If the UK economy has always gone from boom to bust, why would things be any different now?

Question

Everyone seems to be saying that things will be different this time, but that is exactly what was said in the late 80's and 90's and the economy still went bust.

Answer 1

The answer above explained about cycling economies so I'll explain about why people believe that a bust wont occur.

In general people now talk about boom and bust in extreme conditions, where there has been high and unsustainable growth because it has lacked the fundamentals to support it (in the 80s people leveraged themselves by borrowing too much and got hit by rising interest rates) this is then followed by a big recession where there is significant unemployment and falling GDP.

People believe it will be different this time because they believe we are more able to manage the economic cycle and therefore rather than have high growth followed by negative growth, we can attain controllable long term growth and any troughs will be "soft landings" with the economy slowing down rather than crashing .

There is various evidence that the economy and its influencing factors have changed significantly since the 80s. For instance BoE now controls interest rates, so rate changes are not politically driven plus markets have more faith in the ability of BoE. Also while the rest of the world suffered a recession after 2001 the UK did not, there was an obvious slowdown but the boom/bust cycle which could have happened didnt materialise. When you combine these points and the numerous others that exist people feel more confident and maybe that alone is all we need to avoid a bust, sometimes sentiment is as much a problem as actual economic data.

This isnt to say we wont go back to boom/bust cycle but at least for the moment the bad days of the 80s arent around, however with rising global interest rates, a few poor decisions and you never know ;)

Answer 2

It's a natural cycle of capatalist economies to boom then go bust, every time it happens we learn a little bit more about why, and controls are stricter to stop if from re-occuring. Unfortunately these controls are never good enough and eventually "bust" happens again. The trouble is you can't predict when exactly - if you could you'd be a mult-trillionaire and not asking or answering questions on here!

Answer 3

Complexity theory states that, amongst other things, complex systems always bubbles and bursts. It can be a town commons subject to overgrazing, a seal population expanding too rapidly, a country's economy, or a weather system.

It's a basic law of the universe.

Answer 4

Capitalism always goes boom and bust, it's just the time between each that changes. It will happen, eventually.