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supercycle musings

March 2nd, 2009 at 09:05 pm

For my 1000th entry, I got a little philosophical.

Why the Kondratieff hate? Why the hate about economic cycles in general?

To get you caught up a bit - Kondratieff was a Soviet economist, who came up with the idea that large economies 'cycle' over the space of several generations, generally on the order of 50, 60, 70 years. First you have a spring-like boom, then a summery plateau, then a fall-like stagflation, finally a wintery credit contraction and deflation.

The Kondratieff hate seems to be throughout the political and economic spectrum. Of course we all in the West would hate him because who wants to hear (and have to prepare) about recurring depressions? Bummer, so stick my fingers in my ears and say, 'la la la la'. But then Stalin had him killed, not because of the depression part (that fit well with what he hoped would happen to the West), but because of the spring renewal that came after. Kondratieff couldn't catch a break.

The rebuttal that I've been picking up is that Kondratieff was wrong because his timing was off - Great Depression +60 years fell in the mid-90s, so ha ha, schmuck, you're wrong. As a woman, an argument like that makes me laugh. Just because my period's late doesn't mean that periods don't exist.

And in general, it seems to me that social sciences in general have this personal attack component to them that the natural 'hard' sciences had lost centuries ago. Its one thing if you believe and can prove Freud's theories to be wrong, but then add to it the rumor that he molested his patients? Seems a bit over the top. Einstein proved that Newton's physics didn't explain many special situations in the universe, but that last I heard there were no hard personal feelings about the whole thing.

If we take Kondratieff's work as an hard-science-esque observation, I think the more interesting questions are: What is the underlying cause? Economies are created by people, after all, so is it a mechanical aspect like an underlying credit expansion and contraction? Or is it a more personal thing like subtle changes in the perception of risk, thereby causing more risky behavior? Does the cycle lengthen as the human lifespan lengthens? It seems like a leading coincidence that we are undergoing an eerie replay of the 30s, just as the first hand experience of the 30s is in the process of dying off.

5 Responses to “supercycle musings”

  1. whitestripe Says:

    i truly do believe in it. you'd have to be utterly blind and deaf to not believe atleast a tiny bit in an economical cycle. really it's basically about predicting human behaviour, which is easy: once *most* people make a sum of money, they make a plan to spend it. it's what our society revolves around. so in a boom, obviously people are going to spend, then get used to it, then spend more... then the down side of the cycle hits... anyway you're familiar with it obviously...
    great post!
    i laughed at the 'Just because my period's late doesn't mean that periods don't exist. ' LOL

  2. creditcardfree Says:

    Thanks for a little history lesson. I learned something today!

  3. momcents Says:

    I'm with cc-free! Thanks for enlightening me!

  4. Broken Arrow Says:

    Happy 1000th post!

    Had to laugh at the er... period reference.

    Anyways, if I had to hazard a guess (you know, have me hold a dart, blind-fold me, and spin me around in a swivel chair, before asking me to throw the dart), I would say that maybe it comes down to general herd mentality, driven by basic human emotions?

    Greed can create bubbles, and fear can pop it.

    In that sense, we experience bubbles and bursts all the time. We had one over crude oil not too long ago. It doesn't have to be economics either. Fashion and fads can be another example I think. We had one over Crocs shoes not too long ago as well. Before that, I think it was Birkenstocks.

    I don't know about macroeconomics, but I do think there are small bubbles and bursts everywhere, and I think they inflate and pop in more frequent and shorter intervals.... My interest anyway is trying to figure out how that can benefit me as an investor....

  5. Petunia Says:

    Wow. . . interesting thoughts. . . those who don't know history are doomed to repeat it? Or something like that. . . if our more recent history is dying off with those who lived through the depression in the 30's. Last year I read St. Augustine's Confessions and was surprised to observe that human nature hasn't changed much in 1700 years.

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