Economists these days are increasingly sure they can “smooth out” the business cycle rather than just forestall the inevitable.
They are wrong. And they’ve been proven so time and again.
“Smoothing out the business cycle” just means destroying creative destruction thus not allowing the system to purge itself of misallocated capital thereby leading to even larger bubbles and so on and so forth until something finally snaps. And when that something finally does snap, you’d better make sure you let it run its course. If not, you’ll end up right back in the same place you started.
This is of course, common sense, but Alan Greenspan took us all to the point of no return. The idea of allowing the entire thing to fail and building a better system died after 1987. But make no mistake, the cycle is going to do what the cycle is going to do. So the only question is: where are we in the cycle now? Here are some clues from SocGen: