| Economic Waves series (see Business cycles) |
|
| Cycle/Wave Name | Years |
|---|---|
| Kitchin inventory | 3–5 |
| Juglar fixed investment | 7–11 |
| Kuznets infrastructural investment | 15–25 |
| Kondratiev wave | 45–60 |
Kondratiev waves (also called supercycles, great surges, long waves, K-waves or the long economic cycle) are described as sinusoidal-like cycles in the modern capitalist world economy.[1] Averaging fifty and ranging from approximately forty to sixty years in length, the cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth. Unlike the short-term business cycle, the long wave of this theory is not accepted by current mainstream economics.
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The Russian economist Nikolai Kondratiev (also written Kondratieff) was the first to bring these observations to international attention in his book The Major Economic Cycles (1925) alongside other works written in the same decade. Two Dutch economists, Jacob van Gelderen and Samuel de Wolff, had previously argued for the existence of 50 to 60 year cycles in 1913. However, the work of de Wolff and van Gelderen has only recently been translated from Dutch to reach a wider audience.
Kondratiev was a Russian economist, but his economic conclusions were disliked by the Soviet leadership and upon their release he was quickly dismissed from his post as director of the Institute for the Study of Business Activity in the Soviet Union in 1928. His conclusions were seen as a criticism of Joseph Stalin's intentions for the Soviet economy: as a result he was sentenced to the Soviet Gulag and later received the death penalty in 1938.
Later, in Business Cycles (1939), Joseph Schumpeter suggested naming the cycles "Kondratieff waves", in honor of the economist who first noticed them. In the 1950s, French economist François Simiand proposed naming the ascendant period of the cycle "Phase A" and the downward period "Phase B". Some market commentators divide the Kondratiev wave into four 'seasons', namely, the Kondratiev Spring (improvement or plateau) and Summer (acceleration or prosperity) of the ascendant period and the Kondratiev Fall (recession or plateau) and Winter (acceleration or depression) of the downward period.
Kondratiev identified three phases in the cycle: expansion, stagnation, recession. More common today is the division into four periods with a turning point (collapse) between the first and second phases. Writing in the 1920s, Kondratiev proposed to apply the theory to the 19th century:
The saturation of major markets or infrastructures (canals, railroads) creates an economic stagnation. However, stagnation does not always mean that markets are mature. Markets were temporarily oversupplied during the high growth period from the 1870s-90s, during which time there was also a lot of creative destruction in industries like iron, which was displaced by steel, and labor, which was displaced by machinery, but re-employed because of growth.[2] The stagnation phase is characterized by a lack of good investment opportunities that leads to low interest rates. In the past, investments offering exceptional returns or low interest rates, or a combination, led to lowered credit standards which, in turn, created a speculative boom and high debt levels, followed by a crash and financial crisis. Past speculative excesses included canals, railroads, farm land, real estate and the broader stock market. Carlota Perez describes the roles of financial capital and production capital in the cycle. Perez also says excess financial speculation is likely to occur in the "frenzy" stage of a new technology, such as the 1998-2000 computer, internet, dotcom-mania and bust.[3]
The last two long cycles can be better seen in international production data than in individual national economies.[4] The pre-1870 cycles can only be seen in Western economies.
The long cycle supposedly affects all sectors of an economy, and concerns mainly output rather than prices (although Kondratieff had made observations focusing more on prices, inflation and interest rates). According to Kondratiev, the ascendant phase is characterized by an increase in prices and low interest rates, while the other phase consists of a decrease in prices and high interest rates.
Deflation sometimes occurred during the cycle's downturns under the gold standard; however, there is no strong historical correlation between depressions and deflation.[5] Rising productivity and reduced transportation cost created structural deflation during the accelerating productivity growth era of the last third of the 19th century. There was mild inflation from the cycle upswing around 1895 until establishment of the Federal Reserve in 1913. Inflation rose sharply during World War I, but deflation returned again after World War I and during the 1930s depression. Most nations abandoned the gold standard in the 1930s. Today there is no reason to expect general, non-asset deflation under a fiat currency system with low productivity growth, especially with depleting natural resources like oil causing real prices to rise.
Over time the number of innovations in each wave increased and the diffusion of innovations overlapped, thus complicating dating the waves. Also, it is hard to tell much about which industries are growing, stagnating or declining by looking at the aggregate economic statistics, [at least until better statistics were collected following the 1930s].[3]
With lack of major technological driving forces and high debt levels, as in developed economies today, we should expect stagnation. Also, changes to the patterns of now rapid growth in some developing economies could perhaps be forecast using logistic analysis (see IIASA Research section below) of their major sectors.
Early on, several schools of thought emerged as to why capitalist economies have these long waves. These schools of thought centered on innovations, capital investment, war, capitalist crisis and land speculation. Some argue that war and capitalist crisis theories are cycle effects and not causes of the cycle. See: Cycle impact on social mood and vice versa
Since the inception of the theories, various studies have expanded the range of possible cycles, finding longer or shorter cycles in the data. The Marxist scholar Ernest Mandel revived interest in long wave theory with his 1964 essay predicting the end of the long boom after five years and in his Alfred Marshall lectures in 1979. However, in Mandel's theory, there are no long "cycles", only distinct epochs of faster and slower growth spanning 20–25 years.
According to the innovation theory, these waves arise from the bunching of basic innovations that launch technological revolutions that in turn create leading industrial or commercial sectors. Kondratiev's ideas were taken up by Joseph Schumpeter in the 1930s. The theory hypothesized the existence of very long-run macroeconomic and price cycles, originally estimated to last 50–54 years.
In recent decades there has been considerable progress in historical economics and the history of technology, and numerous investigations of the relationship between technological innovation and economic cycles. Some of the works involving long cycle research and technology include Mensch (1979), Tylecote (1991), The International Institute for Applied Systems Analysis (IIASA) (Marchetti, Ayres), Freeman and Louçã (2001) and Carlota Perez. See table below. See also IIASA under Other Researchers section and Further reading.
Perez (2002) places the phases on a logistic or S curve, with the following labels: beginning of a technological era as irruption, the ascent as frenzy, the rapid build out as synergy and the completion as maturity.[3]
Excessive debt is known to ultimately have negative consequences for the economy, although monetary policy, such as low interest rates, is used to increase borrowing and stimulate growth. As discussed by Reinhart and Rogoff (2009), excessive debt, public and private, internal and external, has repeatedly led to financial crises in almost all countries throughout the last two centuries.[6] These crises typically end in default and restructuring, although sometimes the default is through currency debasement (inflation). The high levels of debt normally take years to work off, and create a prolonged slump as businesses and consumers rebuild their balance sheets.
The link between depressions and debt was investigated by Irving Fisher during the Great Depression in Booms and Depressions.[7][8] Building on Fisher's work, Hyman Minsky developed his financial instability hypothesis. A recent presentation by Steve Keen expands on financial instability and provides a good analysis of the relationship between debt and the long economic cycle.[9]
In the U.S. since the beginning of the 20th century there were parts of two long term cycles of total debt relative to GDP. The first cycle had debt rising until the 1929 crash, after which the total debt-to-GDP spiked to about 260% during the Great Depression. The debt/GDP declined following the depression high and reached a low of less than 140% in the 1950s.[10] The ratio began a sharp rise from 160% in the early 1980s to over 360% during the 2008-9 financial crisis. Most European countries have high total debt levels and Japan has a high government debt ratio.
Economist Melchior Palyi (1892–1970) popularized the concept of marginal productivity of debt, which it came to be called after his death. Financial newsletter writer Alan M. Newman has periodically updated a debt/GDP graph and has also shown the declining marginal productivity of debt to increase GDP. In the 1960s it took $1.53 of debt to produce $1 of GDP; by 2000 it took $6 of debt to produce $1 of GDP.[11] The declining marginal productivity of debt is a result of debt based money expansion flowing into land, including housing and commercial real estate, and financial markets in the second half of the 20th century instead of non-real estate production capital, which is saturated. Real estate also became heavily saturated, but a speculative bubble mitigated the effect.
Because real estate is the collateral a large amount of private debt, Georgism, a philosophy that advocats government ownership of part of the economic rent value of land, views land price cycles as part of the credit cycle. Henry George wrote about land speculative bubbles being the cause of depressions, which many George followers believe.[12] The rise in the value of U. S. real estate during the recent bubble was overwhelming in the land value rather than the value of structures.[13]
See: Georgism See also: Japanese asset price bubble
Because people have fairly typical spending patterns through their life cycle, such as schooling, marriage, first car purchase, first home purchase, upgrade home purchase, maximum earnings period, maximum retirement savings and retirement, demographic anomalies such as baby booms and busts exert a rather predictable influence on the economy over a long time period. Harry Dent has written extensively on demographics and economic cycles. Tylecote (1991) devoted a chapter to demographics and the long cycle. [14]
A slowing of U.S. population growth rate was given as one of the causes of the Great Depression by Alvin Hansen.[15] [16] Causes included a decline in the fertility rate, reduced immigration during the war, the 1918 influenza pandemic and the war deaths. In 1921, the Congress passed the Emergency Quota Act, followed by the Immigration Act of 1924, both of which led to a long term reduction in immigration the U.S. See also: Causes of the Great Depression#Population dynamics
Alvin Hansen expressed his concern about declining population growth prolonging the Great Depression at the time the U.S. birth rate was beginning its long term surge that would turn into the baby boom.
A sharp slowdown in the birth rate in Japan occurred in the two decades preceding the collapse of the Japanese asset price bubble, which started in 1989 and resulted in the lost decade. See: Demographics of Japan
An important trend since the industrial revolution is the unprecedented increase in life expectancy[17] due primarily to more children living to adulthood.[18] The fertility rate also declined. As a result the dependency ratio has undergone changes not fully reflected in the number itself because children no longer work and people live long past their productive years.
There are several modern timing versions of the cycle although most are based on either of two causes: one on technology and the other on the credit cycle.
Additionally, there are several versions of the technological cycles, and they are best interpreted using diffusion curves of leading industries. For example, railways only started in the 1830s, with steady growth for the next 45 years. It was after Bessemer steel was introduced that railroads had their highest growth rates; however, this period is usually labeled the "age of steel". Measured by value added, the leading industry in the U.S. from 1880-1920 was machinery, followed by iron and steel.[19]
The technological cycles can be labeled as follows:
Any influence of technology during the cycle that began in the Industrial Revolution pertains mainly to England. The U.S. was a commodity producer and was more influenced by agricultural commodity prices. There was a commodity price cycle based on increasing consumption causing tight supplies and rising prices. That allowed new land to the west to be purchased and after four or five years to be cleared and be in production, driving down prices and causing a depression, as in 1819 and 1839.[20] By the 1850s the U. S. was becoming industrialized.[21]
A typical, somewhat updated sequence of technological Kondratiev Waves in the U.S. and some other leading Western economies can be seen in the table below: [22]
| Period | Date (Prosperity to prosperity) | Innovation | Saturation point |
|---|---|---|---|
| First Industrial Revolution (Mechanical Age) | Circa 1787–1843 | Cotton-based technology: spinning weaving; atmospheric stationary steam engines replaced by high pressure engines, cast and wrought iron, iron displaces wood in machinery[23], canals.[24] Development of machine tools | Cotton textiles: British market saturated ca. 1800. By 1840, 71% of British cotton textiles were exported[3][25] |
| Railroad and Steam Engine Era | Circa 1842–1897 | Age of steam railways, steam shipping and machinery. First inexpensive steel, telegraph, animal powered combine harvesters, etc. Final development of and diffusion of machine tools and interchangeable parts.[26] Emergence of petroleum and chemical industries and heavy industries after 1870.[24] Beginning of public water and sewer systems. | Canals: Late 1840s[27]
1870: Steam exceeds water power and animal power.[28] 1890s: Railroads. Track mileage continued to grow but much is later abandoned.[27] |
| Age of steel, electricity and internal combustion | 1897–1939 | Steel, electric motors, electrification of factories[29] and households, electric utilities, aluminum, chemicals and petrochemicals, internal combustion engine, automobiles, highway system, Fordist mass production, telephony, beginning of motorized agricultural mechanization, radio.[30] Electric street railways help create streetcar suburbs. Build out of urban public water supply and sewage systems.[31] | 1917: Railroads nationalized. Post World War I short depression. Railroads and electric street railways decline after 1920. Horses, mules and agricultural commodities: 1919. After 1923 industrial output rises as workforce slowly declines.[32] Depression of 1930s: Overcapacity in manufacturing, real estate. Work week reduced from 50 to 40 hours in mid-1930s. Total debt reaches 260% of GDP during early 1930s. |
| War and Post-war Boom: Suburbia | 1939–1982? | Oil displaces coal. Suburban growth and infrastructure. Greatest period of agricultural productivity growth 1940s-1970s.[33] Consumer goods, semiconductors, business computers, plastics, synthetic fibers, fertilizers, television and electronics, green revolution, military-industrial complex, diffusion of commercial aviation and air conditioning, beginning nuclear utilities.[30] | 1940s-50s: Diesel locomotives replace steam.[34]
1971: Peak U.S. oil production 1973: Peak steel consumption in U.S.[35] Pennsylvania steel cities and industrial midwest turn into "rust belt". 1973: Slow economic and productivity growth noted. 1980s: Highway system near saturation[36] |
| Post Industrial Era: Information Technology and care of elderly | 1982? – ?? | Fiber optics and Internet,[30] personal computers, wireless technology, on line commerce, biotechnology, Reagan's "Star Wars" military projects. Energy conservation. Beginning of industrial robots. In the U.S. health care becomes a major sector of the economy (16%) and financial sector increases to 7.5% of economy. | 1984: Peak U.S. employment in computer manufacturing.[37]
Long term decline in U.S. capacity utilization 1990s: Automobiles, land line telephones, chemicals, plastics, appliances, paper, other basic materials, commercial aviation. 2001:Computers, fiber optics 2000s: Crop yields approach limits of photosynthesis. 2008: Developed world on verge of depression. Widespread overcapacity except some nonferrous metals and oil. Large housing and commercial real estate surplus. GDP no longer responds to increases in debt. Total debt exceeds 360% of GDP by late 2009. |
The above table has a focus on technologies, but as Perez (2004) and Schumpeter (1939) point out, capital, both financial and production, has an important role in the cycle. The above table should be compared to the list of recessions, depressions and economic bubbles: See:
Of the so-called depressions only two have severe-the depression of 1839-1843 (U.S., England) and the Great Depression of the 1930s.[38][39]
According to the credit cycle theory, the economic cycle that began in around 1939 is just ending.[9] Although productivity slowed in the 1970s, the structure of the economy changed, with peak per capita oil and steel use in 1973 and with the sharp upturn in debt that began in the 1980s, creating the FIRE (finance, insurance and real estate) economy. Additional support for this cycle timing is that although there were severe recessions in the 1970s and early 1980s, they were nothing like the Great Depression.
Productivity was an important factor in the two "great depressions", the 1870s Long Depression and the 1930s Great Depression. There were exceptional periods of high productivity growth that preceded both major depressions and caused great unemployment after the 1929 downturn. Also, both depressions were associated with overcapacity and market saturation. The whole period from 1870 to 1896 was in and out of recession or depression, despite being one of the greatest periods of industrial growth. The post WW 2 period up to the mid 1960s was an exception in that there was high productivity growth without a business depression or high unemployment.
Several papers on the relationship between technology and the economy were written by researchers at the International Institute for Applied Systems Analysis (IIASA). The pertinent papers deal with energy substitution and the role of work in the economy as well as with the long economic cycle. The authors were engineers, physicists or economists, or other technical people often working with economists, and give a much better interpretation than most previous works. Using the logistic function, these researchers were able to provide new insight into market penetration, saturation and forecasting the diffusion of various innovations, infrastructures and energy source substitutions. A concise version of Kondratiev cycles can be found in Robert Ayres (1989) in which he gives a historical overview of the relationships of the most significant technologies.[40] Cesare Marchetti published on Kondretiev waves and on diffusion of innovations.[41][42] Arnulf Grübler’s book (1990) gives a detailed account of the diffusion of infrastructures including canals, railroads, highways and airlines, with findings that the principle infrastructures have midpoints spaced in time corresponding to 55 year K wavelengths, with railroads and highways taking almost a century to complete. Grübler devotes a chapter to the long economic wave. [27]
Korotayev et al. recently employed spectral analysis and claimed that it confirmed the presence of Kondratiev waves in the world GDP dynamics at an acceptable level of statistical significance.[43][44] Korotayev et al. also detected shorter business cycles, dating the Kuznets to about 17 years and calling it the third harmonic of the Kondratiev, meaning that there are three Kuznets cycles per Kondratiev.
The 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." [45]
More recently the physicist and systems scientist Tessaleno Devezas advanced a causal model for the long wave phenomenon based on a generation-learning model[46] and a nonlinear dynamic behaviour of information systems.[47] In both works a complete theory is presented containing not only the explanation for the existence of K-Waves, but also and for the first time an explanation for the timing of a K-Wave (≈60 years = two generations).
A specific modification of the theory of Kondratiev cycles was developed by Daniel Šmihula.[48]
For the modern era and the capitalist economy he defined six long economic waves (cycles) and each of them was initiated by a specific technological revolution:
Unlike original Kondratiev's and Schumpeter's views, in Smihula's conception each new "wave" due to acceleration of scientific and technological progress) is shorter than a previous one. The main stress is put on technological progress and new technologies as decisive factors of any long-time economic development. Each of these waves has its innovation phase (there occur innovations in a form applicable in practical life and also their first real application) which is described as a technological revolution and an application phase in which the number of revolutionary innovations falls and attention focuses on exploiting and extending existing innovations. (As soon as an innovation or a "chain of innovations" becomes available, it becomes more efficient to invest in its adoption, extension and use than in creating new innovations.) Each wave (each cycle) of technological innovations can be characterized by the area in which the most revolutionary changes took place ("leading sectors").
Every wave of innovations lasts approximately until the profits from the new innovation or sector fall to the level of other, older, more traditional sectors. It is a situation when the new technology, which originally increased a capacity to utilize new sources from nature, reached its limits and it is not possible to overcome this limit without an application of another new technology.
For the end of an application phase of any wave there are typical an economic crisis and stagnation. The economic crisis in 2007–2010 is a result of the coming end of the "wave of the Information and telecommunications technological revolution". Some authors have started to predict what the sixth wave might be, such as James Bradfield Moody and Bianca Nogrady who forecast that it will be driven by resource efficiency and clean technology.[49]
Kondratiev wave research has generally neglected to distinguish between innovations that created new goods or services and those that increased productivity.
The phases of Kondratiev's waves also carry with them social shifts and changes in the public mood. The first stage of expansion and growth, the "Spring" stage, encompasses a social shift in which the wealth, capital accumulation, and innovation that are present in this first period of the cycle create upheavals and displacements in society. The economic changes result in redefining work and the role of participants in society. In the next phase, the "Summer" stagflation, there is a mood of affluence from the previous growth stage that change the attitude towards work in society, creating inefficiencies. After this stage comes the season of deflationary growth, or the plateau period. The popular mood changes during this period as well. It shifts toward stability, normalcy, and isolationism after the policies and economics during unpopular excesses of war. Finally, the "Winter" stage, that of severe depression, includes the integration of previous social shifts and changes into the social fabric of society, supported by the shifts in innovation and technology.
Some scholars, particularly Immanuel Wallerstein, argue that cycles of global war are tied to capitalist long waves and major, highly-destructive wars, which tend to begin just prior to an output upswing. Others, like Ernesto Screpanti, developed a theory based on a correlation between long economic cycles and recurrent waves of social conflict.[50]
Elliott Wave analyst Robert Prechter is perhaps the person best known today for his views on the how the economic cycle is affected by the social mood, for which he used the term socionomics.
David Ames Wells (1891) noted that as workers were lifted out of miserable levels of poverty by the end of the 19th century and exposed to a wider world view and new consumer products, they created more labor and social unrest.[2] Instead of capitalism enslaving workers and holding them at subsistence levels as some economists predicted, the opposite happened-by the 1890s businesses were operating with little profit, as Marx predicted; however, the workers enjoyed much higher real wages.
Investment adviser Ian Gordon has advocated a 4 season Kondratiev social mood influenced model in which spring is moderate growth from a stock market and inflationary bottom, summer is characterized by accelerating growth and high inflation, autumn is characterized by declining inflation and asset bubbles, and winter involves the collapse of the asset bubbles.[51]
The highest world GDP growth rates in the last two cycles occurred from the 1950s to 1960s. The peak world growth plateau was just over 5% annual GDP.[4]
The so called Great Innovations include steam and internal combustion powered transportation, canals and improved waterways, railroads, the telegraph and telephone, electrification, the highway system and mechanized agriculture. The Great Innovations were revolutionary ways of doing things and offered dramatically reduced costs or increased speed. Railroads and canals reduced transportation by 90 to 95% compared to a horse pulled wagon.[52] Electrification lowered the cost of lighting by a factor of 1000. Electrification made it possible to distribute power in amounts that were too small to handle efficiently with a steam engine. Electrification also allowed for economies of scale with central power stations.
The vast improvements in efficiency of the Great Innovations made them compelling investment opportunities, which often paid high returns to initial investors. They also required massive direct capital investments and created additional complimentary capital investments, such as steel mills for rails and the need for new warehouses. Electrification resulted in new factories powered by electric motors and in household appliances.
Following the Great Depression the secular stagnation theory was used to explain the depression and high unemployment that lasted until the Second World War. Stagnation theory noted that the innovations of the 1930s did not require as much capital as the great innovations.
There is considerable evidence that the period called the Second Industrial Revolution was the high point for the development of economically important technologies. The time lag for the diffusion of these technologies would result in U.S. peak productivity growth at some time in the period between 1928 and 1950.[53]
Unlike the First Industrial Revolution, the technologies of the Second were solidly based in science. During Smil's “Age of Synergy” for the first time there was a scientific understanding of chemistry, thermodynamics and the unification of light, electricity and magnetism through Maxwell's electromagnetic theory. Electricity generation, electric motors and lights, radio, the steam turbine, the chemical industry, Haber-Bosch ammonia synthesis, internal combustion and inexpensive steel making processes were notable major technologies developed during this era.[54]
Interchangeable parts, or precision manufacturing, took several decades to perfect in the small firearms industry before finally diffusing through the manufacturing economy in the late 19th century. Scientific management, promoted by Frederick Winslow Taylor, began to be implemented. Ford Motor Co. developed a revolutionary new manufacturing concept of mass production based on electric powered machine tools and special purpose machines, systematically arranged in the order of the work flow. The movements of workers was kept to a minimum by using motorized conveyors on assembly lines. Toward the end of the period agriculture was mechanized with internal combustion.
The building of railroads accelerated after the introduction of inexpensive steel rails, which lasted considerably longer than the 10 year life of wrought iron rails. Railroads lowered the cost of shipping to 0.875 cents/ton-mile from 24.5 cents/ton-mile by wagon.[55] Cheap transportation made large scale manufacturing possible, giving economies of scale.
The development of control theory was necessary for process control, a common form of automation in continuous process industries such as refineries and paper mills. Control theory is used in a wide variety of servomechanisms which are used in such applications as steering ships and stabilizing airplanes.
The rapid economic advances at the time David A. Wells (1891) wrote were the result of industry for the first time in history being based on scientific principles, which resulted in great increases in the efficiency of the use of labor and energy. This caused great upheavals in commerce and industry, with many laborers being displaced by machines and many factories, ships and other forms of fixed capital becoming obsolete in a very short time span.[2]
“The economic changes that have occurred during the last quarter of a century -or during the present generation of living men- have unquestionably been more important and more varied than during any period of the world’s history”.
- David A. Wells, 1889 Speaking about the advances in industry, transportation and communications.[2]
The Long Depression of 1873-9 was mostly a profit depression and unlike the Great Depression of the 1930s. Economist Murray Rothbard expressed doubts about whether there was a Long Depression because of the large increases in U.S. industrial production, GNP and real product per capita.[56] See:Long depression#Interpretations
The dates 1867 to 1914 are what Vaclav Smil called "The Age of Synergy" and are a technological period during which the "great innovations" were developed and is not an economic cycle.[54] Only a few major innovations occurred in the post WW 2 era, some of which are: the diffusion of earlier technologies, namely internal combustion powered agricultural machinery, railroad diesel locomotives and diesel powered ships. Other past World War II innovations were new technologies such as computers, semiconductors, the fiber optic network and the Internet, cellular telephones, combustion turbines (jet engines) and the Green Revolution.
It has been noted by several researchers and economists that the significance of innovations has decreased over time and the recent innovations such as computers, the Internet and hand held communication devices do not compare with the great innovations of the past such as railroads, electrification and automobiles.[57] The fact that computers failed to significantly boost productivity is known as the productivity paradox.
There was high productivity growth from the end of the 19th century with a peak some time between 1928 and about 1950 with slowdown beginning in the 1970s.[58] Productivity allowed the work week to be reduced from 60 to 50 hours in the late 19th century, and then to 40 hours in the mid 1930s. Thus the 1930s depression may be viewed partly as a structural adjustment to high productivity in the preceding decades.[32][59][60] By the end of the Second Industrial Revolution almost all physical work was performed by machines.[28] Also, the efficiency of processes such as electricity generation, steel and chemical production are approaching thermodynamic limits.[61] Mainly as a result of slowing productivity growth, but also because of global wage arbitrage (globalization) and resource depletion, real wages for workers in the U.S. have stagnated since the early 1970s.[62] Another important contribution to this wage stagnation is the increasing portion of GDP going to the richest socioeconomic classes in most nations. Globalization causes mostly less-wealthy workers' wages to stagnate.
There was a marked slowdown in U. S. GDP growth after 1910. The slowdown was partly related to a decline in investment in structures and partly due to reduced immigration.[63] Perhaps the decline in residential structure investment could be related to demographics or construction productivity. Possible reasons for the decline in commercial structures are: construction productivity, cheap steel, more efficient use of factory space because of electrification and mass production and less warehousing because of motorized transportation. Hounshell (1984) calculated that the Ford Motor Co. foundry of 1914 poured ten times more iron in an area half the size of the Singer Manufacturing Co.'s foundry (ca. 1880) despite Ford's being half the area.[26]
Sustained U.S. economic growth never returned to the 4% plus rate of the first decade of the 20th century.
"the share of manufacturing in value added in the U.S. today is approximately what it was in 1850"
The peak share of manufacturing in the U.S. economy occurred during WW II. It has since declined as a percentage from the low 30s to about 16%.
I like to call it the "New Yorker Game." A few years ago the 'New Yorker' commissioned a critic to sit in front of a television set for an entire week and record his impressions. He had many reactions, but the most relevant for us is that he was surprised from the reruns of 1950 TV shows how similar the living conditions of the 1950s Ozzie and Harriet families in comparison to those of today.
Long wave theory is not accepted by most academic economists, but it is one of the bases of innovation-based, development, and evolutionary economics, i.e. the main heterodox stream in economics. Among economists who accept it, there has been no universal agreement about the start and the end years of particular waves. This points to another criticism of the theory: that it amounts to seeing patterns in a mass of statistics that aren't really there.
Moreover, there is a lack of agreement over the cause of this phenomenon. How much this matters is disputed: some scientific patterns have in the past been identified before an explanation could be advanced. (The best known example is that of the precursors to the periodic table, which were in fact rejected by many scientists precisely on the grounds of lack of explanation.)
Some believe that not enough is attributed to actual human errors that have created some of the economic situations of history, and too much to the inevitability of the characteristics of the phases of the waves. They claim that many of the situations were entirely avoidable, not the consequences of an unstoppable wave pattern. Others doubt the legitimacy of Kondratiev's waves because they believe that every wave is a structural cycle that has unique characteristics and cannot be repeated. There is also controversy over Kondratiev's research—many believe that the conclusions and results of his research are biased because he highlighted and used only certain events to reach his conclusions and left out other important data and events that could have affected his outcomes.
A problem with analyzing Kondratiev waves is that there is little data before 1870 and then it is only for a few countries in Europe and the U.S. Also, the early data consisted mostly of prices, trade statistics and limited information on industrial production. Pre 20th century depressions were periods of depressed prices and profits and not necessarily associated with high unemployment or falling industrial production. Falling prices typically increased real purchasing power and the standard of living was maintained or actually rose.[2] With the end of the gold standard prices were no longer depressed with economic contractions and such periods were called recessions. To date the only true depression with very high unemployment for a number of years was the Great Depression of the early 1930s.
Leon Trotsky had his own version of the long-term growth of capitalism, but this did not involve waves.[66][5]