Abstract
A variety of economic indicators are presented to provide evidence that the global economy went through crisis conditions six times in the past five decades, specifically in the years 1975, 1980–1982, 1991–1993, 2001–2002, 2008–2009, and 2020. Total gross capital formation and gross fixed capital formation are the main indicators to date the crises; other indicators such as the rate of growth of the world output (world GDP), the proportion of all national economies in recession, unemployment rates, monetary aggregates, a chemical index—global emissions of CO2—, and indices of profitability provide additional layers of evidence to show that the proposed chronology is consistent and robust. The stylized facts of the business cycle are discussed in relation to the world economy.
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Notes
- 1.
Using market exchange rates for computing national GDPs in US dollars and the WGDP in real terms, the size of the US economy in 2019 was 18.3 trillion in 2010 US dollars, versus 11.5 trillion for China and 84.9 trillion for the world economy. However, with GDPs computed using PPP rather than exchange rates, China is since 2017 the biggest economy of the world, with a GDP for the year 2019 of 22.5 trillion international dollars of 2017, compared with 20.5 trillion for the United States and 130.0 trillion for the world (as reported in the WDI database in November 2020).
- 2.
Schirwitz (2009), “A comprehensive German business cycle chronology”, Empirical Economics 37(2), 287–301.
- 3.
Castro (2015), “The Portuguese business cycle: Chronology and duration dependence”, Empirical Economics 49(1), 325–342.
- 4.
Duque (2022), “Economic growth and the rate of profit in Colombia 1967–2019: A VAR time-series analysis”, Review of Radical Political Economics 54(3), 1–19, Figure 2.
- 5.
Tapia (2017), Rentabilidad, inversión y crisis—Teorías económicas y datos empíricos, 18–22.
- 6.
Government of Japan, Cabinet Office (2013), “The provisional determination of business-cycle peak and trough”, August 21, 2013, www.esri.cao.go.jp/en/stat/di/130821rdates.html, accessed September 2022; Anonimous (2021), “Japan recession lasted for 19 months through May 2020, government panel says”, The Japan Times, December 1, www.japantimes.co.jp/news/2021/12/01/business/economy-business/japan-recession, accessed September 2022.
- 7.
Mitchell (1913), Business cycles; England (1913), “Economic crises”, Journal of Political Economy 21(4), 345–354 are outstanding examples of the old literature on business cycles and economic crises. For modern reviews see Zarnowitz (1985), “Recent work on business cycles in historical perspective”, Journal of Economic Literature 23(2), 523–580; Knoop (2004), Recessions and depressions: Understanding business cycles; Glasner & Cooley (1997), Business cycles and depressions: An encyclopedia.
- 8.
Morgenstern (1950), On the accuracy of economic observations; Bagus (2011), “Morgenstern's forgotten contribution: A stab to the heart of modern economics”, American Journal of Economics and Sociology 70(2), 540–562 is an exaggerated attack on economic statistics based on Morgenstern ideas.
- 9.
Mitchell (1927), Business cycles: The problem and its setting; Tinbergen (1939), Statistical testing of business-cycle theories.
- 10.
The World Development Indicators (WDI) database is available at https://www.databank.worldbank.org/source/world-development-indicators. Most data used in this book are from this source.
- 11.
Besides a sudden drop in the rate of growth of WGDP, in 1974 there was a worldwide contraction of the monetary mass and credit to the private sector, as it will be shown later in this chapter.
- 12.
Kose & Terrones (2015), Collapse and revival—Understanding global recessions and recoveries.
- 13.
Mitchell (1913), Business cycles, Ch. VIII; Tinbergen (1950), The dynamics of business cycles, Ch. 13.
- 14.
Okun’s law can be considered as indirect evidence in favor of the labor theory of value, as it shows that the rate of growth of total output (in money value) is correlated negatively with the change in unemployment, or positively with the change in employment.
- 15.
Mitchell (1913), Business cycles, Ch. 2; Groseclose (1961), Money and man.
- 16.
In 2013 the only measure of money in the world economy that was reported in the WDI database of the World Bank was M2. In later years “broad money” was added, both series had almost identical values. After 2019, M2 was no longer reported.
- 17.
See Appendix A for a brief econometric discussion of the hypothesis that “money leads” in the world economy. Appendix B describes how the World Bank dramatically changed its estimates for M2 in the years around the Great Recession. For a period that I believe coincided with the time of the COVID-19 pandemic, the World Bank ceased reporting money aggregates for the world economy.
- 18.
Peters et al. (2012), “Rapid growth in CO2 emissions after the 2008–2009 global financial crisis”, Nature Climate Change 2(1), 2–4.
- 19.
Tapia & Carpintero (2013), “Chapter 3—Dynamics and economic aspects of climate change”, in Kang & Banga, eds., Combating climate change: An agricultural perspective, 29–58.
- 20.
Tapia, Ionides & Carpintero (2012), “Climate change and the world economy: Short-run determinants of atmospheric CO2”, Environmental Science & Policy 21, 50–62.
- 21.
Nordhaus (1974), “The falling share of profits”, Brookings Papers on Economic Activity 1, 169–217; Feldstein & Summers (1977), “Is the rate of profit falling?”, Brookings Papers on Economic Activity 1, 211–228; Blanchard, Rhee & Summers (1993), “The stock market, profit, and investment”, Quarterly Journal of Economics 108(1), 115–136.
- 22.
Andrew Kliman (2012), thoroughly discussed these issues in The failure of capitalist production. In Theory as critique—Essays on Capital Paul Mattick Jr. (2019) sustains that overall, economic statistics about profits or capital are not valid to test the corresponding Marxian concepts because Marx’s profit rate is a non-observable variable. According to Duque García (2022), this was also the view of Althusser and Balibar. To discuss these issues goes beyond the scope of this book.
- 23.
Li et al. (2007), “Long waves, institutional changes, and historical trends: A study of the long-term movement of the profit rate in the capitalist world-economy. Journal of World-Systems Research 13(1), 33–54; Roberts (2012), “A world rate of profit”, https://www.gesd.free.fr/mrwrate.pdf; Maito (2018), “The tendency of the rate of profit to fall since the nineteenth century and a world rate of profit”, in Carchedi & Roberts, eds., World in crisis, 129–156.
- 24.
Basu et al. (2022), “World profit rates, 1960–2019”, University of Massachusetts Amherst, Economics Department Working Paper Series 318, https://doi.org/10.7275/43yv-c721.
- 25.
Shaikh (2016), Capitalism: Competition, conflict, crises, Figures 6.1, 246, and 6.2, 249.
- 26.
Li, Xiao & Zhu (2007), “Long waves, institutional changes, and historical trends: A study of the long-term movement of the profit rate in the capitalist world-economy”, Journal of World-Systems Research 13(1), 33–54.
- 27.
I have explored these statistical associations at the level of the US economy, for instance in the chapter “Investment, profit and crises: Theories and evidence”, in Carchedi & Roberts, eds., World in crisis and, in Spanish, in the book Rentabilidad, inversión y crisis: Teorías económicas y datos empíricos.
- 28.
Dore (1993), The macrodynamics of business cycles, 21–28; Dore (1997), “Stylized facts”, in Glasner & Cooley. eds., Business cycles and depressions—An encyclopedia, 662–664.
- 29.
In economic parlance, a variable is procyclical when it grows and declines in parallel with economic activity, as it happens, for instance, with consumption of electricity, sales of luxury goods, or deaths because of car crashes; a variable is countercyclical when varies “against the cycle”, that is, increasing when the economy contracts and decreasing when the economy expands; the rates of unemployment, business failures, consumption of very cheap foods and suicide deaths are typical countercyclical variables.
- 30.
See the cited entry by Dore (1997) in Business cycles and depressions—An encyclopedia and also Dore (1993), The macrodynamics of business cycles, 21–28.
- 31.
“Recent work on business cycles in historical perspective: A review of theories and evidence”, Journal of Economic Literature 1985, 23(2), 523–580.
- 32.
See the cited works by Dore (1993, 1997) and Zarnowitz (1985), as well as Oppenlaender (1997), “Characteristics and classification of business cycle indicators”, in Oppenlaender, ed., Business cycle indicators, 25–32.
- 33.
Gregory, Head & Raynauld (1997), “Measuring world business cycles”, International Economic Review 38(3), 677–701.
- 34.
Schularik & Taylor (2012), “Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870–2008”, American Economic Review 102(2), 1029–1061.
- 35.
Brenner (2002), The boom and the bubble: The US in the world economy.
- 36.
Kose & Terrones (2015), Collapse, 13.
- 37.
Let GDP per capita = i, GDP = y, and population = p, then i = y/p, and by differentiation di/i = dy/y – dp/p, so that the rate of growth of GDP per capita (di/i) is equal to the rate of growth of GDP (dy/y) minus the rate of growth of population (dp/p).
- 38.
Kose & Terrones (2015), Collapse, 34.
- 39.
Kose & Terrones (2015), Collapse, 26.
- 40.
Kose & Terrones (2015), Collapse, 29.
- 41.
Burns & Mitchell (1946), Measuring business cycles, 4.
- 42.
Kose & Terrones (2015), Collapse, 65.
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Tapia, J.A. (2023). Evidence of Six Crises. In: Six Crises of the World Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-38735-7_2
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