I hope someone can answer this for me. My question is about the 'business cycle'.
My understanding is this: During the 'boom' phase, people become overly optimistic about something that ends up being a bubble. Resources are misallocated to this bubble. During the 'bust' phase, people come to realize that whatever the bubble happens to be isn't nearly as great as they once thought. People move to the exits and liquidate their positions.
What I don't understand is, why during the 'boom' phase, while resources are being diverted to the bubble, it seems like I get more return for my labor? I would think that if I did not invest in the bubble, that the conditions would be completely opposite. During the 'boom' phase resources and labor should cost more (in terms of what I get for my labor) because of the demand towards the bubble. I would also think that the 'bust' phase should be just as opposite. Yet, during the 'boom' phase my labor gets me more, and during the 'bust' phase my labor gets me less. This makes no sense to me.
I hope the question makes sense. I would appreciate if someone could explain this to me. It has been burning in my mind for awhile now.
Some people think the business cycle is fault of free markets. They attempt to control it through government and central bank interventions. What results is (in my opinion) a more exaggerated peak (bubble or blow off top) and when the bubble bursts we see a more spectacular crash.
Austrian economists (i believe) would say that the booms and busts are solely a result of central banking and government interference in the market. Keynesians would say that these interventions could prevent booms and busts, which is clearly bullshit. Others like Martin Armstrong say that booms and busts are a natural market phenomenon and can't be, nor should be controlled.
Anyways, just thought I'd try to add some clarity.
Are you referring to a bubble in one sector or the whole economy in general?
I think if you are referring to something like a housing bubble, for example, than the cost of labor for trades would be higher as a result. Any other business affected by housing would also be in higher demand and so wages would also be driven up. Lawyers fees for the real estate transactions for example.
I think you're trying to say something else, but I'm not exactly sure. Maybe you can explain differently?
