Last night, had an interesting e-conversation with my friend Gulzar Natarajan. He wondered if some of the recent articles/books that I had been sharing on the historical cycles and the patterns they reveal were a case of deductive logic – theorising or deducting patterns out of random events. Quite possible. I don’t even know if there is a way of figuring out. One way is to come up with equally numerous and/or weighty evidence from the past that disproves the deductive logic.
To a large extent, his argument reflects and is reflected in this short but sharp critique of the first work of Neil Howe and William Strauss, ‘The Generations’:
As history, “Generations” does not make the grade. It pretends to offer a new interpretation of the past, but it is too contrived to be taken seriously. And as a guide to the future, it is about as reliable as the neighborhood fortuneteller.
There you go.
But, humans do adopt both inductive and deductive logic at the same time to make sense of social phenomenon. In fact, they make far larger and more frequent use of the latter to make sense of complex social, economic and political events.
Of course, there is the risk that historians, once they find patterns from history, then switch to inductive logic where they try to fit the current reality to their historical pattern or theory or make predictions.
I remember a very good speech by Dr. D. Subbarao, former RBI Governor, in 2010, delivered in Bangalore. He makes the point that causality often ran from empirics or experience to theory when it came to economics. I would say, social science, in general:
In economics, on the other hand, where the human dimension is paramount, the progression has necessarily to be one way, from empirical finding to theory. There is a joke that if something works in practice, economists run to see if it works in theory. Actually, I don’t see the joke; that is indeed the way it should be. [Link]
In other words, deductive logic is how it will be, when it comes to making sense of social phenomena of which economics is one.
In that sense, these kinds of patterns – whether elevated to the level of theory or not – serve as useful points of departure for analysis. Whether we arrive at them as destinations is a matter of our luck, intuition and intellect and, of course, above all, circumstances as to how closely they resemble historical episodes.
Therefore, predictions for 2020-30 (the climatic decade of 80-year cycles or 50-year cycles or 250-year cycles of the empire) derived from historical episodes from the 500+years of the discovery of the land mass that is now called America, I can believe in the following:
Where the authors fit things into a pattern, we can choose to be sceptical. But, the idea (and the fact) the long periods of stability leading to instability (Minsky) or the feeling that central bank policies have been building up to a climax consistent with the notion that fiat currency (purely paper and not convertible into anything else) regimes do not last for ever or that companies themselves become sclerotic or the notion of Yugas in Hindu religious books are all consistent with ‘cycles’ or circularity of history.
In fact, Howe and Strauss begin their book (‘The Fourth Turning’) pointing out that this – a recognition of cycles being the characteristic of human life and societal lives – has been evident in non-western societies. These authors are actually talking to their Western audience that their ‘linear thinking’ glasses are not the right glasses. In that sense, they are not creating a new theory but challenging a western orthodoxy.
When it comes to real life phenomenon (and that includes stock markets), to me, mean reversion is far more compelling than either random walks or random walks with trend.
I need to write a bit more on the inferences from ‘The Fourth Turning’ or from Sir John Glubb’s classic paper, ‘The Fate of empires’. I shall do so.
In the meantime, here is a teaser from another author, Peter Turchin:
Very long ‘secular cycles’ interact with shorter-term processes. In the United States, 50-year instability spikes occurred around 1870, 1920 and 1970, so another could be due around 2020. We are also entering a dip in the so-called Kondratiev wave, which traces 40-60-year economic-growth cycles. This could mean that future recessions will be severe. In addition, the next decade will see a rapid growth in the number of people in their twenties, like the youth bulge that accompanied the turbulence of the 1960s and 1970s. All these cycles look set to peak in the years around 2020.
Records show that societies can avert disaster. We need to find ways to ameliorate the negative effects of globalization on people’s well-being. Economic inequality, accompanied by burgeoning public debt, can be addressed by making tax rates more progressive. And we should not expand our system of higher education beyond the ability of the economy to absorb university graduates. An excess of young people with advanced degrees has been one of the chief causes of instability in the past. [Link]
The above is an extract from a short piece he wrote for ‘Nature’ in 2010. ‘Time’ has picked it up now.