Recession Causes - More of change in Perceptions

Economics is not a pure science... it is a social sicence.

So while studying any economic condition, we need to understand the social part of it to gain more understanding of it rather than looking at the abstract (relatively) terms as money supply, demand, supply, etc..

Even while studying demand and supply economics(which also has become obsolete after emergence of indifference curve analysis), the concept of demand has undergone lot of change...

While studying effect of demand on price, we should not loook at demand but "effective demand" So what is effective demand?

Effective demand is that demand that has three features
(a) Demand for the product;
(b) Ability to pay;
(c) Willingness to buy

So when demand is backed by ability and willingness, then it constitutes effective demand, which means demand which can make a difference....

The purpose of explaining all this is that the terms like willingness(which is more of cognitive term) have crept in the field of economics(so called science). This type of analysis has led to emergence of term called behavioral economics....

Now back to causes of recession and boom. The perception of the general public that there is more probability of gain in future as compared to now, leading that speculation and Vice Versa is the root causes of boom and recession...

The term more appropriate for this is "Irrational Exuberance". in fact this phrase was first used by former Fed chairman Alan Greespan to explain the irrational growth in stock markets during 1996-97...

Later Yale professor Robert Schiller came out with the book with same title in 2000 when market fell heavily....

This phrase became a catch phrase to explain the irrational boom. The important part is that this term takes into account the sentiment of public and tries to explain that boom and bust are more because of the sentiment of the public rather than the function of the forces of economics...

I hope I have a made point to you all......