Chart of the Week 15 May 2015
Real GDP is the value of Gross Domestic Product after correction for inflation. Before World War II there were much larger swings of growth and contraction. But, even as volatility was reduced in recent decades, average growth has been diminished. According to the theory of Austrian economics, the wider swings were the result of malinvestment being purged during the contraction, which was a process that enabled the stronger recovery and expansion that followed. Attempted management of the business cycle in the past 70 years has precluded the purging of bad investments, softening economic downturns but also providing headwinds for the following upswing as inefficiencies remained in the economy.
History of the business cycle is discussed in video after the Read more >> jump.