Unlike normal business cycles, which lasted about a decade, Kondratieff’s long waves typically spanned 50 to 60 years. Initially, investment capital flows into new technologies. That’s the up cycle; the down cycle occurs when surplus production reduces prices and raises unemployment. Markets are saturated.
If you Google “Kondratieff cycles,” you get a concise history of the theory. It’s argued that we’ve passed through five “long waves” since the late 1700s. Here is a brief list, with my rough estimates of the year the cycle’s upswing reached its peak: (1) the invention of the steam engine and advances in textile manufacturing (1817); (2) railroads and steelmaking (1870); (3) electricity (1920); (4) automobiles and petrochemicals (1975); (5) information technology (now). The sixth wave may be health care, according to Leo Nefiodow, a scholar of Kondratieff cycles.
One of the most interesting documents on the Internet, to my mind, is an article by Kondratieff himself and W.F. Stolper, “The Long Waves in Economic Life,” published in 1935 in the Review of Economics and Statistics. The article is full of tables and charts of commodity prices, interest rates and wages. The aim is to show that most of these markets move in tandem — usually rising when the long wave is going through its expansion phase and falling in its contractionary period.
Long cycles don’t preclude shorter, more traditional business cycles. To the contrary, they may make these standard business cycles more likely. As Kondratieff wrote, “Our investigation demonstrates that during the rise of long waves, years of prosperity are more numerous, whereas years of depression predominate during the downswing.”
Similarities between Kondratieff’s different phases and the recent tumultuous behavior of the U.S. and global economies are hard to miss. Economists have struggled to explain low wages and interest rates, neither of which was widely predicted. Could they simply be the consequence of the downside of the most recent long wave? (In 2018, the rate on a 10-year Treasury averaged almost 3 percent. Now it is around 1 percent.) The market-saturating surplus investment occurs in all the companies that can’t compete in a digital world. They’re eliminated by the harsh process of failure and bankruptcy.
The truth is, until recently, I regarded Kondratieff’s long waves with scorn and skepticism. The long waves seemed, at best, too long and too diverse to qualify as a genuine economic cycle. At worst, they were junk economics, a clever idea that, the more it was examined, the more it would be found wanting.
(There is an irony: Marxist political thought held that, as society became richer, more power would shift to the state. The Marxist argument was that the capitalist system would collapse, says political scientist William Thompson of Indiana University. Kondratieff’s research suggested that, rather than collapsing, the repeated booms would sustain capitalism. Despite that, Kondratieff was not jailed for his economic views, says Thompson. He was a political opponent and was jailed for that.)
Perhaps that is still true. I haven’t joined the Kondratieff camp just yet. But I am a lot more open-minded. What I do know is that the existing framework of economics has not served us particularly well. We need to be both vigilant and critical at the same time.
We are at a dangerous moment. The old economic ideas don’t seem to work so well anymore. But the new ideas may turn out to be crackpot schemes whose main appeal is their extravagant simplicity. If something like the Kondratieff cycle is at work, there are reasons to be cautiously optimistic. It’s worth remembering that the cycle operates in both directions — going up and coming down. After every downswing, there is an upswing. We should hope that we’re on the edge of the upswing.
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