Where I differ with both Goldstein and Frank is on the nature of long
cycles themselves. I have of course read Goldstein's account -- several
times. But I think that the consensus opinion on this matter is wrong.
In my reading long waves are primarily financial phenomena. The U.S. and
U.K. have long operated on a fractional reserve banking system --
England at least since 1694, Scotland from 1695, and the U.S. since the
beginning of its history. Now, it has been the tendency of banks to
extend themselves ever-more-slightly year after year, to follow the
incentive to be just a little -- preferably imperceptibly -- riskier than
their fellow banks, with the result that the banking system as a whole is
less and less sound every year, until . . . a crash occurs. In U.S.
history, the massive banking system crashes have been around 1873, 1929,
and 1987. Other things being equal, the effect of banking expansion (the
reduction of bank reserves as a persentage of total deposits) is price
inflation. This is regardless of other causes; as Tarascio has pointed
out, the WWII inflation in the U.S. didn't disrupt the trend line of U.S.
inflation running from the 30s through to tht 50s.
While I agree that there was greater variability in U.S. economic growth
after 1973, I object that
1. It is unknown to what extent post-war U.S. economic growth was
long-wave driven and to what extent it was driven by other factors.
2. It has not been established that there exists a long wave in economic
growth.
3. No causal mechanism offered for a long wave in economic growth has
ever sustained a rigorous hypothesis test.
I have some ideas for hypothesis testing, but I have not yet had the time
or resources to follow them up.
For all the talk of stagflation, the 70s and 80s can only be seen as a
period of slow growth from the perspective of the 1960s. I realize that
for many of my older colleagues the seventies must have seemed like a real
let-down, but on the one most distinctive feature of the long wave --
price inflation -- it seems incredible to me that the consensus opinion
places the late seventies and early eighties on a par with the Great
Depression. Outside the U.S., there was hyperinflation.
By contrast, today we have "the lowest interest rates in 60 years", no
inflation, and unemployment that is low only because of the way we count
it. Having worked for two years as an "employed" office temp, I can
testify to that. People are working, but people don't have jobs, and
that's not a dynamic, labor-short economy. How many of you temped
straight out of college because you couldn't find a job and weren't
eligible for unemployment insurance because you had never had a job? Not
many of you who graduated before 1987, I bet.
I apologize for making this so personal; it's just that I've only now
begun to collect the systematic data. I'll be more convincing in a few
years. :)
Yours,
Salvatore Babones
Department of Sociology
Johns Hopkins University
(Ph.D. expected Spring '98)