Editors' pick: Originally published Nov. 9.
Ninety years ago in Russia, an economist found a pattern in capitalist countries' economies. And if the pattern he found holds, it could mean we're in for another few chilly years, economically speaking.
Nikolai Kondratiev was born in 1892 in the Russian Empire. In the 1920s, he developed a theory about long-term economic cycles. His theory proposed that prices, foreign trade, interest rates, pig iron and coal production in capitalist countries moved in periodic waves of about 50 to 60 years. He thought that "Great Depressions" are a natural part of capitalism, and are followed by periods of recovery.
(Kondratiev's work ultimately led to his imprisonment and eventual execution in 1938. Joseph Stalin didn't like that Kondratiev's work didn't show that the evil capitalist system would collapse after the Great Depression of 1929.)
Kondratiev's ideas are found in his book The Major Economic Cycles, published in 1925. He compared the economic history of several western nations with the predictions from his theory. Past economic performance (as far back as 1789) had a near-perfect match with his ideas of long waves of economic contraction and expansion.
He then attempted to predict future economic cycles using his theory. The results so far have been surprisingly accurate. Other economists refined his ideas, and named these long-term cycles Kondratiev Waves (or K-waves) in his memory.
There are many factors that drive K-wave cycles, although there is debate over which factors are most important. To be sure, investment profits, the relationship between industry and agriculture, population growth, war, prices and technology are all key factors in K-waves. Debt buildup and debt repudiation are two other major factors.
Some economists think that these 50- to 60-year cycles are an inevitable part of how the world works -- and that K-wave expansions and contractions are just a natural part of any economy.
Over time, the Kondratiev Wave Theory was refined and divided into four phases: spring, summer, autumn and winter.
Spring involves an economic upswing as the winter phase ends. Technological innovation and development help to drive productivity while inflation rises.
Summer includes boom times, but often ends in war.
Autumn is when the economy plateaus. There may be a stock market crash after a speculative boom and market euphoria.
Winter is the period of economic depression, deflation, bankruptcy and unemployment. This "cleanses" the economy of debt. (Kondratiev felt that depressions were not all bad because they cleaned the system of excess).
And according to K-wave proponents, that's where we are now.