Kondratiev Wave

Description

Investopedia:

" Kondratiev Wave is a long-term economic cycle in commodity prices and other prices, believed to result from technological innovation, that produces a long period of prosperity alternating with economic decline. This theory was founded by Nikolai D. Kondratiev (also spelled "Kondratieff"), an agricultural economist who noticed agricultural commodity and copper prices experienced long-term cycles. Kondratiev believed that these cycles involved periods of evolution and self-correction." (https://www.investopedia.com/terms/k/kondratiev.asp)

Characteristics

From the Wikipedia: "Characteristics of the cycle

Kondratiev identified three phases in the cycle, namely expansion, stagnation and recession. More common today is the division into four periods with a turning point (collapse) between expansion and stagnation.

Status

Cycle theories:

Writing in the 1920s, Kondratiev proposed to apply the theory to the 19th century:

• 1790–1849, with a turning point in 1815.

• 1850–1896, with a turning point in 1873.

Kondratiev supposed that in 1896 a new cycle had started.

The technological cycles can be labeled as follows:

• Industrial Revolution (1771)
• Age of Steam and Railways (1829)
• Age of Steel and Heavy Engineering (1875)
• Age of Oil, Electricity, the Automobile and Mass Production (1908)
• Age of Information and Telecommunications (1971)

[[Daniel Smihula's Long Wave Theory

"A specific modification of the theory of Kondratieff cycles was developed by Daniel Šmihula. Šmihula identified six long-waves within modern society and the capitalist economy, each of which was initiated by a specific technological revolution:[

1. Wave of the Financial-agricultural revolution (1600–1780)

2. Wave of the Industrial revolution (1780–1880)

3. Wave of the Technical revolution (1880–1940)

4. Wave of the Scientific-technical revolution (1940–1985)

5. Wave of the Information and telecommunications revolution (1985–2015)

6. Hypothetical wave of the post-informational technological revolution (Internet of things/renewable energy transition?) (2015–2035?)

Unlike Kondratieff and Schumpeter, Šmihula believed that each new cycle is shorter than its predecessor. His main stress is put on technological progress and new technologies as decisive factors of any long-time economic development. Each of these waves has its innovation phase which is described as a technological revolution and an application phase in which the number of revolutionary innovations falls and attention focuses on exploiting and extending existing innovations. As soon as an innovation or a series of innovations becomes available, it becomes more efficient to invest in its adoption, extension and use than in creating new innovations. Each wave of technological innovations can be characterized by the area in which the most revolutionary changes took place ("leading sectors").

(https://en.wikipedia.org/wiki/Kondratiev_wave)

Discussion

From the Wikipedia:

"Since the inception of the theory, various studies have expanded the range of possible cycles, finding longer or shorter cycles in the data. The Marxist scholar Ernest Mandel revived interest in long-wave theory with his 1964 essay predicting the end of the long boom after five years and in his Alfred Marshall lectures in 1979. However, in Mandel's theory there are no long cycles, only distinct epochs of faster and slower growth spanning 20–25 years.

In 1996, George Modelski and William R. Thompson published a book documenting K-Waves dating back to 930 AD in China. Separately, Michael Snyder wrote: "economic cycle theories have enabled some analysts to correctly predict the timing of recessions, stock market peaks and stock market crashes over the past couple of decades".

The historian Eric Hobsbawm also wrote of the theory: "That good predictions have proved possible on the basis of Kondratiev Long Waves—this is not very common in economics—has convinced many historians and even some economists that there is something in them, even if we don't know what".

US-economist Anwar Shaikh analyses the movement of the general price level - prices expressed in gold - in the US and the UK since 1890 and identifies three long cycles with troughs ca. in 1895, 1939 and 1982. With this model 2018 was another trough between the third and a possible future fourth cycle. (https://en.wikipedia.org/wiki/Kondratiev_wave)