Economists, Recessions, and Profits

Abstract

Mainstream economists were puzzled by the global depression (the so-called Great Recession) that started late in 2007. In the Unites States, after an almost unanimous consensus of the economic profession and the Republican and Democratic politicians in their support of the bailouts of banks and financial institutions, major discrepancies appeared about economic policy, when Republicans and mainstream economists attacked the Keynesian policies of economic stimulus promoted by Obama’s economic advisors and passed in January 2009 by the Congress. Krugman’s outspoken criticisms—that what macroeconomics has produced in the last thirty years is useless at best and harmful at worst—was considered a disgrace by many economists. Though arguments between economists have been frequent since the start of the crisis, they usually have focused on the relation of the Great Recession with deregulation of financial markets, the housing bubble, and the like; causes of recessions are generally not discussed. They are considered in the second part of the paper, where business profits are presented as a cause of recessions. Profits as drivers of the so-called business cycle are discussed together with the views of Wesley Mitchell, Karl Marx, and other authors. Empirical data on the evolution of profits in the US economy both during the Great Depression and during the Great Recession are presented and their importance to understand economic perspectives is discussed.