This is the last in our series on Business Cycles. In the article titled "What is Business Cycle", we briefly mentioned the various cycles postulated by many authors. In this page we will give a summary and our comments on them.
1. William Stanley Jevons - Englishman - He was the first person to recognize the phenomenon of Business Cycles. He stipulated a 11 year cycle resembling the Sunspot activity. He was absolutely right, but the data belonged to an Agrarian Economy that existed at that time. A genius who died young. With the globalization of business, any analysis has to be looked at worldwide. If there is frost in South America destroying the Coffee crop, you may have a booming Tea crop in Asia. I would be more comfortable with a 12 year cycle. This can be further divided into 2 - 6 year cycles of growth and decline, which coincides with peak sunspot activity. The biggest advantage is that Sunspot activity can be forecasted with clock-work precision by modern Astronomers. Though Jevons was not an Astronomer, his genius lies in the fact that his research pointed out to this fact, though this is known for ages.
2. Nikolai Dmitriyevich Kondratieff - Russian - He postulated the 50-60 year cycle and after much debate Economists have agreed to the figure of 54 years. The problem is to identify when did the cycle start? After lot of analysis, it is safer to assume a 54-60 year cycle for the Kondratieff Wave. A genius banished to Gulag by Soviet Communists and died there unheralded and unsung. The credit of translating and publishing his theory goes to the Austrian, Joseph Schumpeter.
3. Simon Kuznets - American - Nobel Laureate - He advocated a 18 year cycle. Since this is a fairly modern theory, it has been easier to verify and is well accepted.
4. Clement Juglar - Frenchman - advocated 9-11 years and is the same as specified by Jevons. Only he identified the phases as Prosperity, Crisis, Liquidation and Recession. As a result the cycle is named after him as Juglar cycle
5. Joseph Kitchin - American - His research in Harvard University found a 4 year cycle now called the Kitchin cycle. His analysis covered only the US stock market. I do not believe that the stock market is a good indicator for such research. My reservations about the stock markets have been justified by all the scandals that have surfaced all over the world. The stock market does not influence the Economy. It is the state of the Economy that influences the stock market. It might interest speculators but not purists 6. Joseph Schumpeter - Austrian - He is the author of the concept of "Creative Destruction". To put it simply, what he meant was, the more the innovation in Technology, greater is the chance of damage to Economy, especially, through loss of jobs. The happenings in dotcoms and IT industry have confirmed it. Another genius harassed by Nazis and fled to USA. Among all great men mentioned above, Schumpeter would probably rank the best of them all, for his ability to foresee more than 100 years in advance. Unfortunately, such people are not understood or encouraged by people in power. In our opinion, he was the Nostradamus of Economics. The revered Management Guru, (Late) Dr. Peter F Drucker has made extensive references about him in his book "Innovation & Entrepreneurship" - Harper & Row Publishers, New York, USA.
• The Economists are divided into 2 groups as mentioned in the earlier article. The fact that "cycles" exist cannot be denied. Though some people talk of superimposing all the cycles mentioned above, it would be a sheer waste of time to attempt it, as you would not know the starting point and any success would have the element of luck • Applying Jevon's and Juglar's theories and applying it to a 12 year cycle, we can divide the period into 4 phases as below:
1. Rapid growth - 3 years - 1991 to 1994 2. Malinvestments and Stagnation - 3 years - 1994 to 1997 3. Gradual Slide - 3 years - 1997 to 2000
4. Recession - 3 years - 2000 to 2003 • The above means the present stagnation has started in and around 2006 and will continue till 2009. What we are undergoing is called stagflation. The recessionary trends are due to high oil prices, malinvestments and imprudent money management policies of the central banks and governments. The single biggest culprit is the housing mortgage industry. Last time it was the dotcoms. The onset of recession can be postponed even now, but that needs some very severe actions on the part of FRB. Most important action that is to be taken is breaking the oil cartel's stranglehold on the world's economy.
• The Recession almost invariably coincides with the peaking of Sunspot activity. This occurred around middle of the year 2000. This can be verified with CMEs (Caronal Mass Ejections) frequently emanating from the Sun. NASA gives regular bulletins on this.
• The present day happenings are due to greed of a few and the pity of it is it has coincided with stagnation, making the impact more severe and setting off a recessionary trend.
© Copyright. Written on June 12, 2008. Without prejudice. All rights reserved
More on Business Cycles - To learn more about this author, visit Madhavan T Gopalachary's Website.
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Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name/
mtg.html
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
.
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