As I sat in the faculty club dining room with Professor John Sterman I thought, “My God, it’s going to be miserable to go through a long-wave downturn.” Our lunch was 25 years ago.  Judging by the current economic and presidential activity, my foreboding was totally justified.  Professor Sterman is a professor at M.I.T.’s Sloan School and an expert on the early 20^th century Russian economist Nicolai Kondratieff, the man who originated the long-wave concept. I had been “introduced” to the concept by Professor Sterman’s writings in the institutional publication, “The Bank Credit Analyst.”  

Kondratieff believed the capitalistic system had an ordinary business cycle of roughly four years; two years of an upswing followed by two flat to down years.  He opined, however, that overlaying this normal cycle was a super cycle of 45-60 years.  The super cycle’s upswing was driven by innovation, the downswing by war, debt contraction (what we have now) or government policy mistakes. The first upswing of the long-wave was created by moveable type and the printing of the Guttenberg bible in 1455.  Printing became the first step in the creation of the long-wave.  It had taken thousands of years, from recorded writing on Sumerian cave walls, for the long-wave to begin.

The long- wave should be thought of as a process, not a cycle with regular timing.  Two clear examples of the process would be the long-wave downturn that occurred from 1930 to 1945 and the ensuing upswing of the much revered 1950s and 1960s.  The super cycle has a direct bearing on the normal day-to-day business cycle. To quote Professor Sterman,“During the long-wave upswing the business cycle expansions will be long and strong because the economy is rising up on the long-wave.  Recessions tend to be short and shallow.  The rising tide of the long-wave lifts all boats.  The opposite occurs when the long-wave peaks and begins to decline.  The business cycle will appear to have changed with long, deep recessions and weak (emphasis mine) recoveries.”  This is what happened after the great recession.

Down-waves do carry a future benefit.  They are associated with an unusually large number of innovations and inventions.  This is because there is intense pressure on businesses to cut costs and find new growth opportunities while not raising prices.   This is where we are now.  These inventions are exploited when a new up-wave begins as it drives a new capital spending cycle.

As one might expect, changes in the super cycle also carry social/political implications.  The loss of jobs in the 2008-2009 great recession eviscerated the middle class. They know their former jobs are gone forever, even if the political class does not.  In an expanding economy people turn to more progressive political issues of social justice.  However, in a down-wave they become much more conservative.  To quote directly from Professor Sterman’s writing in 1992, “Extrapolating, the next progressive era should peak during the decade 2010-2020.”  If it does, he will have been amazingly prescient.   Regardless, a long-wave upswing is definitely ahead of us.                                                                 

Francis Patrick Boland