A History of Economic Booms and Busts - An Introduction to the Industrial Revolution - When Governments Cut Spending. Steve Davies

When aneconomy falls into a recession, we typically observe a cluster of people making similar investment mistakes.  According to historian Stephen Davies, these investment errors occur because governments or central banks manipulate the supply of money. These manipulations place artificial downward pleasure on interest rates, creating false signals that entice individuals to invest in what end up being unprofitable ventures. Booms and busts are not a new phenomenon of this century, but rather, have occurred throughout history both in America and around the globe.

What was the industrial revolution? According to Dr. Stephen Davies, it was an extraordinarily innovative period in history that generated the highest living standards the world had ever seen. For instance, over the course of the 19th century, average per capita income in the United Kingdom rose by a factor of six. To put this in perspective, prior to the industrial revolution, it typically took 300-400 years for the standard of living to rise by a factor of 0.5. Why did this explosion of human flourishing take place? Dr. Stephen Davies claims that people began to embrace an engineering culture along with a respect for trade and business. It was this synergy of trade and engineering that led to a revolution in production and business organization.

Do governments ever cut spending? According to Dr. Stephen Davies, there are historical examples of government spending cuts in Canada, New Zealand, Sweden, and America. In these cases, despite popular belief, the government spending cuts did not cause economic stagnation. In fact, the spending cuts often accelerated economic growth by freeing up resources for the private sector.