Political Business Cycle

Discipline: Economics

Initially attributed to German political economist Karl Marx (1818-1883) but later revised by, among others, Polish-born engineer and economist Michal Kalecki (1899-1970); political business cycle attributes economic fluctuations to politicians who manipulate fiscal and monetary policies (choosing between employment or inflation) in order to get elected/re-elected.

It is argued that in the period leading up to an election, policies are introduced to reduce unemployment regardless of the inflation which may result; however, after a successful election the party will introduce deflationary policies.

This throws the economy into disequilibrium. Kalecki argued that big business is opposed to government experiments to create full employment through spending (as seen in the Depression of the 1930s in every country except Nazi Germany).

Their dislike stems from a distrust of government interference in employment, a dislike of the areas in which spending is directed (public investment and subsidized consumption), and a dislike of the social and political changes arising from the creation of full employment.

Also see: acceleration principle, fine-tuning, Kondratieff cycles, multiplier accelerator, product life-cycle theory, sunspot theory, trade cycle

Source:
M Kalecki, 'Political Aspects of Full Employment', Political Quarterly, vol. XIV (October-December 1943), 322-31;
P Minford and D Peel, 'The Political Theory of the Business Cycle', European Economic Review, vol. x (1982), 252-70

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