Most discussions about how long the recession will be have the economy growing this year or some point next year. However one group of people predict we’ll be in recession for a lot lot longer. They think we won’t see an upturn for 15 years!
Those who follow longwave theory aren’t in the main stream, but then neither were market bears in early 2007. There is a body of evidence that is worth a second look.
4 Longwaves in US History
Essentially, so the theory goes, the economy moves in 50 to 60 year cycles, rather than the short 5 to 10 year cycles that we generally recognise. The graph above shows the cycles that we’ve been through in the last couple of hundred years.
The first point that lends this theory credability is that it was published prior to the Great Depression. Correctly predicting the Great Depression is one thing but what about this time round?
Ian Gordon at the Longwave Group claims to have published this article in 2005 predicting the start of the “long winter”. Unfortunately the original publication site seems to be off air so we can’t validate it.
However if the Great Recession and Great Depression were predicted by the theory how does it work? This is one of the big weaknesses. There are several theories including innovation and technology cycles and wars. Check out wikipedia for details.
The eminent historian Eric Hobsbawm 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.” (Hobsbawm, 1999: 87n.)
Whatever the reason it might pay to not expect the upturn for while.
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