Kondratiev cycle

I saw the recent question about the Kondratiev cycle.  I've done some research into the Kondratiev cycle (see the url below).  I believe the cycle exists and it still active, but now is longer, about 72 years instead of its historical average of ~53 years.  Thus the trough, or end of the "B" phase is still some 15 years in the future.  The mechanism for the lengthening I believe comes from the aligned political cycle.

 

There are several US economic cycles that have a corresponding political cycle.  The best known is the four-year cycle in the US stock market that correlates with the four year US election cycle.  Less well known, but probably familiar to many board regulars is the war cycle associated with the Kondratiev cycle.  For about three centuries there was a statistically-significant correlation between war intensity (defined as war dead per year per unit of population) and Kondratiev upwaves.  Upwaves (A-phases) show significantly higher intensity than downwaves.  This correlation ended with WW I.

 

Finally there is a crude alignment between 19th century cycles in real estate and the political cycle described by Arthur Schlesinger.  The real estate cycle is sometimes called the Kuznets cycle.  It showed peaks in 1818, 1836, 1854, 1872, and ~1891 and was closely followed by financial panics in 1819, 1837, 1857, 1873, and 1893.  Since 1919 the Schlesinger political cycle has been fairly closely aligned with the Stock Cycle in the stock market, which itself is a half-Kondratiev.

 

The alignment between the Schlesinger political cycle and the K-cycle after WW I (but not before) suggests that the K-cycle shifted from an alignment with the war cycle to an alignment with the Schlesinger political cycle.  Similarly, the Schlesinger political cycle was aligned with a different economic cycle (the Kuznets) in the 19th century.  The Kuznets cycle and the Schlesinger political cycle have both averaged about 18 years in length and have remained at this length since throughout the history of the US.  Thus, I hypothesized a dynamic exists in the political economy of the US that gives rise to 18 year cycles in both politics and the economy.  In the 19th century, when agricultural was dominant the economic cycle was the Kuznets cycle in real estate (land values).  For most of the 20th century the economic cycle was the successions of 18-year secular bull and markets that comprise the Kondratiev cycle.  The political cycle has remained the same.

 

The war cycle helps create the Kondratiev cycle by massive increases in government debt to fight "peak wars" which produces the higher interest rates and inflationary conditions of the Kondratiev upwave and peak.  After the peak war is over, repayment of the war debt helps impose the deflationary characteristics of the downwave (or B phase).  After 1929 the depression forced political leaders to impose an artificial "peak war" condition on the economy by massive deficit spending in peacetime.  This of course is Keynesian stimulus, which can be thought of as using countercyclical spending policy to fight cyclic depressions.  This policy should produce its own Kondratiev cycle attuned not to the war cycle but to a relevant political cycle (since the policy is carried out by political leaders).  Hence the Kondratiev cycle began to follow the Schlesinger political cycle after 1929.

 

This same effect of politics can be seen in the dating of the Kondratiev peak.  Most Kondratiev fans call 1974 the peak since it followed the Vietnam war, which they consider as another peak war.  But both interest rates and inflation continued to rise after this, only peaking in 1981, which makes a lot more sense as a Kondratiev peak.  But this peak as deliberately produced by Federal Reserve actions that sacrificed employment in the cause of defeating inflation, which is a conservative goal.  Thus, the action had to wait for a shift from liberal zeitgeist to conservative zeitgeist.

 

Mike Alexander
http://csf.colorado.edu/authors/Alexander.Mike/STOCK_CYCLES.htm