Wednesday, February 04, 2009

Predicting a crash

Can economic crashes be predicted? Surprisingly, yes.

Back in the early days of Stalin's Russia, an economist was set to work to predict the future of the Russian and World economies. He predicted that there would be a massive depression in the 1930s and that the collectivisation of agriculture would be a disaster.

He was promptly packed off to Siberia and was never heard from again.

I remember reading this account in History Today some years ago, but can't remember who the economist was or if the story was apocryphal. But it is possible, to a certain degree, to predict some economic cycles.

Seven year stock cycles are well known to most businesses (certainly those that survive), but what is less well known is the 60 year cycle of depressions.

The 1990's and the 1930's spring immediately to mind. But were you aware of the European economic depressions of the 1870's and 1810's? Thought not.

The world was dragged out of the 1930's depression by WW2 and the massive investment in industry it required to fight the war, though there was a short recession in many western nations for a few years immediately afterwards.

The depression of the 1870's was lifted by the investment in creating the European African Empires in the 1880's and the subsequent trading/exploitation that took place.

The depression of the 1810's had no war or imperial expansion to lower it's effects so people suffered a greater problem after the end of the Napoleonic wars. Economies began to recover in the 1820's and the western world saw an increase in the number of new inventions from this time on (steam power being a good example) as well as increased industrialisation.

But people still starved, there was little, if any, help for those in need and rebellion bubbled beneath the surface. There were major revolutions in France in 1830 and across Europe in 1848, which brought about a change in the way people were governed.

So can we predict what will happen over the next few decades? In a rough outline, yes and I'm going to stick my neck out and make the following predictions for Britain and the world:

1 - Increasing disillusionment with current politics will result in mass demonstrations against parliament resulting in a significant change in how we are governed. Some of those that gain from this will try and make sure that the 'lower' elements of British life do not gain.
2 - The world economy will become more protectionist, but it will be the West that suffers more as we have exported our industry to the developing world and it is also the developing world that holds most of the world's natural resources.
3 - There will be a surge in innovation and technological development in the next decade that will reduce one nation's dependence on another.
4 - There will be no 'global' war until after 2050. The conflict will start indirectly from the next major crash around 2049 and will be based mostly around the Pacific and the Middle East.
5 - The crash of 2049ish, will derive from a mass surge of investment into something that gives the appearance of constantly increasing wealth and that people will borrow stupidly to invest in.
6 - Life for the vast majority of humanity will only improve after mid-century and as a direct result of the global war.

Number 6 maybe sound like an optimistic assessment based solely on the experience of Europe after WW2, but there are several other precedents as well: women's rights after WW1; increased pay for the poor after the Black Death; political involvement for more people after the Napoleonic and the British Civil Wars.

What are your predictions?

1 comment:

missieone said...

My father was a Historian and when asked to comment on "what the world needed" would always say, "What we need is a war!! Not a nuclear war, but a good old fashioned one." Needless to say some people were horrified, some offended and many both!! He'd probably have agreed with you tho!!

Re: Economic predictions for the future....hmmmm.

Enjoy!! Love the Blogs!!