A Kondratieff Winter?

February 26, 2009 at 2:00 am 5 comments

I’ve said thousands of times (well, many times) that I’m no economist. In fact, I find Economics dreadfully dull. When I read or hear the words “accumulation”, “consumption”, “stagflation”, “deflationary growth”, I start to nod off.  It’s just not sexy stuff. But I’ve been making a concerted effort to grapple with economic theory so I can try to make sense of the global financial hissy fit we’re currently enjoying, not.

I’ve brought you some posts where I try to flesh out my thoughts or share stuff with you – and today is another one of these posts. I’ve started to see the term the “Kondratieff Long Wave Cycle” pop up in the economic blogs and websites I monitor. It’s also called the K-cycle. Do you know what it is? Nope, me neither. So I decided to upskill myself.

Apparently, this Kondratieff dude is a little known Soviet economist. Maybe in economic, pointy-headed circles, he’s well-known but to the average Joe Blogs, I doubt he’s a household name. I encourage you to go off and research yourself but this is what I understand.

Professor Nikolai Dmitriyevich Kondratieff (1892-1938) helped the Soviets formulate the first five-year plan. In some blogs, his surname is Kondratiev. And the entry in Visual Wikipedia shows the relationships and web surrounding Kondratieff. In 1926, he published “Long Waves in Economic Life”, which apparently pissed off Stalin. He was spirited off to a gulag and then copped the death penalty in 1938.

Kondratieff’s gloomy economic theory (which has never been accepted by mainstream economists) was that capitalist economies are fated to long waves (or K-waves) of boom and bust ranging between 50-60 years in duration. He predicted the Great Depression and eventual rise of the capitalist West (that’s probably what pissed off Stalin).

The K-cycle consists of phases that are likened to the seasons:

  • Spring – inflationary growth phase, which sees the expansion of production, affluence, falling unemployment, rising wages and so on. This growth phase lasts about 25 years.
  • Summer – recession. Growth reaches the limits of resources.  There’s a drop in production, a rapid rise in unemployment and a back-lash against an economy of abundance.  This phase last 3-5 years.
  • Autumn – deflationary growth, selective industry production, innovation, rapid increase in debt as society orientates itself towards consumption. This phase can last 7-10 years.
  • Winter – depression, the economy contracts sharply, there’s an exhaustion of accumulated wealth. Kondratieff viewed this phase as a time of cleansing when the economy can recover from times of excess and lay the foundation for future growth. He considered this phase would be characterised by a 3-year collapse followed by 15 years of deflation and quiet innovation.

The table below shows how economists have mapped these phases to the booms and busts in the US since 1784.

Joseph Schumpeter trumpeted Kondratieff’s theories. Seems to me the winter chill is setting in and we’re riding the K-wave towards a dark Winter phase. There’s overextension of credit and a worldwide decline in economic activity.

I found this great graphic that explains it all.

You can view a larger graphic here.

I’ve been trying to find out when these cycles began (ie how far back in history did Kondratieff go looking for K-waves?) and what phase are we in fact in now? According to Wikipedia, economists who follow K-wave theory believe that we’ve had 5 K-waves since the late 18th Century:

  • The Industrial Revolution—1771
  • The Age of Steam and Railways—1829
  • The Age of Steel, Electricity and Heavy Engineering—1875
  • The Age of Oil, the Automobile and Mass Production—1908
  • The Age of Information and Telecommunications—1971

And goes on to say: “The current cycle most likely peaked in 1999 with a possible winter phase beginning in late 2008.” So it seems we are still in the fifth cycle, which means we haven’t reached the Winter phase yet – great.

Anyway, not sure I have my head completely around this as I’ve just started researching – maybe you know more. If so, leave a comment. But Kondratieff’s theory makes sense to me.

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5 Comments Add your own

  • 1. Paris  |  February 27, 2009 at 11:07 pm

    Even though Mr Kondratieff had rightly squeezed the statistics to juice a regular cyclic economic pattern, there’s no way to assume that globalisation (of trade, info, people, cultures), ressources scarcity, overpopulation and climate change aren’t big changes enough to freeze/ vaporise his cycles.

    Moreoverl I don’t agree with “depression” starting way back 2000…global trade boomed in these years. Recession started only in 2007 in the US according to economists.

    Then I observe his ‘autumn’ could be x long or 2x long…
    Let’s take an exmaple:
    I could indeed tell you that I am 30 years old minus or plus 10 years, would you find that info really valuable? you could guess my age more precisely by looking at me right?
    Same with Mr K, his cycles are interesting observations that economy is a superliving animal…but if I’m wise I know that economic agents are living people, so there global behaviors might logically follow some ‘live’ patterns. And carefull observation of these agents might be a lot more revealing for the economic future, than ‘guessing’ autumn is 14+ or – 5 years and winter 10 to 20y…
    Finally Obama is president for 4 years only these only 5 or 10 years matters to him! and to anyone trying to make any investment planning!

    Reply
  • 3. Luke  |  March 3, 2009 at 12:01 pm

    I am quite a fan of these long range economic cycles – although, like you IANAE.
    It shows the merits of innovation and productive use of capital investment and the debacles that arise from financial speculation. I’ve read the book by Carlota Perez who goes in to some detail of these cycles – basically pointing out that post innovation there is a frenzy of financial speculation that tries to exploit the new technology (from building cities in the Wild West in the hope that a train line will come through to the dot com investment boom in crazy ideas that had little chance of ROI), a crash when the speculation busts, followed by a long period of productive investment in the new technology which then dies off after a while leading to searches for new technologies by speculators and the cycle begins again.
    We were quite enamoured with the cycle in NOIE days as we were pushing the productive investment bandwagon at the time for information and communicatoins technology.
    It would be interesting to compare these economic cycles with macrohistorian’s views – such as PR Sarkar and Ibn Khaldun. Sarkar in particular had a cyclical as well as a linear progressive dimension to his views on societal progression.

    Reply
  • 4. peter baxter  |  March 18, 2009 at 4:46 am

    Right on! You may want to know that search engine results for Kondratieff Winter have risen from around 5000 in 2007 to over 47,000 now as people are becoming aware of this more and more. I run one of the only sites completely dedicated to it at http://www.kondratieffwinter.com. Please check it out when you can-

    Sincerely,

    Peter Baxter

    Reply
  • 5. thinkingshift  |  March 18, 2009 at 9:10 am

    thx Peter for letting me know about your site. I will check it out. I’ve been reading Harry S Dent’s The Great Depression Ahead – he seems to concur with the K cycle, so looks like Kondratieff’s theories are going more mainstream.
    Kim

    Reply

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