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Home > Debates Last Updated: 14:31 03/09/2007
Debate: Comment

Comments on the Shinohara essay

Joseph Chien (University of Southern California, USA)

In Miyohei Shinohara's paper "The Merits of the Growth Cycle Model: Will the U.S. Face a Recession?" he disagrees with the current prevailing opinion that the U.S. economy is going to rebound by the end of this year. He predicts the U.S. economy is going into a recession because of a medium term growth cycle.

The emperical data on the U.S. economy in the past 50 years show a degree of regularity and pattern in growth rates. There are 9-12 year intervals between the troughs and the peaks and 3-4 year growth recessions from the peaks to the troughs.

A simplistic explanation of Keynesian business cycle theory is that business cycles are caused by over-stocking and under-stocking of inventory. But some analysts argue because of the nature of IT, replacing physical assets with mental assets as the chief source of raw material, the problem of over- and under-stocking of inventory is resolved and the result is a permanent upward and onward economy.

Shinohara points out that although IT companies may have unlimited factor inputs that do not create inventory problems, IT companies also function as consumers in B2B transactions in an oligopolistic fashion. The results are longer investment booms and sharper declines in prices of IT services, rates of return and stock prices of IT. Inventory cycles are replaced with price cycles. V-shaped recovery is unlikely according to Shinohara.

Shinohara's analysis of medium term growth cycles and the oligopsony behavior of IT companies gives us a new perspective for the U.S. economy. However, I wonder whether economic fluctuations are really regular and predictable. Shinohara's analysis shows three examples of business growth cycles in the past 50 years. Could it be that looking only at the past 50 years is too narrow a sample? Could it be that he sees what he believes by looking for snapshots of the economy that match his theory? The recessions of 1980 and 1982 were apart by only 2 years while the recessions of 1982 and 1990 were apart by 8 years. Perhaps taking different snapshots of the economy would yield different cycles and trends.

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