A supercycle

Why is our economy behaving so differently this time?

Ordinarily, after a business contraction begins, governments step in and provide the pump priming to start a recovery process. Yet nowadays, despite the most intensive efforts, primarily huge spending plans as part of a stimulus program, we seem to be mired in a no-growth economy.

After all the monetary (very low interest rates and money supply expansion) and fiscal incentives, we should be roaring ahead in a strong business revival. It appears, therefore, that our economy is subject to “long waves” that cause economies to change direction at regular or nearly regular time periods, almost regardless of remedial steps.

All this is typical of supercycles.

Cyclical behaviour is subject to changes unpredictable in duration and severity. Generally, these long waves cover a period of many decades. What makes this so difficult to comprehend are cycles similar but not completely regular. They typically arise as a by-product, for example, of the advent of the computer age, new technologies, major discoveries, significant changes in voting patterns or wars.

These can have an effect over an extended period. The length of these cycles is not preordained. A recent illustration of events that trigger cycles is the rebound in global food prices. What is important to know is that our current business trouble is not the ordinary business recession. Heretofore there were inventory adjustments that led to the usual, post-war business ups and downs.

We must face the reality that cutting interest rates to nearly zero and huge amounts of government spending are not having much effect. Instead of the customary response of a strong revival in business activity, no sustained growth has taken place. The same chain of events took place in Japan, which has been stuck in an economy going nowhere for more than two decades.

In fact, we are reliving history. In the l930s, following the tremendous credit and speculative boom of the l92Os, we endured nearly 10 years of faltering business activity which ended with our participation in the Second World War.

No matter what our governments are doing, we are destined to go through a protracted period of business stagnation. Trying to compensate for that is only prolonging our trouble. We must begin to adjust to the over-extended credit and debt expansion. More easy credit and debt deferral is like giving an alcoholic another drink.

Regrettably, a significant recovery will take years, and failure to recognize that only makes things worse.


Bruce Whitestone