Oscillations in Economics

Topics: Business cycle, Economics, Keynesian economics Pages: 5 (4523 words) Published: August 13, 2014
Oscillations in Rational Economies
Yuriy Mishchenko*
Toros University, Mersin, Turkey

Economic (business) cycles are some of the most noted features of market economies, also ranked among the most serious of economic problems. Despite long historical persistence, the nature and the origin of business cycles remain controversial. In this paper we investigate the problem of the nature of business cycles from the positions of the market systems viewed as complex systems of many interacting market agents. We show that the development of cyclic instabilities in these settings can be traced down to just two fundamental factors – the competition of market agents for market shares in the settings of an open market, and the depression of market caused by accumulation of durable overproduced commodities on the market. These findings present the problem of business cycles in a new light as a systemic property of efficient market systems emerging directly from the free market competition itself, and existing in market economies at a very fundamental level.

Citation: Mishchenko Y (2014) Oscillations in Rational Economies. PLoS ONE 9(2): e87820. doi:10.1371/journal.pone.0087820 Editor: Alejandro Raul Hernandez Montoya, Universidad Veracruzana, Mexico Received September 12, 2013; Accepted December 30, 2013; Published February 5, 2014 Copyright: ß 2014 Yuriy Mishchenko. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Funding: This work had been supported by Bilim Akademisi - The Science Academy, Turkey, under the BAGEP program, and by BAP Scientific Research Projects Fund of Toros University. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. Competing Interests: The author has declared that no competing interests exist. * E-mail: yuriy.mishchenko@gmail.com

completely different perspective on business cycles have been assumed by the more recent real business cycles theory [9–12]. The real business cycles theory supposes that business cycles always have an exogenous cause such as disruptive new

technologies, geo-economical changes, political crises, wars, etc. and, in that sense, are just a response to the changes in real markets’ conditions. Credit/debt cycles theory [7,8], on the other hand, attributes business cycles to the dynamics of over-borrowing by businesses during the times of economic booms, followed by economic slowdown and, finally, a debt crisis and a recession. Political cycles theory [5,6] attributes business cycles directly to political manipulations and improper government interventions. Some of the oldest views on business cycles in Marxian economics [13,14,23] associate business cycles with the intrinsic property of businesses to lose profitability and fail with time, translating into recessions accompanied by mass unemployment, wealth inequality and economical restructuring aimed at recovering profitability. In recent years a number of works, especially in the context of the new physics of complex systems, had emerged pursuing the

understanding of market phenomena from the perspective of market systems viewed as complex systems of interacting agents [24–33]. Such works had offered new insights into phenomena such as
financial fluctuations [24,26,34–38], market panics [29,39–41], financial contagion [42–45], and many others. In this work, we present new findings for the problem of business cycles assuming a similar perspective on the business cycles as a systemic property of market systems originating from the collective behavior of rational market agents. We show that the development of business cycles in such settings can be traced down to just two factors – systemic overproduction caused by the competition of rational market agents for...

References: 1. Keynes JM (2006) The General Theory of Employment, Interest and Money.
2. Schumpeter JA (1954) History of Economic Analysis. London: George Allen &
3. Samuelson PA (1939) Interactions between the multiplier analysis and the
principle of acceleration
4. Kitchin J (1923) Cycles and Trends in Economic Factors. Rev Econ Stat 5: 10–
5. Nordhaus WD (1975) The Political Business Cycle. Rev Econ Stud 42: 169.
6. Nordhaus WD, Alesina A, Schultze CL (1989) Alternative Approaches to the
Political Business Cycle
7. Fisher I (1933) The Debt-Deflation Theory of Great Depressions. Econometrica
1: 337.
8. Eckstein O, Sinai A (1990) The Mechanisms of the Business Cycle in the Postwar
9. Long JBJ, Plosser C (1983) Real Business Cycles. J Polit Econ 91: 39.
10. Plosser C (1989) Understanding real business cycles. J Econ Perspect 3: 51.
11. Lucas RE (1977) Understanding business cycles. Carnegie-Rochester Conf Ser
Public Policy 5: 7.
12. Kydland FE, Prescott EC (1982) Time to Build and Aggregate Fluctuations.
13. Mattick P (1969) Marx and Keynes: the limits of the mixed economy. P. Sargent.
14. Grossman H, Kennedy T (1992) The Law of Accumulation and Breakdown of
the Capitalist System: Being Also a Theory of Crises
15. George H (1997) Progress and Poverty: An Inquiry in the Cause of Industrial
Depressions and of Increase of Want with Increase of Wealth… The Remedy.
16. Goodwin RM (1967) A Growth Cycle. In: Dobb MH, editor. Socialism,
Capitalism and Economic Growth
17. Lux T (1995) Herd Behaviour, Bubbles and Crashes. Econ J 105: 881.
18. Burns AF, Mitchell WC (1946) Measuring business cycles. New York.
19. Mitchell WC (1951) What happens during business cycles: A progress report.
20. Lee MW (1955) Economic fluctuations: an analysis of business cycles and other
economic fluctuations
21. McConnel C, Brue S (2008) Economics. 17th ed. McGraw-Hill/Irwin.
22. Samuelson PA (1939) A Synthesis of the Principle of Acceleration and the
23. Beaudreau BC (2004) Mass Production, the Stock Market Crash and the Great
24. Preisa T, Schneider JJ, Stanley HE (2011) Switching processes in financial
25. Newman MEJ (2003) The Structure and Function of Complex Networks. SIAM
Rev 45: 167–265.
26. Gabaix X, Gopikrishnan P, Plerou V, Stanley HE (2003) A theory of power-law
distributions in financial market fluctuations
27. Plerou V, Gopikrishnan P, Rosenow B, Amaral LAN, Stanley HE (2000)
Econophysics: financial time series from a statistical physics point of view.
29. Sornette D (2009) Why Stock Markets Crash: Critical Events in Complex
Financial Systems
30. Tesfatsion L (2003) Agent-based computational economics: modeling economies
as complex adaptive systems
31. Schweitzer F (2002) Modeling Complexity in Economic and Social Systems.
32. Challet D (2004) Minority Games: Interacting agents in financial markets. OUP
33. Kenett DY, Raddant M, Lux T, Ben-Jacob E (2011) Evolvement of Uniformity
and Volatility in the Stressed Global Financial Village
34. Feigenbaum JA, Freund PGO (1996) Discrete scale invariance in stock markets
before crashes
35. Clauset A, Shalizi CR, Newman MEJ (2009) Power-Law Distributions in
Empirical Data
36. Gopikrishnan P, Plerou V, Amaral LAN, Meyer M, Stanley HE (1999) Scaling
of the distribution of fluctuations of financial market indices
37. Shapira Y, Kennet DY, Raviv O, Ben-Jacob E (2011) Hidden temporal order
unveiled in stock market volatility variance
38. Kenett DY, Preis T, Gur-Gershgoren G, Ben-Jacob E (2012) Quantifying metacorrelations in financial markets. Europhys Lett 99: 38001.
39. Borland L (2009) Statistical signatures in times of panic: markets as a selforganizing system. Quant Financ 12: 1367–1379.
40. Lux T, Marchesi M (2000) Volatility clustering in financial markets: a
microsimulation of interacting agents
41. Westerhoff FH (2004) Greed, fear and stock market dynamics. Phys A Stat
Theor Phys 343: 635–642.
42. Gai P, Haldane A, Kapadia S (2011) Complexity, concentration and contagion.
43. Nier E, Yang J, Yorulmazer T, Alentorn A (2007) Network models and financial
44. Gai P, Kapadia S (2010) Contagion in financial networks. Proc R Soc A Math
Phys Eng Sci 466: 2401–2423.
45. Tse CK, Liu J, Lau FCM (2010) A network perspective of the stock market.
46. Harding G (1968) The Tragedy of the Commons. Science (80-) 162: 1243.
47. Ostrom E, Dietz T, Dolsak N, Stern PC, Stonich S, et al, editors (2002) The
Drama of the Commons
48. Mankiw NG (2012) Macroeconomics. 8th ed. Worth Publishers.
49. Faysse N (2005) Coping with the Tragedy of the Commons: Game Structure and
Design of Rules
50. Ostrom E (1999) Coping with tragedies of the commons. Annu Rev Polit Sci 2:
51. Bierman HS, Fernandez LF (1998) Game Theory With Economic Applications.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • ECONOMICS Research Paper
  • Economics Essay
  • Economics Essay
  • business economics Essay
  • Essay on ECONOMICS
  • economics Essay
  • Essay about Economic
  • Economics Essay

Become a StudyMode Member

Sign Up - It's Free