AFTER AMERICA’S WINTER WILL COME SPRING

As America suffers through a brutal winter as well as a political/economic winter with Curse of Zero, let’s step back and take a longer look at the historical era we are enduring.

His research from 1789 on indicates capitalist economies go through a cycle of boom and bust roughly every 50 to 60 years, Russian economist Nikolai Kondratieff wrote in 1925. 

Each cycle has four distinct phases, which he named after the seasons of the year.  Within each "season," there is a rising phase and a declining phase.

*In Spring, sparked by innovation, the economy booms.  Savings rates are high, interest rates are low. Wealth and prices rise rapidly. 

*The economy’s growing in Summer, but not fast enough to satisfy appetites whetted by the rapid rise in prosperity in Spring.  Interest rates and inflation are high. Political and economic crises erupt. 

*In Autumn, the economy is running out of gas.  Savings rates decline precipitously. Debt explodes, credit bubbles form as people, businesses and governments borrow to maintain the level of consumption to which they’ve become accustomed.

*When debt rises to unsustainable levels, Winter begins.  Credit bubbles pop, markets crash, businesses go under. Depression lasts until wages and prices have fallen far enough to permit the next Spring to emerge.

Winter had begun, Kondratieff wrote in 1926.  The next depression would begin around 1930, he estimated.

Kondratieff’s theory was unpopular on Wall Street and in Washington, where people didn’t want to hear that the "Roaring Twenties" were about to come to a screeching halt.

His theory was even more unpopular with Stalin, who didn’t want to hear that capitalism is self renewing.  He sent Kondratieff to the gulag, where he was executed by a firing squad.

The "Kondratieff Wave," K-Wave, for short, was given its name by Joseph Schumpeter, arguably the greatest economist of the 20th Century, who based his work on business cycles on it.

Kondratieff hadn’t been the first to identify the "long wave."

The ancient Mayans in MesoAmerica posited a 52 year cycle of catastrophe and renewal, at the end of which they put out all the fires in their households, threw away all their clay utensils.  The 52 year cycle was part a 5,200 year cycle, which ended Dec. 21, 2012, prompting speculation the world would end then.

Two Dutch economists wrote about economic waves a decade before Kondratieff did — but their work wasn’t translated into other languages until recently. Kondratieff’s book, "The Major Economic Cycles," was translated into German shortly after publication in the Soviet Union.

But Kondratieff’s research was by far the most thorough.  Building on it, Indiana University professor William Thompson found evidence of long wave cycles repeating every 50 years or so going back 1,000 years.

Kondratieff offered no opinion about why the long waves he’d identified existed, but said they are "a very important and essential factor in economic development, a factor the effects of which can be found in all the principal fields of social and economic life."

The "seasons" within a K-Wave each last for roughly the same amount of time, but the length and strength of each vary somewhat, depending on how people behave.

The last Kondratieff "Spring" began around 1950.  "Winter" started around 2000.  Earlier K-Wave "Winters" (since 1789) have lasted from 9 to 20 years.  The last three have averaged 16 years.

"Winter" ends in depression, but in the initial "rising" phase economic growth slows, then stops; corruption soars; smaller bubbles — like say the Dot.com bubble (2000) and the subprime mortgage bubble (2008) — burst which weaken, but do not trash the entire economy.

War often accompanies depression in the final phase of "Winter," Kondratieff noted, so President Obama’s plans to cut the Army to a size smaller than it’s been since before World War II (which took place during the final phase of the last K-Wave "Winter") may be imprudent.

"The global economy is likely to reach the lowest point at the end of the declining phase of the fifth K-cycle, in 2012-2015," wrote Russian economists Alexander Alvazov and Andrey Kobyakov in 2008.

"In all probability we will be moving from a "recession" to a "depression" phase in the cycle about the year 2013 and it should last until approximately 2017-2020," predicted Irish investment adviser Christopher Quigley in February, 2012.

The big takeaway for me from the Kondratieff Wave is the booms can be bigger and last longer, the busts smaller and shorter (or vice versa), depending on the choices we make.  But the boom and bust cycle itself is an immutable part of nature.  Those who say that this time the good times will go on and on are either dishonest or delusional.

The Obama administration has made nothing but bad choices.  So have Americans who have piled up student loan and credit card debt.  Buckle your seatbelts.  Hard times – really hard times – are fast approaching.

The good news is the old political order usually is flushed out during the cleansing of a Kondratieff "Winter."  The era of Democrat/Liberal/Progressive dominance that began during the trough of the last K-Wave may soon be thrown on the ash heap of History.  And after "Winter" there will come another, brighter "Spring."

Jack Kelly is a former Marine and Green Beret and a former deputy assistant secretary of the Air Force in the Reagan administration. He is national security writer for the Pittsburgh Post-Gazette.

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