Is history like a laundromat?

[eternaltriangle]

In 1917 a Russian economist, Kondratieff proposed that economic growth is cyclical over the long run. Roughly speaking you get 70-80 year long cycles with an upturn and a downturn. Kondratieff was eventually purged because his theory suggested that capitalism would not inevitably fail.

A large number of explanations have emerged to try to explain these cycles:
One emphasizes technological innovation. Throughout our history, there have been certain innovations that have enabled large numbers of spin-offs, or spillover effects across all industries. For instance, the steam engine, chemical dye, ant IT. New innovations drive rapid economic growth, but eventually, the possibility of spinoffs wear out and the economy declines. With low economic growth, however, people become more willing to challenge the old regime and try to innovate the next revolutionary innovation.

An alternate set of arguments emphasize infrastructure spending. Indeed, many of the upturn phases do correspond to large-scale infrastructure spending, as rails were laid and later highways constructed.

Some others discuss the role of major war (eg. WWI, WWII, Napoleonic Wars, War of Austrian Succession, War of Augsberg/Spanish Succession, 30 years war) in driving Kondratieff waves, and have extended the analysis across multiple nations and through a long period of time. Rapid economic growth changes the balance of power, and enables new nations to challenge the incumbent hegemon for leadership of the global system.

Of course the dominant response is skepticism in general. Kondratieff only has 4 waves, and often changing the periodicity just a little bit can change results. Moreover, most of the above causal mechanisms are all that well-specified.

What say you?
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[Jinxu]

What say you?

I have known about the K waves for awhile now. Society and history is cyclical in nature. The best theory I know on the driving mechanism for history is the change in social mood. Go here if you want to learn why:

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[LaoTzu]

Honestly?

This will sound a little off-base; a generality ; and not exactly based on numbers like I think you may have hoped for; but here goes:

It's human nature.

-Basically, whenever a new 'thing' is adopted it will be for all intents and purposes 'free to all ' for exploitation.

-After a while, some people get very good at it exploiting that 'thing', and they start moving away from the rest of the 'herd'.

Those people eventually bring in 'new rules' for all to follow. (greed and self interest begin).... basically, in an attempt to solidify their control over that 'thing'

-Eventually, greed and self interest bring that whole 'thing' to a crashing halt; because it's original intent/usefulness/purpose has been so twisted and lost in the 'new rules'

-And, a new 'thing' is adopted; which will be free to all for exploitation. (the cycle begins anew)


I use the term 'thing' because it can apply to any'thing'. This is not a condemnation per se, it's simply human nature.... we should expect more of less of ourselves ;)

[Jinxu]

I'm not sure I understand what you are saying.

[eternaltriangle]

I have known about the K waves for awhile now. Society and history is cyclical in nature. The best theory I know on the driving mechanism for history is the change in social mood. Go here if you want to learn why:
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Of course it looks like socionomics uses the stock market to capture "mood" - yet the stock market is not driven by mood entirely. Economic fundamentals determine the long-term course of the stock market, even if there are periods of irrational exuberance. So the documentary often measures mood by the stock market, but then talks about how great a predictor of the stock market mood is. Anyhow, it is useless for prediction (and Prechter's failures on that score are a good example of this) because you can't anticipate changes in the public mood (unless you buy the Elliot Wave, which is pseudoscientific).

I think the biggest problem in unraveling the long-term processes in history is that they co-evolve. Technology, international relations, generational trends, economic patterns and moods all impact each other. I am not sure socionomics (or other explanations) can prove decisively that their chosen variable is the true driver of the others.

Another question is why the periodicity is so specific? Why must their be decline (is this because most phenomena are s-shaped - eg. some new technology will initially grow slowly, then catch on quickly, and eventually plateau).

Also, can we extend the trend further back in time? George Modelski goes back to Sung China, for instance. He takes the technological view, but includes discovering new trade routes as another factor.

[Lohengram]

Business cycles are the result of credit expansion and contraction. Where does the 70-80 year cycle come from? It doesn't even pass the first test, there aren't major economic crisis evey 70-80 years so that stops that idea pretty much in its tracks.

[eternaltriangle]

Business cycles are the result of credit expansion and contraction. Where does the 70-80 year cycle come from? It doesn't even pass the first test, there aren't major economic crisis evey 70-80 years so that stops that idea pretty much in its tracks.

There are lots of economic cycles, in addition to business cycles that are accepted by mainstream economics, all of which can cause downturns. The Kitchin cycle is driven by inventory changes (3-5 years), the Juglar fixed investment cycle (7-11 years) is driven by the need for new fixed investments in firms, and the Kuznets infrastructural cycle (15-25 years) is driven by a periodic need for new infrastructure.

In addition, in political science there is a literature on the political business cycle. Politicians are more likely to expand the money supply (insofar as they can) in election years than in non-election years. However, in the US, that tendency has been mitigated by central bank independence (term limits also help).

Business cycles are not solely the result of credit expansion and contraction. I mean the whole point of controlling the money supply is to minimize cyclical tendencies. Indeed, if credit expansion were the sole cause then prior to the existence of central banks you would not have a business cycle.

You have also argued that there "aren't major economic crises every 70-80 years". I agree that the periodicity needs more explanation (I think the technology story is plausible but it still isn't clear why it would take a set amount of time for a given technological paradigm to be "digested").

However there have been major economic crises every 70-80 years. This list is somewhat American-centric, and there are important mitigating factors for each. The response of the fed probably helped worsen the Great Depression. Productivity growth helped mitigate the "long depression".

2009: Right now we are in the midst of a major economic crisis.
1929-1939: The Great Depression
1873-1879: the "long" depression broke out throughout the world, beginning with the collapse of the Vienna stock exchange
1807-1814: The 1807 Depression

These aren't the only recessions, but they are the longest ones in duration and/or the deepest.

[RBM]

)(and Prechter's failures on that score are a good example of this) because you can't anticipate changes in the public mood (unless you buy the Elliot Wave, which is pseudoscientific).


well, that answers one of my questions. BTW is anyone studying those 'failures' ?

[eternaltriangle]

well, that answers one of my questions. BTW is anyone studying those 'failures' ?

Well Prechter is outside of academia, so his work isn't peer-reviewed. He tends to emphasize his successes more than his failures for obvious reasons. Of course, if he really did have the secret to the stock market, he wouldn't write books about it (if everybody knew the secret, they would adjust their behavior and the "elliot wave principle" would evaporate... actually that is the trouble with many kinds of cycles and relationships - they can disappear once we realize they are there in the first place, eg. the Philips curve).

[maxpot46]

Like a good Austrian I subscribe to Austrian Business Cycle Theory (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) and think of Kondratieff waves as something of a myth (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.).

[eternaltriangle]

Like a good Austrian I subscribe to Austrian Business Cycle Theory (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) and think of Kondratieff waves as something of a myth (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.).

If you believed in falsification (hypothetically, for the sake of this argument), wouldn't you find the theory problematic, if the business cycle existed without the presence of a powerful central bank?

[reb]

70-80 strikes me as being suspiciously close to 'one generation yielding power to another generation'....with some overlap of course. 'like minds' of intergenarationality???

i have read that the generation that experienced world war I had no stomach for world war II; this is why britain, who lost so many young men in wwI hesitated in confronting hitler. could there be some 'generational common experienc' that affects economic cycles as well?

interesting theory.

[maxpot46]

If you believed in falsification (hypothetically, for the sake of this argument), wouldn't you find the theory problematic, if the business cycle existed without the presence of a powerful central bank?ABCT is more about credit expansion then central banking per se, though the latter is the most powerful means of the former.

[eternaltriangle]

70-80 strikes me as being suspiciously close to 'one generation yielding power to another generation'....with some overlap of course. 'like minds' of intergenarationality???

i have read that the generation that experienced world war I had no stomach for world war II; this is why britain, who lost so many young men in wwI hesitated in confronting hitler. could there be some 'generational common experienc' that affects economic cycles as well?

interesting theory.

Neil Howe and William Strauss have some books that make that sort of argument - emphasizing generational shifts. They argue that there is a pattern to the kind of generations, caused by wars (they argue that the cycles go way back to ancient times, but weren't necessarily cyclical yet). Their sequence goes:
Heroes->Artists->Prophets ->Nomad

Heroes grow up during a period of crisis (eg. the GI generation). They are generally more collectivist and conformist than the other generations and believe in working together to solve problems. By Howe and Strauss' reasoning generation Y/the millenial generation should be the next hero generation.

Artists are children during the crisis, and go through life unfavorably compared to the hero generation. They are generally pragmatists and compromisers. They include the generation born before the boomers, and the one that is presently fairly young.

Prophets are self-indulgent moralizers, that try to overthrow the boring and stifling moral order set up by the heroes (their parents), in what Strauss and Howe call "awakenings". The 1960's would be a good example of a cultural awakening.

Nomads grow up during the awakening, and are generally cynical and disliked. Awakenings are a bad time to grow up because there is a lot of conflict, rising crime, etc.

Generations happen in the pattern they do largely as a result of parenting styles.

Wars are more likely to take place when prophets are at the age where they run the government, and heroes are at the age where they will be soldiers. That doesn't mean wars don't happen at other times, only that the country is more likely to fully engage in conflicts when the younger generations are inclined to pitch in, and the generations running things are idealistic.

There is another literature (a bit more academically respectable) that argues 4 generations matter because that is how long it takes to get rid of those with direct memories of participating in the last major war. As our veterans of WWII die off, and have long left positions of political power (the GI generation did pretty good - running the country from 1960-1992) we lose their historical memory. Heck, some of the undergrads today have boomer grandparents. It is a bit scary that their personal family connection with WWII is as distant as mine is to WWI or the Boer War (I am an early millenial, but my grandparents were of the GI generation).

[Lohengram]

2009: Right now we are in the midst of a major economic crisis.
1929-1939: The Great Depression
1873-1879: the "long" depression broke out throughout the world, beginning with the collapse of the Vienna stock exchange
1807-1814: The 1807 Depression

All of those events have other direct causes; 1807-1814 was mainly caused by the Napoleonic Wars and Napoleon's trade policy which blocked trade between Europe and the British Empire.

I don't know so much about 1873-1879 but I know that in part at least it was caused by a speculative bubble in the US brought about in the aftermath of the civil war and the inflation caused by that war and the introduction of the Greenback. The Great Depression was also caused by the inflation of the newly created FED from the aftermath of the 1921-22 recession until 1929.

Then there is the current crises which also has at its heart inflationary monetary policy which created a credit bubble in stocks and housing and a bubble economy based around consumer credit and debt leverging off of the inflated speculative prices of houses and other assets.


These aren't the only recessions, but they are the longest ones in duration and/or the deepest.

Well that's certainly true the late 1840's to early 1850 were a tough time economically perhaps more so than your other 2 examples from the 19th century.

[gestalt]

I think it is. Giambattista Vico (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) gets at the idea quite nicely. Joyce references "1132" quite often wich refers to the cyclical nature of history. I don't know any specifics myself beyond that.

[Lohengram]

As far as the general idea of history moving in cycles, I don't believe there're any actual time related cycles. In as far as history repeats itself I think it has much more to do with the simple fact that people have similar desires and similar problems over time and react in broadly similar ways to problems over time. So when similar problems come along they often react in a similar manner leading to a similar consequence. In short I think most people are insane by Einstein's definition of insanity i.e.“The definition of insanity is doing the same thing over and over again and expecting different results”. I certainly think that holds true with politicians and economists of our time, it amazes me how a simple problem of overconsumption and over indebtedness can possibly lead to the conclusion that the way only way to fix that problem is more consumption and more debt. It's like throwing petrol on a fire to put it out and every time you do so the fire gets worse, but you never connect your action of you throwing petrol onto the fire with the worsening of the fire.

[eternaltriangle]

Lohengram,

You are mostly describing trigger events. I don't deny that triggers can be important, but they are more likely to result in major economic problems when an economy is in a long-term structural trough. So if you aren't innovating new goods and productivity growth is slowing down, a stock market crash or a panic is even worse, because there is little hope for the long-term. Bubbles are more likely too because there are no actually productive sectors to dump ones money.

PS: as for your explanation of 1807-1814, the timing makes sense, but trade was a very low % of US GDP. It wouldn't have had such a large effect if the economy weren't already slowing down anyway.

[Lohengram]

Lohengram,

You are mostly describing trigger events. I don't deny that triggers can be important, but they are more likely to result in major economic problems when an economy is in a long-term structural trough. So if you aren't innovating new goods and productivity growth is slowing down, a stock market crash or a panic is even worse, because there is little hope for the long-term. Bubbles are more likely too because there are no actually productive sectors to dump ones money.

PS: as for your explanation of 1807-1814, the timing makes sense, but trade was a very low % of US GDP. It wouldn't have had such a large effect if the economy weren't already slowing down anyway.

Sure, Napoleon stopping dead all trade (apart from smugglers) between Europe and the British Empire and waging wars killing hundreds of thousands and displacing populations; upending governments; contracts; courts; taxing to fund his Empire and all his enemies actions against him all across Europe were merely the "trigger" for the invisible hand of an arbitrarily decided 70-80 year economic collapse cycle to be enacted. Sure.