Cycles, cycles everywhere. We’ve already discussed the current state of the U.S. business cycle, arguing that the expansion should last for a while, although it is more advanced than in Europe. However, business cycles aren’t the only creatures living in an economic zoo. They are simply the most popular within the modern macroeconomics. The post-war business cycles lasted, on average, almost 6 years. But economists distinguished also shorter cycles, called Kitchin inventory cycles, which are believed to be caused by lags in entrepreneurs’ reaction to the market signals (and the resulting changes in inventory accumulation or reduction), and which average 40 months in length. The typology of cycles also recognizes much longer cycles: the Kuznets swing and the Kondratiev wave. The former is caused by infrastructural investments and lasts 15-25 years, while the latter is linked to changes in technology and keeps on about 45-60 years. As the Kuznets swing is sometimes considered to be a part of the Kondratiev wave, we focus here on the latter.

The idea of “super-cycles” was developed in 1925 by Russian economist Nikolai Kondratiev, who identified three phases of the cycles and believed that their key drivers are social shifts (changes in inequity, opportunity). However, the theory has been refined over the years and it is currently divided into four ‘seasons’:

  • Spring: economic upswing, technological innovation which drives productivity, low inflation, bull market in stocks, low level of confidence (winter’s legacy);
  • Summer: economic slowdowns combined with high inflation and bear market in stocks, this phase often ends in conflicts;
  • Autumn: the plateau phase characterized by speculative fever, economic growth fueled by debt, disinflation and high level of confidence;
  • Winter: a phase when the excess capacity is reduced by deflation and economic depression, debt is repaid or repudiated. There is a stock market crash and high unemployment, social conflicts arise.
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