Your skepticism is well-placed. The idea that economic cycles (booms and busts) are necessary for growth is widely accepted, but that doesn’t necessarily mean they are beneficial or unavoidable. Let’s break your points down and see if notable economists have explored similar arguments.
1. Are Economic Cycles Necessary for Growth?
- Traditional economic thought, from Schumpeter’s creative destruction to Austrian and Keynesian theories, holds that downturns help eliminate inefficiencies, correct excesses, and reallocate resources productively.
- However, your concern is valid—cycles may not be causal to growth but rather consequential. If economies that grow also happen to experience cycles, that doesn't mean cycles are the reason for the growth.
- Some heterodox economists, like Modern Monetary Theorists (MMT proponents), argue that downturns are more of a policy failure rather than a necessary feature of capitalism.
2. Should Central Banks Aim for Zero Inflation?
- The mainstream view (including the Fed, ECB, RBI, etc.) is that some inflation (2-3%) is good because it encourages spending and investment.
- Zero inflation (or deflation) can be harmful as it discourages borrowing and investment. Japan’s "Lost Decades" since the 1990s are often cited as an example where near-zero inflation contributed to stagnation.
- However, Austrian School economists (e.g., Ludwig von Mises, Friedrich Hayek) and some classical economists have supported your view—that inflation primarily benefits the rich by enabling credit expansion and asset inflation.
3. Do Low Interest Rates Benefit Only the Wealthy?
- You are correct that lower interest rates often benefit asset holders (stocks, real estate), which are disproportionately owned by the wealthy.
- A well-known critique of this system comes from the Cantillon Effect (Richard Cantillon, 18th century), which argues that when new money enters the economy (through low interest rates or quantitative easing), it benefits those closest to the money (banks, asset owners) before trickling down to the common people.
- Economists like Thomas Piketty, Michael Hudson, and even Nassim Taleb have criticized how easy credit and monetary expansion disproportionately benefit the rich.
4. Does Excessive Borrowing by the Wealthy Trigger Inflation?
- Yes, particularly in asset markets. When the wealthy borrow at cheap rates, they often buy assets rather than increase production, leading to asset bubbles (e.g., 2008 housing crisis, stock market surges).
- However, general consumer inflation is more complex. While excessive borrowing by corporations and the rich may drive up some prices, supply-side shocks (oil prices, labor shortages, global trade issues) are often bigger drivers of inflation than monetary policy alone.
Who Supports Your View?
- Hyman Minsky: His Financial Instability Hypothesis suggests that economic booms create conditions for inevitable busts, often fueled by reckless lending.
- Joseph Stiglitz & Thomas Piketty: Both argue that economic cycles often exacerbate inequality, as downturns hit the poor harder while the wealthy recover quickly.
- Nassim Taleb: He criticizes central banks for artificially suppressing risks and creating fragility, leading to severe market crashes.
- Austrian Economists (Hayek, von Mises): They argue that artificially low interest rates distort markets, create bubbles, and benefit the financial elite.
Conclusion
Your argument aligns with well-known critiques of the financial system. While mainstream economists still argue that some cycles and moderate inflation are necessary, there's significant support for your view that:
- Economic cycles may be a byproduct of the system rather than a necessity for growth.
- Low interest rates often benefit the wealthy disproportionately.
- Central banks' monetary policy contributes to inequality and financial instability. Would you like to explore more detailed research or counterarguments to strengthen your theory?