the relationship between economic activity and interest rates or between stock prices and interest rates on the other, are not established facts. This study therefore sets out to identify a number of stylised facts that characterise this link, using a statistical analysis of these data (economic activity indicators, stock prices and interest rates). More specifically, we study the co-movements between stock market indices, real activity and interest rates over the business cycle.
    [Show full text]
  • Inside Money, Business Cycle, and Bank Capital Requirements
    Inside Money, Business Cycle, and Bank Capital Requirements Jaevin Park∗y April 13, 2018 Abstract A search theoretical model is constructed to study bank capital requirements in a respect of inside money. In the model bank liabilities, backed by bank assets, are useful for exchange, while bank capital is not. When the supply of bank liabilities is not sufficiently large for the trading demand, banks do not issue bank capital in competitive equilibrium. This equilibrium allocation can be suboptimal when the bank assets are exposed to the aggregate risk. Specifically, a pecuniary externality is generated because banks do not internalize the impact of issuing inside money on the asset prices in general equilibrium. Imposing a pro-cyclical capital requirement can improve the welfare by raising the price of bank assets in both states. Key Words: constrained inefficiency, pecuniary externality, limited commitment JEL Codes: E42, E58 ∗Department of Economics, The University of Mississippi. E-mail: [email protected] yI am greatly indebted to Stephen Williamson for his continuous support and guidance. I am thankful to John Conlon for his dedicated advice on this paper. This paper has also benefited from the comments of Gaetano Antinolfi, Costas Azariadis and participants at Board of Governors of the Federal Reserve System, Korean Development Institute, The University of Mississippi, Washington University in St. Louis, and 2015 Mid-West Macro Conference at Purdue University. All errors are mine. 1 1 Introduction Why do we need to impose capital requirements to banks? If needed, should it be pro- cyclical or counter-cyclical? A conventional rationale for bank capital requirements is based on deposit insurance: Banks tend to take too much risk under this safety net, so bank capital requirements are needed to correct the moral hazard problem created by deposit insurance.
    [Show full text]
  • A Classical View of the Business Cycle
    NBER WORKING PAPER SERIES A CLASSICAL VIEW OF THE BUSINESS CYCLE Michael T. Belongia Peter N. Ireland Working Paper 26056 http://www.nber.org/papers/w26056 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 July 2019 We are especially grateful to David Laidler for his encouragement during the development of this paper and to John Taylor, Kenneth West, two referees, and seminar participants at the Federal Reserve Bank of Atlanta for helpful comments on previous drafts. All errors that remain are our own. Neither of us received any external support for, or has any financial interest that relates to, the research described in this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2019 by Michael T. Belongia and Peter N. Ireland. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. A Classical View of the Business Cycle Michael T. Belongia and Peter N. Ireland NBER Working Paper No. 26056 July 2019 JEL No. B12,E31,E32,E41,E43,E52 ABSTRACT In the 1920s, Irving Fisher extended his previous work on the Quantity Theory to describe, through an early version of the Phillips Curve, how changes in the money stock could be associated with cyclical movements in output, employment, and inflation.
    [Show full text]
  • Nine Lives of Neoliberalism
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Plehwe, Dieter (Ed.); Slobodian, Quinn (Ed.); Mirowski, Philip (Ed.) Book — Published Version Nine Lives of Neoliberalism Provided in Cooperation with: WZB Berlin Social Science Center Suggested Citation: Plehwe, Dieter (Ed.); Slobodian, Quinn (Ed.); Mirowski, Philip (Ed.) (2020) : Nine Lives of Neoliberalism, ISBN 978-1-78873-255-0, Verso, London, New York, NY, https://www.versobooks.com/books/3075-nine-lives-of-neoliberalism This Version is available at: http://hdl.handle.net/10419/215796 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative
    [Show full text]
  • Which Industries Are Sensitive to Business Cycles?
    Cyclical Sensitivity Which industries are sensitive to business cycles? An analysis of the 1994–2005 projections can be used to identify industries that are projected to move differently with business cycles in the future than in the past, and to identify the industries and occupations that are most prone to business cycle swings Jay Berman and ndustries react in different ways to the busi- termine the structural change or changes caus- Janet Pfleeger ness cycle fluctations of the U.S. economy. ing the break from the past or review its pro- ISome industries are very vulnerable to eco- jections model and make appropriate modifi- nomic swings, while others are relatively im- cations to ensure consistency between the his- mune to them. For those industries that are char- torical and projected periods. acterized as cyclical, the degree and timing of • to identify the industries and occupations that these fluctuations vary widely—the industries are most susceptible to business cycle swings that experience only modest gains during expan- for use in preparing career guidance informa- sionary periods may also suffer only mildly dur- tion.2 ing contractions, and those that recover fastest In identifying which industries fluctuate with from recessions may also feel the impact of a GDP (business cycle movements over time) and downturn earlier and more strongly than other which do not, two factors were analyzed for the industries. 1994–2005 projection rounds: the correlation This article examines those industries in between industry employment and GDP, and the which demand and employment are most sensi- correlation between industry final demand and tive to business cycle movements over time.
    [Show full text]
  • Glenn Stevens: Inflation, Deflation and All That
    Glenn Stevens: Inflation, deflation and all that Speech by Mr Glenn Stevens, Deputy Governor of the Reserve Bank of Australia, to Australian Business Economists 2002 Forecasting Conference Dinner, Sydney, 4 December 2002. * * * Introduction In the formative years of the current generation of economists, inflation was considered to be one of the most pressing macroeconomic problems. That's not surprising, since most of the net rise in prices that has occurred in human history took place between the late 1940s and about 1990, as a plot of any price index in any industrial country would show. In Australia's case, it was observable during the 1950s that, in periods of business cycle downturn, prices stopped rising but didn't actually fall. This was in contrast to the pre-World War II experience, where price levels did fall during recessions. By the second half of the 1960s, it was even clearer that the price level had acquired a persistent upward trend, and around that time it became normal to look at the price level in its first difference form (i.e. the inflation rate) rather than its level.1 As all of us here remember only too well, inflation reached nearly 20 per cent during the mid 1970s. Thereafter polices aimed at reducing it, with mixed success at first, but more lasting success in the aftermath of the early-1990s downturn. A number of other countries had more clearly broken the back of serious inflation in the early 1980s; we took a little longer. But in general it could be said that the period of really serious inflation in the western world lasted from the late 1960s until the early 1990s.
    [Show full text]
  • Evolution of Modern Business Cycles: Accounting for the Great Recession
    Evolution of Modern Business Cycle Models: Accounting for the Great Recession Patrick J. Kehoe Stanford University, University College London, and Federal Reserve Bank of Minneapolis Virgiliu Midrigan New York University Elena Pastorino Stanford University, Hoover Institution, and Federal Reserve Bank of Minneapolis Staff Report 566 June 2018 DOI: https://doi.org/10.21034/sr.566 Keywords: New Keynesian models; Financial frictions; External validation JEL classification: E13, E32, E52, E61 The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. __________________________________________________________________________________________ Federal Reserve Bank of Minneapolis • 90 Hennepin Avenue • Minneapolis, MN 55480-0291 https://www.minneapolisfed.org/research/ Evolution of Modern Business Cycle Models: Accounting for the Great Recession Patrick J. Kehoey Virgiliu Midriganz Elena Pastorinox June 2018 Abstract Modern business cycle theory focuses on the study of dynamic stochastic general equilibrium models that generate aggregate fluctuations similar to those experienced by actual economies. We discuss how this theory has evolved from its roots in the early real business cycle models of the late 1970s through the turmoil of the Great Recession four decades later. We document the strikingly different pattern of comovements of macro aggregates during the Great Recession compared to other postwar recessions, especially the 1982 recession. We then show how two versions of the latest generation of real business cycle models can account, respectively, for the aggregate and the cross-regional fluctuations observed in the Great Recession in the United States. We thank Adrien Auclert, Mark Gertler, Robert Hall, Gordon Hanson, Robert Lucas, Ellen McGrattan, Juan Pablo Nicolini, John Taylor, and Timothy Taylor for their comments, and are especially thankful to John Cochrane for his detailed feedback.
    [Show full text]
  • Intermediate Macroeconomics: New Keynesian Model
    Intermediate Macroeconomics: New Keynesian Model Eric Sims University of Notre Dame Fall 2012 1 Introduction Among mainstream academic economists and policymakers, the leading alternative to the real business cycle theory is the New Keynesian model. Whereas the real business cycle model features monetary neutrality and emphasizes that there should be no active stabilization policy by govern- ments, the New Keynesian model builds in a friction that generates monetary non-neutrality and gives rise to a welfare justification for activist economic policies. New Keynesian economics is sometimes caricatured as being radically different than real business cycle theory. This caricature is unfair. The New Keynesian model is built from exactly the same core that our benchmark model is { there are optimizing households and firms, who interact in markets and whose interactions give rise to equilibrium prices and allocations. There is really only one fundamental difference in the New Keynesian model relative to the real business cycle model { nominal prices are assumed to be \sticky." By \sticky" I simply mean that there exists some friction that prevents Pt, the money price of goods, from adjusting quickly to changing conditions. This friction gives rise to monetary non-neutrality and means that the competitive equilibrium outcome of the economy will, in general, be inefficient. New Keynesian economics is to be differentiated from \old" Keynesian economics. Old Keyne- sian economics arose out of the Great Depression, adopting its name from John Maynard Keynes. Old Keynesian models were typically much more ad hoc than the optimizing models with which we work and did not feature very serious dynamics.
    [Show full text]
  • The Mechanisms of the Business Cycle in the Postwar Era
    This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The American Business Cycle: Continuity and Change Volume Author/Editor: Robert J. Gordon, ed. Volume Publisher: University of Chicago Press Volume ISBN: 0-226-30452-3 Volume URL: http://www.nber.org/books/gord86-1 Publication Date: 1986 Chapter Title: The Mechanisms of the Business Cycle in the Postwar Era Chapter Author: Otto Eckstein, Allen Sinai Chapter URL: http://www.nber.org/chapters/c10020 Chapter pages in book: (p. 39 - 122) 1 The Mechanism.s of the Business Cycle in the Postwar Era Otto Eckstein and Allen Sinai 1.1 Introduction The business cycle has persisted in the postwar period, producing eight separate episodes of systematic fluctuations. Although a depres- sion of the 1930s variety has been avoided, rnore severe and frequent recessions have occurred in recent years, and the hope of cycleless prosperity generated in the long expansion of the 1960s has been dis- appointed by the record of the 1970s and early 1980s. The experience of recent years has revived the scientific study of the business cycle. In this paper the point of departure is an analysis of historical events and processes, applying the ideas of the business cycle literature to draw what generalizations can legitimately be made about phenomena common to most or all cycles. First, the eight post- war cycles are surveyed for their key elements. Second, a set of busi- ness cycle phases are derived from this survey. Third, the types of mechanisms that can trigger cycles are summarized.
    [Show full text]
  • Historically Illustrating the Shift to Neoliberalism in the U.S. Home Mortgage Market
    societies Essay Historically Illustrating the Shift to Neoliberalism in the U.S. Home Mortgage Market Ivis García City and Metropolitan Planning Department, University of Utah, Salt Lake City, UT 60608, USA; [email protected] Received: 8 October 2018; Accepted: 12 January 2019; Published: 18 January 2019 Abstract: This article takes a long view of the U.S. housing market; from its inception as locally owned and operated Building Societies, through one of the first major U.S. housing crises in the early 1930s, as well as through the prosperous and surprisingly stable post-WWII era the so-called “Long Boom” during Keynesianism. As labor shortages became more severe, accompanied by stagflation and the simultaneous urban, fiscal, and oil crises of the late 60s and early 70s, key sectors of the U.S. economy rallied to dismantle established Keynesian policies. While the new policies associated with laissez–faire economic liberalism certainly aided in the mobility of capital, the overall economy as a result of this neoliberal turn became increasingly unstable and inequitable. This article seeks to add knowledge to the neoliberalism theory. The author concludes, based on a historical case study of the Savings and Loans industry, that neoliberalism was not a deterministic overthrow of neoliberal ideologues but a haphazard response to the contradictions of Keynesian logic. It is only from a historical approach that we may be able to understand the current housing crisis, foster policy innovation, and allow for institutional change within the U.S. mortgage market sector. Keywords: banking; financial institutions; industry; mortgages 1. Introduction The effect of neoliberalism in the field of housing studies has gained considerable attention among scholars [1–4].
    [Show full text]