Chapter 1: Procedure for the Economic Cycle Analysis

The national economy is a complex construct. Basically, it is the result of the quadrillions of decisions made by billions of people, by around 83 million people in Germany, by over 500 million in Europe and 7.9 billion people worldwide. These decisions range from simple purchasing decisions by private households (or non-purchases, such as refraining from, postponing, renting, or borrowing) to investment decisions by companies to government decisions to introduce, increase, reduce or abolish taxes, levies, customs duties, or key interest rates. These measures in turn have an effect on other economic entities, which (can) react to them with further measures. Through an almost infinite number of feedback loops, the results of these decisions are naturally difficult to predict. But prediction is desirable! Basically, economists and analysts use the simple method of drawing on correlations, chains of effects, regularities of the past days, months, years in order to predict trends for the future. For that is precisely the task of economists: to predict the future under given current circumstances – taking into account the interrelationships of the past. From time to time, however, the critical question must be answered whether this time is different. This can indeed sometimes be the case, but is only correct in rare special phases such as recessions or extreme booms. In special professions such as governments or economic research institutes, economists are also required to state which course of action is the ‘better’ policy (normative policy). This is then to be clearly distinguished from the ‘normal observing’ economists (positive policy). Although these economists also (usually) have their own opinions on the ‘better’ policy, they should ultimately point out the most probable scenarios for further economic development – without taking into account the subjectively considered supposedly ‘better’ policy.