Cyclical manipulation refers to government interference in the natural economic cycles. This can lead to extreme booms and busts over the long run as governments attempt to prop up booms and forestall busts. Cyclical manipulation is mostly accomplished through the altering of government set interest rates. This is accomplished on a regular basis by the Federal Reserve Board in the United States.
Economic cycles as a concept are occasionally referred to as Business Cycles. This idea is one that explores the alterations in economic activity that change over time. Elements contemplated in explaining economic cycles are comprised of GDP growth, employment rates, and household incomes.
Within economic cycles, two main types emerge. These are booms and busts. Booms are commonly seen when a strong economy is operating. Busts, or recessions, are tied to economic growth that proves to be below trend. In the U.S., the NBER, or National Bureau of Economic Research, turns out to be the ultimate trusted source that gives out dates of troughs and peaks which actually make up economic cycles.
The NBER is part of this cyclical manipulation in the United States. The first step of the manipulation is the way in which they refer to booms and busts. They euphemize them as expansion or contraction. When a few portions of the economic data are getting better, then this is expansion, and when these same indicators are declining, it is called contraction. Such definitions focus entirely on the data movement, versus the historical norms.
Cyclical manipulation is accomplished principally through the changing of interest rates by the Federal Reserve. When the cycle is one of boom, or expansion, they attempt to cool the economy down to prevent inflation. They do this by raising the interest rates to slow down lending and spending. Unfortunately, as economic activity then slows, this leads to an economy that can then fall into bust, or contraction.
At this point, the Federal Reserve begins cutting the interest rates, sometimes massively, in an effort to stimulate the economy once more. As the interest rates fall, businesses and consumers borrow and spend larger sums of money. This gets the economy going once again. The irony of this cyclical manipulation lies in the fact that the very effort of the government to keep the cycles from becoming extreme leads to changes in the cycles that the Fed wishes to prevent altogether.
Economic Cycles Theory believes that even though these highs and lows average together to create an average trend economic rate of growth, this trending growth rate remains stable over time. The government through the Fed attempts to manipulate these cycles to keep the growth rate along these trend lines consistently. There has been no effort made in the Economic Cycles Theory to explain the economic activity levels in long running time frames of decline, but only in growth. This policy of only focusing on growth is yet another demonstration of the cyclical manipulation.