Page 51 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

tion, it is very difficult to generate in a world of shrinking credit.
Accordingly, we expect that the world will take the hard way
out: saving and paying back.
This will take a long time.

Kondratiev Waves
The situation we find ourselves in could be characterized as a
“winter period” of a Kondratiev wave. In the early 1920s,
Nikolai Kondratiev, a young Russian economist and a policy
advisor to the Ministries of Agriculture and Finance, became
the founding director of the Business Research Institute in
Moscow. His task was to monitor the economic situation in the
Soviet Union and the major capitalist countries.
Using a broad range of indicators—including long-term
movements in wholesale prices, wages, and interest rates—
Kondratiev identified three waves of economic development
between 1790 and 1920. In so doing, he accurately anticipated
the Great Depression of the 1930s. His theory was later picked
up by Austrian economist and Harvard professor Joseph
Schumpeter, who named the waves K-cycles after the Russian
economist. But Kondratiev did not live to see his theory win gen-
eral support: he was executed in 1938 after criticizing Stalin’s
agricultural reforms. It probably did not help his cause that he
predicted that capitalism would survive the Great Depression.
The classic K-cycle is a long wave of economic development,
lasting 50 to 60 years, that progresses in four distinct phases:

Phase 1, or “spring,” lasts about 25 years. It is a period of
expansion driven by innovation and the implementation
of new technology. It produces greater overall prosperity
and, eventually, inflation.

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