jrhana.
Thanks for the Rothbard article. But actually, I didn't find that he stated his position very well. Isn't Rothbard supposed to be the next great Austrian school economist after Mises? Weird, because I found his arguments quite weak (and I don't want to seem dogmatic about the K-wave or anything. I'm very open to alternative interpretations).
The Rothbard article provided by jrhana is here BTW:
Message 19893789
First of all regarding cycles. If I read Rothbard correctly, he doesn't see cycles as "patterns", but rather as either "strictly periodic", or "business fluctuations" (and by using the term "fluctuation", there's an implicit assumption of randomness to my mind). I don't see why cycles are either "strictly periodic" or random. Certainly if one buys into Technical Analysis, Dow Theory, Elliot Wave theory, or any form of trend analysis, one believes that market prices "trend". Cyclical behavior is just one form or pattern that "trending" behavior exhibits.
Rothbard then says "For man is all too prone to leap to the belief that economic fluctuations are periodic and can therefore be predicted with pinpoint accuracy. The fact is, however, that these waves are in no sense periodic ..." Say what? Cyclical behavior is either "strictly periodic" or "waves are in no sense periodic"?
OK, so maybe Ian Gordon is a propagandist on par with Jim Kramer or Donald Rumsfeld, but the following chart appears to indicate some fairly significant periodicity:
financialsense.com
This chart, BTW, is taken from the FSO interview page of Ian Gordon, found here:
financialsense.com
I'm not sure why Rothbard would get so hung up on whether the periodicity is "exactly" 50 years or whatever. I mean, if there is absolutely NO pattern that manifests itself as a long-wave phenomenon, OK. But it could well be that for some reason, there is an underlying "harmonic" if you will, that can be variously influenced by numerous factors to make its periodicity quite inexact, but very real.
I am not familiar with economic history prior to the mid 19th century beyond a general episodic knowledge - e.g. of the John Law period, the monetary bust of the French Republic in the late 18th century, Tulipmania in Holland, etc.
But I do know that prior to the Great Depression of the 1930's, the term Great Depression in the U.S. was reserved for the period around 1873.
Rothbard acknowledges that an economic episode occurred in the 1930's that would fit the pattern of a K-wave bust, but then ridicules the theory by saying, "Orthodox, mainstream economics had no explanation for the Great Depression of the 1930's, and so the Kondratieff was offered as on "explanation" for this phenomenon: "After all, we're at a Kondratieff trough; what else can one expect?"
(Note the "quotes" around the world explanation up above, as if the K-wave theory is not really a legitimate explanation, but only an "explanation".)
Then, a period of K-wave peak, the 1970's, again fitting very well into the K-wave "pattern", but Rothbard again dismisses the theory, saying "... 1973-75 ... put an end to Keynesian dominance ... And lo and behold! the old, forgotten "Kondratieff" was trotted out: for weren't we going past a "Kondratieff peak"?"
Well, actually, that EXACTLY what was happening. Rothbard wrote this article in late 1984, so he didn't have the benefit of experiencing much of the disinflationary 1980's and all of 1990's. But in highsight, the 1970's were clearly a K-wave peak.
Then Rothbard's comments on the American Civil War, "the price boom lasted only during the few years of the Civil War, 1861 to 1866. Once again, there was no mystery and no long Kondratieff cycle at work. The was was short and devastating, and the U.S. government inflated madly in order to finance the massive burden of war expenditures. The monetary inflation drove up prices enormously, and then, after the war spending was over, money and prices collapsed."
Well OK, but that's another tenet of K-wave theory - that wars, monetary policy, inflations, deflations, etc. are inextricably linked. Rothbard is saying that "yes, prices behaved exactly as the K-wave predicts, but this is because of an exogenous event of war". Well, OK, but what if K-wave conditions are part and parcel of K-wave credit cycles? Take another look at the Ian Gordon chart, which depicts price changes before and after the U.S. civil war.
financialsense.com
And there's no "pattern" of long-wave periodicity here?
To reply to Little Joe's comment that "The problem I have with Kondratieff wave theory is that back in the seventies according to its then proponents the winter was on its was in the eighties. In other words the depression should have been over by now. As far as I can tell, it never came. So I think it is highly subjective."
Well, I wasn't really "economically active" in the 1970's, but in the early 1980s, inflation and interest rates were nearing 20% if I'm not mistaken. This was the peak in the interest rate cycle. Then began a period of secular disinflation, and the accumulation of a whole heck of a lot more debt. For sure, any theory or prediction is subjective and speculative to an extent. And I figure that any theory should always be held loosely, and should be discarded if reality does not conform to the theory. But conditions now appear to be far more appropriate to a K-wave bust than anything we had in the 1980's.
I think it could be argued that financial conditions for a K-wave bust have been systemically existent for probably a decade, but that the monetization of massive amounts of debt has kept the economy liquid. So much so that massive liquidity injections are having a difficult time keeping asset prices levitating at their present levels.
I don't know, a bust seems a real possibility to me here. A massive deflationary pop. And it would fit very well with broader K-wave theory.
Who knows what the future will hold. And I've certainly learned a lot from this forum about how easy money can create a Mises "crack-up boom" even on the edge of a deflationary precipice. Can this continue indefinitely without destroying the national and global financial systems? Given existing debt levels and pressures on wages, can a bust be avoided?
Well maybe. But for my money, I'm deleveraging as much as possible. And just going to sit and enjoy the show for the next year. I find it unlikely that hedge funds will be doing the same.
Regards,
Glenn |
