I was asked this question in an online business administration class of some twenty students several years ago. Everyone, including the professor, said “No”. They wrote various reasons why not. They stated that if we knew the future, we would all be millionaires, and we aren’t. Further, we would not be surprised by natural disasters, and we are. Many concluded that no one can predict the future except God.
I was the lone assenter. I said yes, it was possible in many instances. We do it every day.
One of the examples I gave were tides.
Tide tables give an accurate account of high and low tides in a particular location and can do so many years in advance.
The time of sunrise and sunset for every major city is reported on the weather channel every day.
Clocks, seasons, planetary orbits, and migrations are more examples of the same.
The common denominator of those things mentioned above is that they have a periodic movement. In other words, a movement that repeats in regular cycles and is predictable, provided one knows the pattern.
My fellow students groaned and complained loudly but conceded the point. Still, they argued that this did not apply to all things and, of course they were right. Certain things are cyclical and many things are not.
I was fascinated by their certainty as to the unpredictability of the future, and their outraged response when I gave my answer. It was as if I had tried to fool them in some way, like one of those tricky bar bets one can never win.
This reaction puzzled me.
The whole idea of cycles and predictability has not always been so controversial.
Many ancient cultures adhered to the cyclical view of time. Incas, Mayas, Hopis, Babylonians, and Ancient Greeks, to name a few, held to this belief. For example, the Mayans believed that the present world and the humans that inhabited it were preceded by other worlds in a cyclical fashion.
Modern Hindus and Buddhists believe in the concept of the wheel of time and that history is cyclical.
Opposed to this is the Judeo-Christian concept that time and history are linear.
To them time has a definite beginning, starting with the act of creation. The general Christian view is also that time will definitely end with the end of the world. All three Abrahamic religions (Judaism, Christianity and Islam) contain scriptures that describe the end of days.
In the conquest of the new world, Christianity had difficulty erasing the view that life was cyclical and replacing it with the linear view. They made only minimal progress, particularly in the Far East where the idea of reincarnation and the wheel of life had deep roots.
In Europe, the Earth Mother and the various religions based on fertility and the cycle of the seasons proved hard to get rid of, but ultimately Christianity and the linear view prevailed.
Science, too, has worked out that there was the Big Bang and that the universe had a definite beginning, and that time is like an arrow pointed in only one direction. Just the same, the possibility of a cyclical pattern to the universe cannot altogether be ruled out in the long term.
In modern political history and in the field of economics, the idea of cyclicality has been fraught with controversy. It has been looked on by orthodox economists as a form of heresy and considered by modern politicians as preposterous and subject to ridicule.
One need only be aware of the story of Alexander Chizhevsky to understand that adhering to the idea that cycles are real even in the face of government opposition, and writing about the subject in the face of that opposition can be hazardous to one’s health.
Chizhevsky studied the eleven-year sunspot cycle and wrote Physical Factors of the Historical Process. He analyzed sunspot records, comparing them to riots, revolutions, battles, and wars. He correlated sunspot maximums with human disturbances. Stalin asked him to retract his writings on solar cycles because they contradicted Soviet theories as to the reasons for the revolution and the eventual demise of capitalism. Chizhevsky refused and was arrested. He spent eight years doing hard labor at a Gulag in the Urals. Afterward he spent another eight years in Soviet rehabilitation. He no longer wrote on solar cycles but concentrated on ionization of the air instead.*
What was bad for Chizhevsky was worse for Nikolai Kondratieff who worked on a five-year plan for Soviet agriculture and did research on factors influencing crops and commodities. He was struck by the repeating cycles of prices. He too was arrested and sentenced to eight years in prison from 1932 onward, but he continued to write and do his research. He was then subjected to a second trial in 1938 and summarily executed by firing squad. In his work, The Major Economic Cycles, he argued for the existence of a 50 to 60-year economic cycle.*
What is it about the idea of cycles that causes such a reaction, particularly from those who wield political power?
Perhaps it is best illustrated by the story of King Canute who ruled Denmark, England, Norway, and parts of Sweden. In the twelfth-century chronicle of the History of England as recorded by Henry of Huntingdon, Canute gave a lesson to his doting entourage who thought he, as king, could control all things. He was a particularly astute ruler and was aware that no one, let alone a ruler, could hope to control everything. Canute commanded that his throne be set on the shore before a rising tide, so that he may face the sea. He told the sea that it was part of his domain and ordered it not to rise. The tide rose regardless and soaked his feet and legs. King Canute then had his throne moved farther back. He told his followers that all the inhabitants of the world should know that the power of a king is vain and trivial, and that no one is worthy of the name of king but He who commands heaven.*
The concept of the cyclical nature of economies and financial markets poses disturbing questions to those that govern, and to those charged with maintaining economies on an even keel. People like the status quo. The purpose of government has changed over the years from that which strictly handled foreign affairs and tax collection to an entity that people look to for a solution to economic hardships and economic injustice.
But what if economic downturns are inevitable?
Further, what is the point of expansionist economic actions and taking credit for them, if a recovery will take place regardless?
Is it any wonder that governments subscribe only to those economic theories that support the belief that the only cure to economic ills is through government intervention, and government policy implementation?
So, is the cyclical view correct but simply suppressed? Are there economic cycles? Is government intervention unnecessary?
We know that there are periodic declines in economic activity. These are kept track of by the National Bureau of Economic Research (NBER) which marks the start and end of US recessions.
A recession is a period of economic downturn and is defined in various ways. The NBER has defined it as a period of significant diminishing economic activity. Others describe it as two consecutive quarters of negative Gross Domestic Production as measured by GDP.*
One of the main justifications for continued economic intervention is based upon the length of time spent in economic recessions before 1945 when there was minimal government intervention, and after 1945, when there were more strenuous government efforts to control the economy. The data is as follows:
Before 1945, the US economy spent 40% of its time in economic recessions that lasted an average of twenty-one months.
After 1945, the economy spent only 17% of its time in economic recessions and the average length dropped to only eleven months.
Since 1980, the United States has experienced only 10% of the time in recession, with the period between 1980 and 2000 marking the longest period of economic expansion without a recession ever recorded.
Since the year 2000 there have been two recessions: one from March to November of 2001, and one from December 2007 to June 2009 (lasting eighteen months).* Are we heading back into an era of more prolonged recession and with greater frequency and more depth, as in the 1930s?
Truth be told, it is too early to tell. Just the same, those that subscribe to economic intervention being a legitimate and effective means of controlling the economy have compiled a record of some success that cannot be ruled out.
Edward R. Dewy, as part of the Foundation for the Study of Cycles, Inc., said that every field has been found to have cycles. The cause of cycles, according to Dewey, is usually that some restorative force exists whenever any system is displaced from equilibrium. Further, these cycles are never perfectly regular but the period varies in a cyclical manner.
Equilibrium is the balance of two or more forces that create a status quo. Dynamic systems such as an economy have many moving parts, some of which can get stretched out of balance. Wealth concentrates in certain areas of the economy and in certain countries. The maxim is that money moves to wherever it is treated the best or until other opportunities exist that are better.
As an example, starting in the 1970s and into the late ’80s, Japan had huge exports while it maintained high tariffs that effectively blocked many imports. Money flowed into Japan in great quantities but did not flow out. The tariff policy effectively created a wall around Japan that allowed internal prices to rise to such a degree that property in Tokyo went for $93,000 per square foot at its peak. Prices in Japan were so far out of equilibrium that it has taken over twenty years of deflating prices to even come close to some sort of parity with the outside world.
Such out-of-equilibrium movements are often cyclical in nature. Some can be observed over a few years, others over many. Some of the cycles that Dewey observed were two cycles of civil wars (170 years and 510 years) and a nineteen-year stock cycle.*
My viewpoint is that while not everything is cyclical, there are cycles and to ignore those that appear to exist is foolish.
One of the reasons I think people get upset with the idea of cycles is that if cycles are true, then one must learn to relinquish control. In effect one is saying that the outcome is already known and there is not much one can do about it. To some, this is its own form of heresy.
I look at it like the seasons. Just because it is winter does not mean one argues and fights it by going outside in a bathing suit. One works within the framework of the cycle. If it means an economic downturn is forecast, one doesn’t go out and buy a great deal of expensive real estate. There will come a time when that is a remarkably good idea, but not when prices are sky-high.
One can also take advantage of cycles in the seasonal pricing of agricultural products. Anyone who shops for fresh produce knows that the end of summer is the season for fruit at low prices and not at the end of winter.
In the case of governments, acknowledging the cyclicality of economic matters is extremely hard to do. Governments rarely desire to relinquish control. They rarely become smaller by their own decision.
Even during the Reagan years when there was an announced and agreed-upon push toward smaller government, the result at the end was an even larger one.
One of the difficulties with a cyclical view of life and economies is that Man has a tendency to find patterns in data even where none exist.
One need only pick one of several stock-picking computer programs that process historical data and spit out precise buy and sell signals that the purveyor touts by saying, “Had you followed our program’s signals you would have made 150% in only six months!” The problem is that when one uses the program the returns going forward are nothing like the returns from the past.
Still, there is ample evidence that cycles do exist in many areas and with them: predictability.
Just because a cycle points to a downturn is not inherently a bad thing.
There are seasons every year and there are seasons of one’s life. Sometimes it is best simply to ride it out or to wait for the change. Surfers do this all the time. So do wise traders.
*See the original article, dated 2011, with citations included.