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Are Business Cycles Obsolete?

March 1, 2025 | Commentary

  • For much of the 20th century academic economists strove to explain why economies experienced regular business cycles.
  • Much of the cyclical nature then could be traced to agricultural and manufacturing ebbs and flows which were often exacerbated by rigid currency rules like the gold standard.
  • The 21st century U.S. economy looks nothing like it did 100 and 150 years ago. Services, which generally show little cyclicality, and floating exchange rates have eliminated many of the causes of the traditional business cycles.
  • With the exception of the short pandemic-induced recession in 2020, all U.S. recessions since 1990 have been the result of unwinding extreme financial leverage in some part of the economy. There is nothing regular to these events, making the notion of a predictable business cycle obsolete. Trying to adjust portfolios around such a notion is likely to fail because exit and re-entry points are impossible to predict.

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