< 13 Catch a long wave there’s a long period of diffusion when the social changes integrate. I mean the position of women within our society—or even Barack Obama getting elected president—is a form of integration of both the women’s feminist movement of the ’60s and the civil rights movement of the ’50s and ’60s. So that integration takes place on the way down. Hasn’t communication always sparked these waves? The Gutenberg press brought reading to Europe, the railroad made it possible to send mail across the country, then there was the telegraph, the telephone, radio and TV, etc. I think it’s a component of growth. You have innovations in communication that help perpetuate the boom to some degree—but I don’t think it’s the sole thing. How does innovation ﬁt into cycles? A new idea isn’t subject to a schedule, it happens as soon as someone can make it happen. Innovation isn’t something that follows cycles. Innovation I think is constant. But it’s exploited in cycles. For instance, you invent something and want to get it into the market and everyone says, “There’s no money right now. We’ll have to wait.” But all of a sudden there’s some money and it’s, “Oh, we’re going to take your invention, we’re going to promote it, we’re going to do something with it because now we have the capital.” So innovation goes in spurts, but only because of the ﬁnancial availability during certain times. You’ve written essays in support of the Ayn Rand philosophy of limiting tax and legal burdens on corporations. Have you changed your thoughts about that after seeing what deregulation of the banking industry did? No, I don’t think so. In fact I think Ayn Rand is having a mini-renaissance at this point. One could argue it’s more like her supporters are circling the wagons. Well, unfortunately, when you take a second generation of anything it tends to get perverted. [Laughs] Certain things get remembered and certain things get left out. That’s true of all political philosophies—from Marx and Rand to Jefferson and Madison. I don’t think that you can debate that the 20th century was governed by Marx. I think everywhere you look, the ideas of Marxism and socialism really did govern the politics of the 1900s. You had the Bolshevik Revolution, the communist parties in Russia and China, Cuba and North Korea. And you see somewhere along the peak of the long wave that’s starting to break down. And people are starting to go away from collectivism. Even in the ’60s the hippies were all about collectivism— communes and that sort of thing—and if you look at the older hippies now, they’re really 14 PACIFIC SUN JULY 22 - JULY 28, 2011
talking about self-reliance. I think the next 100 years will be ruled by Rand and not Marx. But you have to see what Rand said. Rand said you are responsible. And personal responsibility is about [people] being responsible for themselves. Look at the innovator. The innovator is the person that produces the wealth. But we punish the innovator.
Holland, and Germany and England to a lesser extent—which seem to have cherry-picked the more rational ideas from Marx and Rand and found a middle ground that’s given them higher “quality of life” rankings than the United States? They also don’t have the military build-up that sucks away a large part of their GDP.
And good for them. As By “punish” you mean tax? Kondratiev—shot at the end of Stalin’s ‘great purge,’ a reign of terror Eisenhower warned Why do we do that? I that lasted from 1936 to 1938. about 50 years ago, we’ve think that’s socialist and chosen a Military IndusMarxist type thinking. trial Complex, while other Western countries have chosen free healthcare, But is that confusing “innovator” with equal rights laws, free college, care for “wealthy?” Rand thought the innovator was the corporation—but aren’t they just their seniors, ﬁve weeks’ vacation, a full year maternity leave. It seems like the benefactors of the innovators? What a Rand model—which is today being did Donald Trump ever invent? What did voiced in the Tea Party—would even the Wall Street CEOs ever invent? take us further away from those things Well, you have to look at that, too. In that invariably beneﬁt society. the ’50s and ’60s we had a conﬁscatory tax Right, right. But take the whole thing of scheme on high-income earners. But we said evolution—we’re here because of evolution. to them: If you invest in America then we And we learn through evolution—you learn will give you deductions, sometimes 2:1, on from your father and your father learned the investments you make. And the result— from your grandfather. So we pass down leshigh-income earners were encouraged sons of life, the people that breed and survive strongly to invest in America and as they have been in most cases the most successful in did they built a middle class and the middle class became more wealthy and they became life—or had been until recently in our society. So the integration of socialism within our consumers who spurred the economy on even more, and they also became investors if society is, I think, an evolutionary process. they made more income and started crossing Where I see the difference is that the social structure will remain, I think it makes sense tax brackets. So you had this whole cycle we to have a national health policy, but at the set up in the ’50s and ’60s where not only same time the reward for the individual will were the rich getting richer because they increase. And in some ways this happens. were forced to invest and their investments were paying off, but the middle class was Where do you see it? becoming richer because there were more If you go to a factory and you’re putting jobs as the result of this large pool of this fenders on Chevys for General Motors, you investment income. know the guy who’s going to replace you when you’re out sick is going to do just about That sounds great! What happened the same job you did. You can’t be 10 times to that? more productive than the guy that replaces Right around Reagan’s time we changed you. But if you’re a software programmer, or that. And the thinking was, we’ve got to a writer of songs or a creator of content— encourage consumption—consumption is yes, you can be 10, 20, 100, 300 times more what drives the economy! And it really isn’t. productive than the guy that replaces you. The wealth model of the economy is not measured in what you spend, it’s measured in You may be 10,000 times more productive because the other guy can’t even do that job what you create. or comprehend it. Isn’t that what George H.W. Bush called “voodoo economics”—the market giving So what’s the next big boom? I see it in content. If you look at the ’50s, incredible value to things based on speculation and overly optimistic guesswork. you had the TV and you had nothing on it and all of a sudden the big boom in the Derivatives, sky-high home values, dot1950s wasn’t producing TVs [the market com startups—Wall Street was investing was saturated with TVs by ’54], the next in things that weren’t a reality? big boom was the content production on We got away from that creation thing the television. The people making the big and somewhere along the line we will money were not RCA producing the TVs, have to get back to a taxing system that it was NBC and the other major networks encourage investment and discourages producing the content. So we’re in a consumption. content-demand world as a result of communications systems that we’ve laid down. What about the social democracies of northern Europe—Norway, Sweden,
And the people making these innovations in content aren’t worried about their tax bracket. It wasn’t the wealthy that made Facebook. If someone understands the theory of cycles as part of a Kondratriev long wave, what should that person do next? It directly applies to investment. And being a selﬁsh person and not being an altruist [laughs] I tend to look at what’s best for me and my family and let the rest of the world take its course. I think we have a major divide here with seeing the end of the bull market for real estate in this country—and the start of a massive bull market in stocks. We have this wonderful thing now, we have these ETFs [exchange-traded funds]. If you wanted to accumulate a [non ETF] stock on its way down, that’s a license for disaster. The stock could go to zero. If you decided 10 years ago that Enron was a great investment and you were dollar-costing the stock to Enron, you’d have no retirement fund. But you can dollar-cost to an ETF on the S&P and the Dow Jones knowing fairly conﬁdently that ETF is not going out of business—it’s not going to die. Now, we don’t know when the low of the stock market is, no one can tell. And to me stock market timing is an iffy thing at best. But what you do is in every 100 points on the way down on the Dow, you invest 2 percent of your money in ETFs, the S&P, the Diamonds, the EWJ, which is a Japanese fund, and EWU, which is a UK fund. And you do this on the way down and what will happen is you will have the best cost basements in the ﬁnest stocks and companies in the world. But what if you didn’t buy them at the basement—what if the market sinks even lower after you bought all those ETFs? If the world goes to hell, the least of your worries will be your stock portfolio. But I’m betting the world is not going to go to hell because I’m looking at this as being the upside of a long wave. So you can do things like that in this economy. How do you see America’s economy 10 years down the line? My belief is that as the global economy grows, eventually the United States, if it gets some good governance, is going to start to take the lead in the world. And you remember after World War II, the Soviets and Europe and even Japan started getting a lead on the United States and after Sputnik we came roaring back. We went into this huge boom and launched a man on the moon. I think that spirit is still in America. I just think it’s governance—we need to get over some of the bad policies of the Bush administration and work off some of our debt. I think America will move again. Anyway, that’s my outlook and that’s how I use the long wave to see ahead. ✹ For more on Eric and the Kondratiev long wave theory, check out http://kondratyev.com.
Published on Jul 21, 2011