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PS. That was
directed to Mike Alexander, but anyone might get involved
I'd much like to
hear your detailed reactions to Arrighi's work, in particular, the Long 20th
Century. He and Wallerstein argue for a 1945-70 A phase by measurement
of material production growth, followed by a period relative decline in growth
rates. However, Arrighi embeds these cycles within hegemonic
cycles. The end of a B phase is the start of a financial rebirth in
which capital puts relatively more money into speculation than
production. Hence the stagflation of the '70s and the financial boom
since (until now). In other words, prices alone might be
misleading. Arrighi thus suggests that we distinguish the production
and financial cycles from each other, and relate them to the rise and demise
of hegemonies, the accompanying global governance structures of
capitalism, and to structural changes such as core deindustrialization, semi-p
industrialization (and attending changes in anti-systemic
movements).
Elson Boles, Ph.D.
Dept. of Sociology
Saginaw Valley
State University
-----Original Message-----
From: wsn-owner@csf.colorado.edu
[mailto:wsn-owner@csf.colorado.edu]On Behalf Of Mike
Alexander
Sent: Wednesday, September 05, 2001 7:47 PM
To:
World Systems List
Cc: ariel@viale.net
Subject: Current
position in the K-wave (corrected)
I found some errors that might confuse readers,
Here is a revision:
A common view of the K-wave is that a downwave (or what some call the
"B phase" of the wave) began in the early 1970's. The average length
of the B phase is typically 25-30 years, suggesting that we should be
nearing the end of the B phase and the beginning of the next A phase.
Empirical work using some new tools suggests otherwise. It appears that we
are about halfway through the B phase, roughly equivalent with 1929-1930
in the last K-wave as described below:
In the 1920's Kondratiev showed empirical support for his wave
most dramatically by the wave-like structures shown in 19th and early 20th
century prices. Here is a plot of the U.S. producer price index
(commodity-based):
K-peaks can be seen in 1814, 1864 and 1920 and troughs in
1843, 1896, and 1932. After 1932 what looks like runaway price inflation
began and one can't find the wave any more. Interest rates also show peaks
and troughs of Kondratiev spacing. There were "K-peaks" in interest rates
in 1814, 1861 and 1920 that were close to the Kondratiev price peaks shown
in the figure. There was also a major peak in interest rates in 1981.
If we use interest rates by themselves we would call 1981 the
most recent K-peak and the beginning of the B phase. But other turning
points, such as the shift to a lower productivity regime and the
stagnation of real wages after 1973, can be used to argue for a much
earlier K-peak. An early 1970's K-peak has the advantage of being
approximately 54 years after the previous K-peak in 1920, that is "right
on schedule".
One can deal with tendency of the post-1932 inflation to
obscure price cycles using a concept I call reduced price. Reduced price
(rP) is simply the actual price index (P) divided by the value (Pm)
expected from a simple monetary-based model, that is:
rP = P / Pm, where Pm = aS + b, were a and b are constants and
S is a variable I call monetary stimulation, defined as:
S = (D + M)/GDP where D is cumulative government deficits and
M is money supply
For money supply I use M3 after 1959 and M2 before. (the two
were nearly equal in 1959). I describe the approach in more detail here:
http://www.gold-eagle.com/editorials_01/alexander051401.html
A plot of rP is shown in the following figure in black:
http://csf.colorado.edu/authors/Alexander.Mike/RP-EAR.gif
K-peaks are identified in 1864, 1918 and 1981. K-troughs are
identified in 1897 and 1946. These points are very close to Kondratiev
peaks (1861, 1920, 1981) and troughs (1901, 1946) in interest rates.
Additional structural features are identified in the reduced price plot.
After the K-peak, reduced prices fall to a region called the plateau
where they are roughly constant for a while. Prices then "fall off of
the plateau" and bottom after a few years at what is called the
vortex bottom by Brian Berry. After the vortex they rise to a
secondary peak that I call the DG peak (also after Berry). After
the DG peak, prices fall to the K-trough, which is lower than the vortex
bottom. We can see that 1932 is not a K-trough, but rather, a
vortex bottom.
Prior to 1932 these structures can be seen in the raw price plot as
shown by the dates on my first figure above. We can even see the vestiges
of a DG-peak in 1937 before secular inflation obliterates all traces of
the K-wave. Thus, we see that reduced prices shows the same
structure as prices before the onset of secular inflation.
That is, the transformation of raw prices into reduced prices
does not introduce distortion into the pre-1932 record. After 1932, when
the raw price data no longer shows any structure, we see a 1937 DG-peak
(the 1942 peak is purely a war-time effect) and a 1946 K-trough that is
lower than the 1932 vortex bottom (this is what makes it a
trough). After 1981 we see a rapid drop to a "plateau" structure.
What this tells us is that reduced prices captures the ongoing K-wave that
lies "underneath" the raw price data. Reduced prices clearly show that we
have been on the plateau since the mid-1980's (that is, the period from
1986 to 2000 has been "Kondratiev-analogous" to 1923-1929).
The recent stock market peak in 2000 suggests that we have
arrived at the end of the plateau period and are in the early stages of
descent to the vortex. My secular market trend model indicated that this
peak was the end of the 1982-2000 secular bull market trend (fully
analogous to the 1921-1929 secular bull market). In real time, I had
identified the end in 1999 (prematurely) see:
http://csf.colorado.edu/longwave/oct99/msg00820.html
The relevant webpage is no longer at cybercities, it's at CSF:
http://csf.colorado.edu/authors/Alexander.Mike/Stanpor3a.html
The stock cycle analogy suggests the recent stock peak in 2000
is analogous to 1929. Confirmation of this will be if reduced price falls
down from the plateau, which it might have started to do (I will
be monitoring events in real time).
Some of you probably have noticed the plot of "ex-ante
real rates" on my reduced price graph in red. These come from a
working paper by James W. Kolari and Ariel M. Viale of Texas A&M.
Ex-ante real interest rates can be thought of as investor beliefs
about future real interest rates, that is, the future monetary
environment. They can only be obtained using sophisticated econometric
models. The rates I plot were obtained as an output from a three-state
Markov switching model (and I have no more idea what that is than most of
you). Dr. Viale kindly sent me a file of the ex-ante rates so
that I could look for Kondratiev-like structures. I smoothed them with a
nine-quarter centered moving average and plotted them along with my
reduced prices.
The plateau period corresponds to a period of high ex-ante
rates, implying "fear of inflation" amongst investors. This period
then collapses to a low-rate regime right around the vortex. At present
were are in a high-rate regime that began after 1980. The fact that
ex-ante rates have not fallen yet suggests that the vortex is
still in the future. This observation is consistent with the end of the
plateau location suggested by reduced price and the stock cycle.
This is important since Berry (the originator of the vortex concept)
places it in 1987. He appears to have been premature.
Having provided an empirically well-supported argument for
placing us at a "1930-like" position within the B-phase of the K-wave, the
question becomes what does it mean? This I will address in a future post.
For now, I was wondering if this view of cycle position is what most
readers here expect or is their view of our position different? I would
like to discuss this.
Thanks
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