Saturday, May 05, 2007
Why economists don't believe in K-waves
lewrockwell.com: The Kondratieff Cycle: Real or Fabricated?
This article was written in 1984
It throws out K-wave theory as worthless work and says the business cycle is the only cycle that matters
I am presuming it represented the consensus view at the time.
Many economists, including our beloved David Smith, would have subscribed to this viewpoint at this time. They would have never gone back and reviewed k-waves again.
Posted by sold 2 rent 1 @ 10:51 PM (144 views) Add Comment
4 Comments
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1. sold 2 rent 1 said...
This rubbishing of K-waves is very much dated.
There is no mention of the 4 secular cycles that make up a k-wave. 1929-1948-1966-1982-2000.
Kondratieff theory had lots of holes in it but its basic direction was correct. Economies over a long period of time go through first an inflationary period (1948-1982) followed by a deflationary period (1982-present). Deflationary preiod does not mean deflation but when inflation reduces and eventually leads to deflation.
Kondratieff makes some big terminolgy errors. Calling a deflationary period a depression cost him dear.
Though Kondratieff concentrated on falling and rising prices his theory is much more about debt and how this level of debt rockets in a deflationary period.
The 1930's depression was caused by the level of debt in the economy. The people buying shares in the 1920's were buying them with borrowed money.
When the history books are written it will be the debt levels that will identify the k-winter.
Debts levels in the US are 340% of GDP. In 1929 they were 200%
Do not rubbish K-theory before you understand it.
2. paolo88888 said...
"Deflationary preiod does not mean deflation but when inflation reduces and eventually leads to deflation."
The article describes very well how to go about making predictions - flexible enough to fit any sort of outcome. "on the periphery of over-sold waters". If it goes up, you read it here first. If it goes down, then its only on the periphery, its not properly there yet.
3. sold 2 rent 1 said...
There has been a lot of poor analysis of k-theory over the years.
It has nothing to do with taking 54 years and adding it to a date and then saying this new date should be in the same economic climate.
K-theory is about understanding which secular run we are in at the moment. We only know when a secular run started and can't predict with great accuracy when it will end. We do know that it will end and the conditions it will end in. We also know what style the next secular run will take.
4. enuii said...
The trouble with economic cycles is that when they are first recognised they are based on historical data. Once the theories are published and recognised then they become part of the economic knowledge base and thus become distorted because they are recognised and to some extent can be influenced by political decisions. The UK economic cycle has accordingly been massaged by low interest rates, lax lending practices and massaged statistics thus delaying these very cycles. If a recession comes on the back of a falling housing market it will unfortunately be deeper than it would have been had it been allowed to happen as a natural part of the these normal economic cycles.