Super Business Cycle Threatens Obama's Team
Giant K-wave of Russian Economist May be Root of Financial Crisis
Mar 7, 2009
The brainchild is that of Nikolai Dmyitriyevich Kondratieff (pronounced Kon-DRA-Tee-eff), an ostracized Communist who lived from 1892 to 1939. The super economic cycle that bears his name is called a Kondratieff or K-wave, which is an extensive long-term rise and collapse of business conditions in industrialized nations, lasting from 50 to 70 years.
K-wave Theorists Expect a Long Downturn
That the data presently signals a long downturn -- a winter, in the lexicon of K-wave theorists -- could be the ultimate bugaboo in President Obama's ambitious plans for an orderly recovery. Advocates of the theory say the cycle is a monster. Their forecasts suggest the downturn can reduce certain economic levels of countries by two-thirds. (See index charts.) In such a collapse, conventional counter strategies could seem like tossing darts at a charging elephant.
Professor Kondratieff was a brilliant scholar, a victim of a star-crossed irony that controlled his life--quite literally-in that his studies contributed to both his political rise and subsequent demise.
Kondratieff's Story Begins with Russian Revolution
The story begins immediately after the Russian Revolution of 1917, when he contributed to developing the first Soviet Five-Year Plan. He analyzed factors that would stimulate Soviet economic growth, and later became Director of the Institute for the Study of Business Activity. Until his premature death, he was a celebrated official, serving under the legendary triumvirate of Soviet Russia--Lenin, Kerensky and Stalin.
In 1926 he published his seminal research, The Long Waves in Economic Life. This study described the existence of great economic waves impacting activities like industrial production and wholesale prices that dominate the commerce of capitalistic nations. Probably the Soviet propagandists jumped at the opportunity to announce to the world the decadent western powers were doomed to extinction, by those debilitating long-term rises and collapses.
Soviets Imprisoned and Executed Kondratieff
Kondratieff must have have surprised them, for in later studies he suggested that such nations regenerate themselves for another long wave of growth. That was his downfall, for it was not the type of outlook Premier Joseph Stalin wished to hear.
The Premier decided his wunderkind was an enemy of the state, a reversal of personal fortune for Kondratieff that occurred often to intellectuals in Soviet Russia. In 1928 the economist was stripped of his position and imprisoned in a gulag. Then in 1929 he was retried and found guilty again. In a brutal and obviously symbolic execution, he was beheaded in 1930.
K-wave Could Be Cause of Present Global Financial Crisis
Some economists are dusting off the hoary studies of Dr. Kondratieff, as a possible explanation for the swiftness and magnitude of today's worldwide financial collapse. The media's frequent comparison of the current phenomenon with the Great Depression of the 1930s is fraught with troubling echoes; for many K-wave aficionados say that period was the trough which led to the boom of the second half of the 20th century, from which we are now entering a metaphoric winter.
The acceptance of the Knodratieff theory has never been universal. Some have called him a charlatan on the order of Nostradamus, the French astrologer of the 16th century. Most of the economists who agree in principle that there is evidence long-term waves dominate the economies of developed nations have tweaked his original study into their own versions; but, like him, nearly all agree there are four stages to the lengthy waves--spring, summer, autumn and winter.
President Counting on Economic Stimulus to Spark Recovery
Besides the contingent of economists who accept some form of the existence of K-waves, and a larger group who are keeping an open mind, there are brokerage firms specializing in precious metals that barrage the public with the wisdom of buying gold, using the K-wave as a prod. They are the "gold bugs" and say in the final stage (winter) the "ultimate investment"-precious metals, particularly gold-is the only real investment strategy to consider.
That could be true. But President Obama and company are counting on solving the swelling financial crisis head on, using adroit monetary and fiscal policies. They have serious opposition in Congress on the following issues: (1) which stimulus tactics are best; (2) how much to expand the federal deficit, and (3) whether to raise taxes, to help pay the bills. The young Administration might win the political battles, but find themselves in another fight to recover from the long winter of a Kondratieff wave.
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