[OTOH, maybe you're righter than you realize. I'm sure the following, from the Aug. 8, 1991, Wall Street Journal, will elicit great gales of laughter hereabouts, but I'll dutifully key it in anyway. Admittedly, the down swoop of the K-wave is way past due according to its supposed cyclicality, but maybe it just got held up in traffic amid all the celebrations of the post-cold-war End of History.]
Believers in One Wave Theory See U.S. in Deep Trough Soon
By Stanley W. Angrist
According to some market forecasters -- a distinct minority, to be sure -- the U.S. economy will soon be swamped by the dreaded Kondratieff wave.
Nikolai Kondratieff was a Russian economist of the 1920s who postulated that nations' economies move in broad swells lasting about 48 to 60 years each. For simplicity's sake, many people think of it as a 50-year cycle, roughly 25 years up and 25 down.
Since the last trough in the wave occurred in the 1930s, the theory predicts another trough no later than the 1990s. Proponents of the wave theory say that soon -- certainly within three years -- the U.S. economy will be in a bone-jarring depression accompanied by a stock-market collapse.
"We are now facing runaway deflation," says P.Q. Wall, editor of a market newsletter and one of the more fervent believers in the K-wave, as some devotees call it. "Both stock and commodity prices will crash." He says the collapse in commodity prices started gradually a decade ago but will accelerate this year. Mr. Wall foresees the Dow Jones Industrial Average, now around 3000, plummeting to 553 by 993, accompanied by $4-a-barrel oil.
Don't sell all your stocks, yet, though. The majority of academics and investment professionals question the underpinnings of K-wave theory. "There are very few ideas in macroeconomics that serious economists agree on, but doubting the existence of the K-wave is one of them," says Allan Meltzer, professional of political economy and public policy at Carnegie-Mellon University in Pittsburgh.
As the accompanying chart shows [not pictured here but at least plausible in what it purports to depict, folks -- cr], the wave *does* seem to roughly fit some of the data on the U.S. economy from 1720 to the present. As it happens, data on stock prices and gross national product don't go back that far. But the Commerce Department does have more than two centuries of estimates for wholesale prices. Periods when the prices were rising were generally (though not always) times of economic expansion. Periods when prices were falling were often times of recession or depression.
It might be easy to dismiss Mr. Wall as a kook, but he has a fair-sized following among technical analysts. And he has made at least two pinpoint forecasts. In January 1982 he predicted the onset of the "biggest bull market in history starting in mid-1982, carrying the Dow to 3000 by the late 1980s." In the fall of 1983 he stated that oil would fall from $36 a barrel to $9 by 1986. It dropped to as low as $10.40 in 1986.
Not all believers in the K-wave read the evidence the same way. John Dessauer, a Boston newsletter publisher and money manager, thinks the trough in the wave has already past. "In 1982, 50 years after the depression-low of 1932, we had the worst recession since that trough," he says. Also, he says, there were stock-market crashes in both 1937 and 1987, exactly 50 years apart.
Amond academics, one proponent of K-wave theory is Jay Forrester, professor emeritus at the Sloan School of Management at the Massachusetts Institute of Technology. Mr. Forrester has developed a computer simulation of the economy that he says predicts an economic output that moves up and down with a period of between 45 and 60 years. He says that the 1990s are going to witness a major bottom in the wave.
But this is not the first time Mr. Forrester has talked about a major bottom in the long wave. In a January 1978 article in Fortune magazine entitled, "We're Headed for Another Depression," he argued that overcapacity existed everywhere in the U.S. economy. That was two years before the 1980s decade began, ushering in average annual increases in GNP of 2.5%.
Walter Williams, president of American Business Econometrics Inc., a Ridgewood, N.J.-based economic consulting firm, is also a believer. Though he is quick to point out that forecasts for his Fortune 500 clients are based on econometric models, he says they currently confirm what Kondratieff-wave theory predicts -- a decline for both the economy and the stock market. "I expect this downturn to last pretty much through the end of the decade and be as deep as anything seen in this century."
The vast majority of contemporary economists, however, place little stock in Kondratieff's theory. They point out that the based his wave theory on agricultural prices, interest rates and money wages that covered about 130 years, or less than three cycles. Mr. Kondratieff himself acknowledged the paucity of long-term data and termed his own long-cycle theory "only probable."
"K-wave theory smacks of economic determinism and borders on mysticism," according to Alan Blinder, professor of economics at Princeton University. He points out that believers in the K-wave justify their stand, in part, because of weaknesses in the economy in the 1870s and 1930s. but he notes, "If you only ask me to fit a few data points, I can show you a cycle any length you want."
Walter Rostow, professor emeritus at the University of Texas at Austin, has spent many years studying long-term waves in the economy. He says there are at least two long waves, but neither is precisely the K-wave. Rather, there is a 60-year cycle that shows a periodic increase in technological innovation, and a 40-to-50-year cycle that reflects a scarcity of commodities. The two, he says, almost never coincide.
Robert Barro, professor of economics at Harvard University, chuckles when asked about the Kondratieff wave. "there is just not enough data to make any claim for a wave of 50 to 60 years in length," he says. When told that there are people who take it seriously he answers, "You can find people who are willing to say almost anything. And sometimes they are even right."
Mr. Wall replies that academics, like most people, prefer not to see the long-term cycles that affect them. "No one likes to think they are being pushed around like chess pieces."
[end]
Carl
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