Of cycles, economic and human

Nikolai Kondratieff (or Kondratiev), a Soviet economist, had worked out in the 1920s, looking at booms and busts in commidity prices since biblical times, that there is a historical long wave that oscillates between plenty and want that's around 50-60 years long. Kondratieff's work came to Stalin's attention, delighted that the Great Depression affecting the capitalist world was indeed, as Marx had insisted, a historical inevitability. But Kondratieff had the temerity of telling the Brilliant Genius of Humanity that the capitalist world would come out of the Depression as sure as day followed night. This angered the Great Architect of Communism greatly, who had Kondratieff packed off to the Gulag, where he died.

Kondratieff's work came to wider public attention in the west in the 1980s - 50 years after the Great Depression. Kondratieff's thesis was that the intervals between economic downturns was predicated by technology; I would rather posit that it is to do with the human lifespan; people leading a company, a bank or a nation's economy into crisis would have learned their lesson, but would not be around to lead their firms, banks or countries into the next downturn. But the 80s straddled two short-wave downturns - one in late '70s, one in the early '90s.

The '80s (well, at least the period from '83 to '88) were a period of boom. This boom - in the UK at least - was fuelled by Margaret Thatcher's deregulation of Britain's financial services sector - the Big Bang in the City. Scrapping many of the restrictive practices that were said to hold back the market, she opened the door to derivatives trading, day-trading, options and many other forms of purely speculative financial plays that proved to be - ultimately - unsustainable. Economist Roger Bootle (link here), has suggested recently on the BBC Business News website that when markets start buying and selling things as exotic as options on the volatility of the dingbat, a crash is bound to follow.

The Kondratieff cycle has elongated itself - we're living longer. The coming recession is likely to be part of a prolonged downturn (something I suggested here - a downturn lasting around one-eighth of the average human lifespan). It will not be resolved until the Great Absurdities can be fixed. Countries and households living beyond their means - people earning more money than the value they put into their jobs (here I'm thinking about the public sectors in many countries, not least Greece), balanced budgets, and corporations looking at long-term sustainability rather than short-term profits. Investors should be content with lower returns on their savings, in exchange for knowing that their money is being invested in sustainable businesses - not on purely speculative plays.

The global economy will emerge from this downturn (can we call it Great Depression II - abbreviated to GDII?) much the wiser. Voters will (hopefully) be less likely to elect people like Berlusconi or the socalists in Hungary or Greece who play fast and loose with taxpayers' money, racking up huge unsustainable debts (note the recent defeat of tax-and-spend parties in Poland's elections).

As I wrote recently, Poland has not got into similar trouble for a variety of reasons. Whichever politician included into the draft of the Polish Constitution the paragraph that the country's debt should not exceed 60% of GDP (and that emergency measures should kick in on the debt exceeding 55% of GDP) should be immediately given a Polonia Restituta and have streets named after him or her. And Polish banks were either too dimwitted or prudently cautious (delete as appropriate) to go on a wild lending spree or to invest in sub-prime mortgages, junk bonds or risky derivatives.

A final point. Poles (and indeed citizens of all the Soviet bloc countries) have first-hand memories of hyperinflation (1,400% a year in 1990), shortages of most consumer products, 20% unemployment. All this happened within the past 25 years. To Poles, what's going on now is a blip compared to what they lived through. The average Pole TV-viewer, watching the Occupiers of Wall Street, the Indignados of Madrid, the Greeks setting fire to whatever's flammable including themselves, thinks that these are the protests of essentially soft people, mollycoddled for decades, who're finally reaping the economic whirlwind.

Economic long-wave cycles are largely predicated by human memory. German hyperinflation on the 1920s and its effects - Hitler's democratic rise to power - are why the Bundesbank so assiduously protected the Deutchmark from losing value. Unbridled greed, unrestrained by a longer-term view; mindless consumerism - now, the world is paying the price. We can look at the global banking crisis, the 2009 recession, the sovereign debt crisis, the eurozone crisis - and the forthcoming recession - in economic terms. I'd like to look at it from a philosophical and human point of view.

Economic systems cannot tolerate absurdity for very long. Something had to snap. Greed and laziness, soaring property prices, ever-more abstract speculation on our financial markets.

The question Jak żyć?'('how to live'), which was asked by a farmer of premier Donald Tusk during the recent election campaign, became a slogan of the opposition.

It is a fundamentally important question. For my part, saving rather than spending, frugality and financial prudence, using a small, economic car only sparingly - foregoing exotic holidays, not spending big money on consumer electronics and clothes, segregating one's rubbish, yet living in a large, comfortable house in a most agreeable suburb - is my recipe for economic as well as personal success. Working for several companies rather than for one employer that can sack you when things go sour (as has happened to me in the past) allows me to hedge my revenue sources. Looking forward several years rather than just to the end of the month. Jak żyć is about being able to place yourself in a macroeconomic context - your time and place on the planet, economic cycles that ebb and flow.

This time last year:
Why didn't I read this before: Grapes of Wrath

This time two years ago:
Małopolska from the train

This time three years ago:
Grading ul. Poloneza