Business cycle

Business cycles are a natural phenomenon of free markets in which periods of relatively rapid economic growth alternate with periods of relative stagnation or decline. The periods of rapid growth are driven by increases in productivity, effeciency, and consumer confidence. Growth periods usually end with the failure of speculative investments built on a bubble of confidence that bursts or deflates. The periods of stagnation reflect a purging of unsuccessful enterprises as resources are transferred by market forces from less productive uses to more productive uses.

Because the periods of stagnation are painful for many who lose their jobs, there has been pressure for politicians to try to smooth out the oscillations. The first President of the United States to try this was Herbert Hoover. Hoover's efforts are widely, though not universally, believed to have turned what probably would have been a normal downturn of several months to a year into the Great Depression.