KYLE CRICHTON - ESSAY


Nikolai Kondratieff was not exactly a faceless bureaucrat in post-revolutionary Russia. He had held an important economic post in the last government of Alexander Kerensky before the Bolsheviks took charge, then became an important theorist of the New Economic Policy under Lenin.

But he would long ago have been consigned to the dustbin of history had it not been for his quirky academic passion, which he pursued in books and papers through the 1920s. Reviewing economic history since the late 18th century, Kondratieff came to a startling doomsday conclusion: that capitalist economies were fated to go through predictable cycles of around 50 years, inevitably culminating in a depression.

Despite having become a committed Communist and the author of a theory of inevitable if periodic capitalist collapses, Kondratieff was executed in 1938, a victim of the Stalinist purges. Apparently he had raised too-trenchant questions about the government’s enthusiasm for heavy industry and agricultural collectives. After eight years in the gulag, he left behind a final letter to his daughter, poignantly urging her to be“a clever and good girl”and “not to forget about me.”

It was a fitting epitaph, for whenever it seems Kondratieff is about to be forgotten, the economy plunges. And once again he is back in the news, which his disciples try to fit into the cycles, or “Kondratieff waves,”that he described.

Kondratieff identified four stages in each cycle, corresponding to the seasons. After spurting ahead in the spring phase, they said, the economy cruises through the summer, experiences a scary drop as autumn sets in, and then - no matter what governments do to try to ward it off - descends into a winter phase that can last up to 20 years.

In case you hadn’t noticed, it has been getting quite chilly lately.

Over the years, Kondratieff’s appeal has risen and fallen, losing favor in good times but charging back when things look bleak. But his theory has never been accepted by mainstream economists.

Kondratieff’s supporters have cried depression before, for example in 1982. Reporting on the attention his theory was getting during that downturn, a New York Times correspondent, Paul Lewis, wrote: “According to Kondratieffian analysis, the world is caught in the fourth great economic downswing since the 1790s, a period of global recession that will probably last until near the end of the century when a new age of prosperity will begin - and there is little anyone can do about it.”

Today, Kondratieff’s disciples are just as certain that the current bad times began in 2000, with that year’s stock market crash. That was followed by the autumn phase of the Bush years, characterized by an enormous expansion of debt and leverage in an attempt to maintain the prosperity of the spring and summer years.

Evidently, Kondratieff waves tend to be in the eye of the beholder. After all, the American economy ultimately shrugged off several market drops like that of 2000, allowing the 25 years that followed 1982 to be a period of largely uninterrupted growth. But in the last decade of that period, growth was driven by debt in a desperate attempt to maintain an unsustainable level of consumption, a stage that Kondratieff’s theory quite accurately describes.

“The people who do the predicting are usually not central within the discussion of economics,”said David Colander, an economic historian at Middlebury College in Vermont. But economies do“have this tendency to exceed”that Kondratieff and others have grasped, he added, and that is largely lost in modern economic theory.

He offers the Austrian School as a possible rival to Kondratieff’s line of thought. Austrian economists tend to emphasize a laissez-faire approach to entrepreneurship and strict limits on money supply growth.

While considered outside the mainstream, the Austrian School is far more respectable, counting in its ranks two Nobel Prize winners, Friedrich Hayek and James Buchanan. Peter Schiff of Euro Pacific Capital, an adviser to the libertarian presidential candidate Ron Paul, also subscribes to its theories.

Hayek is said to have successfully predicted the Great Depression, and some Austrian School devotees are taking credit for calling this one.“The financial meltdown the economists of the Austrian School predicted has arrived,”Mr.Paul wrote in September, 11 days after Lehman Brothers filed for bankruptcy.

In the 1930s, John Maynard Keynes displaced Hayek and the Austrian School in intellectual popularity. The Austrian line of thought made something of a comeback in the Reagan years, but never quite gained acceptance in the economic fraternity, Mr.Colander says.

“It probably should,”he says.“A good profession should take its outsiders more seriously. They make you look at things in different ways. The worst thing for policy makers is to think they are right.”