The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 84

The Economic Cycle Economists Deny

The Kondratieff wave has forecasted booms and busts better than most economists—most of whom sneer at it. Kondratieff, a Russian, was exiled to Siberia in the 1920s for theorizing that capitalism had 55-year evolutionary cycles, which purged it of excesses. Soviet dogma held that capitalism was in a cycleless down-and-out spiral. But Kondratieff's fans roughly pres-aged the 1920s boom-bust cycle. Modern fans foresaw the vicious 1974 and 1982 recessions, and the speculative boom of the 1980s. Waves are baffling to understand; none recur just like the prior one, partially because just two cycles require 100-plus years—a tremendous expanse of evolution. The Kondratieff Wave, by Shuman and Rosenau, gives a too-simple but understandable script. Most accounts fail to note the complexities of the wave's coincident international existence.

The “idealized” wave of 50 to 55 years starts at the low stage, for example in 1935–1955. Interest and inflation rates and stock and real estate prices are very low. Politicians shift from antigovernment policy to federalism. Infrastructure is built: airports and freeway systems in the 1950s, railroads from 1880 to 1910, and canal systems in the 1830s and 1840s. Older business managers had their confidence shaken by the prolonged gloom and deflation of the recent depression (1930s, 1873–1888, and 1837–1843). Few expect inflation, and none conceive of expanding without existing orders in hand.

But there are ...