Editing Business cycle (section)

== Mitigating an economic downturn ==
Many social indicators, such as mental health, crimes, and suicides, worsen during economic recessions (though general mortality tends to fall, and it is in expansions when it tends to increase).<ref>{{cite journal | last1 = Ruhm | first1 = C | s2cid = 51729569 | year = 2000 | title = Are Recessions Good for Your Health? | url = http://libres.uncg.edu/ir/uncg/f/C_Ruhm_Are_2000.pdf| journal = Quarterly Journal of Economics | volume = 115 | issue = 2| pages = 617–650 | doi=10.1162/003355300554872}}</ref> As periods of economic stagnation are painful for the many who lose their jobs, there is often political pressure for governments to mitigate recessions. Since the 1940s, following the [[Keynesian Revolution]], most governments of developed nations have seen the mitigation of the business cycle as part of the responsibility of government, under the rubric of [[stabilization policy]].<ref>{{Cite journal|last=Perez|first=Carlota|date=March 2013|title=Unleashing a golden age after the financial collapse: Drawing lessons from history|journal=Environmental Innovation and Societal Transitions|volume=6|pages=9–23|doi=10.1016/j.eist.2012.12.004|bibcode=2013EIST....6....9P |issn=2210-4224}}</ref>

Since in the Keynesian view, recessions are caused by inadequate aggregate demand, when a recession occurs the government should increase the amount of aggregate demand and bring the economy back into equilibrium.  This the government can do in two ways, firstly by increasing the money supply (expansionary [[monetary policy]]) and secondly by increasing government spending or cutting taxes (expansionary fiscal policy).

By contrast, some economists, notably [[New classical economics|New classical economist]] [[Robert Lucas, Jr.|Robert Lucas]], argue that the [[welfare cost of business cycles]] are very small to negligible, and that governments should focus on long-term growth instead of stabilization.

However, even according to [[Keynesian theory]], managing [[economic policy]] to smooth out the cycle is a difficult task in a society with a complex economy. Some theorists, notably those who believe in [[Marxian economics]], believe that this difficulty is insurmountable. [[Karl Marx]] claimed that recurrent [[Crises (economic)|business cycle crises]] were an inevitable result of the operations of the [[capitalism|capitalistic system]]. In this view, all that the government can do is to change the ''timing'' of economic crises. The crisis could also show up in a different ''form'', for example as severe [[inflation]] or a steadily increasing [[deficit spending|government deficit]]. Worse, by delaying a crisis, government policy is seen as making it ''more dramatic'' and thus more painful.

Additionally, since the 1960s [[Neoclassical economics|neoclassical economists]] have played down the ability of Keynesian policies to manage an economy.  Since the 1960s, economists like Nobel Laureates [[Milton Friedman]] and [[Edmund Phelps]] have made ground in their arguments that inflationary expectations negate the [[Phillips curve]] in the long run.  The [[1973–75 recession|stagflation of the 1970s]] provided striking support for their theories while proving a dilemma for Keynesian policies, which appeared to necessitate both expansionary policies to mitigate recession and contractionary policies to reduce inflation.
Friedman has gone so far as to argue that all the [[central bank]] of a country should do is to avoid making large mistakes, as he believes they did by contracting the money supply very rapidly in the face of the [[Wall Street crash of 1929]], in which they made what would have been a recession into the [[Great Depression]].{{Citation needed|date=June 2010}}