By September 27, 2009 Read More →

The 80 Year New Economy Cycle

The80YearNewEconomyCycle2

If you know the cycle you’re in, you can make more effective decisions.  You can anticipate instead of react.  I’ve been trying to get a handle on the economy to know what to expect and to figure out what the best moves are.  The New Economy Cycle is apparently one of the most important financial planning cycles for your life, your investments, and your business.  It’s less about the day to day decisions, and more about the big structural decisions you make in your life, such as where to live, what jobs to do, what to learn in school, … etc.

The New Economy Cycle of today is 80 years. It used to be 58-60 years.  During the cycle, the economy moves through four seasons.  At a high level, the overall cycle starts with innovation in key niches.  Gradually, the changes move to mainstream, and there’s a growth boom.  Next, there is a shakeout which is an extreme downturn and economic correction. Finally, there is a maturity stage where prices stabilize.

In the book,The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History , Harry S. Dent writes about today’s 80-year generation-based New Economy Cycle.   Whether or not his predictions are right, Dent makes me think and it’s a new lens for looking at the big picture.  What I think is interesting is that his fundamental model is based on demographics and trends.

Key Take Aways
Here are my key take aways:

  • The seasons of the economy are largely predictable.   While you can’t anticipate disruptions and other surprises, you can look at the bigger picture in terms of the markets overall patterns for rising and falling.
  • Think in terms of 4 seasons.  The four seasons are: Innovation Season, Growth Boom Season, Shakeout Season, and Maturity Boom Season.  The Innovation Season is where radical new technologies and products first move into niche markets.  It’s where inflation rates rise and peak.  The Growth Boom, follows the innovation season.  It’s where the innovative generation grows up and learns and spends more money while adopting new technologies into the mainstream.  The Shakeout Season is where deflation and depression set in.  The Maturity Boom is where the economy becomes fully saturated with the new technologies, and this triggers the next radical innovation and inflation cycle.
  • Missing the changes in the seasons can be devastating.  If you don’t know you’re in a downward trend, you could be swimming upstream against the current instead of riding a wave.
  • The previous New Economy Cycle was 58-60 years.  Before the early to mid-1900’s the old New Economy Cycle occurred every 58-60 years.
  • Today’s New Economy Cycle is 80 years.  According to Dent, the rise in the middle-class populations from the Industrial Revolution stretched the old New Economy Cycle from the Kondratieff Wave, to the 80-year generation-based New Economy Cycle of today.  The Kondratieff Wave was simply made up of two 29-30 year Commodity Cycles.  The 80-year generation-based New Economy cycle includes two 40-year generation boom and bust cycles.

Wiped Out in 3 Years
You can lose more in the downturn, than you make in the upswing.  Dent writes:

You don’t have to catch all the corrections and crisis along the way in each major boom and bust to progress in your quality of life and your standard of living, but missing the changes in these seasons can be devastating.  The entire gains of the Roaring Twenties were wiped out in just three years.

The Seasons of the Economy are Largely Predictable
Dent writes:

… these seasons of the economy are largely predictable.  Thousands of years ago, we learned how to chart and predict the annual weather seasons with great implications for agricultural planning and advances in our standard of living.  Even before that we learned how to track migration cycles for animals and to make clothes and store food in preparation for winter when we ere in the hunting and gathering stage.  The most remarkable insight in modern times is of unprecedented scientific advances and expanded predictability in most arenas is that economists, politicians, businesses, and investors still don’t see clear seasons and cycles in our economy, stocks, bonds, real estate, and commodities – even though they follow similar longer-term seasons with regularity.

The 80-Year Generation Based New Economy Cycle
The New Economy Cycle used to be 58-60 years, but now it’s 80 years.  Dent writes:

In our lifetime, the New Economy Cycle has developed over about 80 years in four distinct seasons, but before the early to mid-1900’s it occurred about every 58 to 60 years.  Rising middle-class populations from the Industrial Revolution stretched the old New Economy Cycle from the Kondratieff Wave (which is simply compromised of two 29- to 30-year Commodity Cycles) to the 80-year generation boom and bust cycles) and we are likely to return to the 58- to 60-year cycle in the future as generational cycles recede in importance with falling birthrates around the world.

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18 Comments on "The 80 Year New Economy Cycle"

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  1. So interesting! Thanks for sharing this, J.D.!

  2. Jeremy says:

    In our times I find it’s best to lighten the mood about the state of the economy with this :) http://www.youtube.com/watch?v=gACEVoqT7cY

  3. While I’m not sure how much I agree with the idea that the timing of the seasons are predictable, there is no question that we will continue to move through the various economic cycles to one degree or another. To me a key takeaway is to prepare a strategy that allows you to weather and benefit from the cycles as they occur. Balance your portfolio of skills, change strategy as times shift. And always be aware of what will happen if ‘the sure thing’ ends up being a flop.

  4. Hi JD,

    This was an interesting read as usual. Personally, I do not think that the seasons can be so predictable but I do believe that history repeats itself.

    So for me, my feeling is that you have to prepare to the best of your ability and just learn to ride the wave. Nothing is secure and nothing is guaranteed (except death and taxes).

  5. i guess we are in the shake out season, eh?
    Interested what made this shakeout? And how to ride the wave to come instead swimming upstream against it?

  6. Patricia says:

    I feel like I prepared for the best of my ability and for my understanding of history, but I made a huge mistake. I was born in a wrong cycle for ever being able to retire and then I never make any money at the work I love doing.
    This downturn has used up all my savings, I do not think worry helps a situation, but it makes me feel stupid and rather slows down my ability to plan ahead.

    I go back to the location part of your post….I live with an extremely talented green – sustainably architect who has done incredible work for 30+ years in a very green state….now he is being ignored and forgotten as the new work comes in and develops….his students are getting the work and the stimulus money and the folks who live in the huge city of the state…and have huge firms….they are not at ground level – grass roots…it appears they are just using the right words to appear innovative
    We are already there…
    I hate feeling like I am in survival mode…but we are…
    Yikes JD, I like your other posts better, when I can do an exercise and figure out what I need to do next….is that your next post this week….how to plan it out of this season?

  7. This is interesting, though I’d be interested to know which season we are in right now. It seems like just about everything under the sun operates in cyclical patterns.

  8. Hilary says:

    Hi JD .. the cycles come and go as you say. We come to live in our own time as such .. and those of us who do not look forward, but are happy with ourlives – we’ve saved a little, we’re relaxed, we’re comfortable with where we are – but suddenly the goal posts get moved & it upsets many peoples applecarts.

    Others are in similar positions – but seem to have that ability to move on and take advantage of the wave.

    This cycle has seen the word ‘job’ take on a different connotation – where before it was security and for life, it is now a wage, may last 7 years, and probably is boring with not much future.

    We also have another choice now – possible to more of us .. that really wasn’t there in my parents time – we can become entrepreneurs .. while the internet has opened up even more possibilities. Again it’s surprising how many have not explored what’s out there.

    Thanks JD – interesting thoughts –

    Hilary Melton-Butcher
    Positive Letters Inspirational Stories

  9. JD says:

    @ Positively Present

    Thank you.

    @ Fred

    Well put. The key for me is realizing that the market’s not static, so I can’t just fire-and-forget.

    @ Nadia

    History does have a way of showing up time and again.

    I think riding the waves is key. The worst scenario is getting knocked over, by a wave we didn’t see coming.

    @ Alik

    Yes, actually, according to Dent.

    The book frames out some prescriptive guidance and there’s a lot to it.

    @ Patricia

    The theme I’m using is back to the basics, leaning down, and cutting the deadwood.

    I’ve been helping people use You 2.0 as a way to build sustainable results, find their simple value system, and live their purpose.

    I’ll have more on ways to deal with the Economy, but I think one of the most important things is mindset. I’m reaching out in my network to draw some best practices.

    @ Melissa

    According to Dent, we’re in the Shakeout Season.

    It’s like a dance. Tension and release.

    @ Hilary

    You laid out a great frame of the landscape. It’s a great reminder that it’s not what happens to you, but how you respond. I know many people making things happen and doing what they love for the first time in their lives.

  10. Hi J.D.,

    What a fascinating post. I do agree, history does repeat itself and we would all be wise to take note of that.

    As I was reading your comment to Hilary, I had to smile as I’m hearing more and more of how people are beginning to live their passion in the form of small businesses they would have never ventured into had the economy stayed the same. The “silver lining” is showing.

  11. Patricia says:

    @JD
    Thank you for your reply and I am thrilled that you will be chunking down some more lessons and guidelines on the economy. I am truly living my values on a daily basis and thought I was doing a wonderful job on preparing for retirement etc. but I am just one medical problem away from losing everything and my partner still has to work for another 12 years from this recession to get us to break even. I do not see how to get out of this….except for the iphone for my 60th birthday and I got us a TV -DVD player 2 years ago, we are very minimalistic folks…grass roots…green!
    This post rather rattled my cage

  12. J.D. Meier says:

    @ Barbara

    It reminds me that necessity is the mother of invention :)

    @ Patricia

    I’m casting a wide net. I think there are new rules for the road. Surprisingly, the most important thing I’ve learned so far is it really is about managing your energy. It’s also about your support network. It’s how we weather any storm.

  13. Dr.Michael says:

    Dear J.D,
    Dent’s book is interesting,but reminds me of what A.Chekhov wrote about Shakespeare- ” Shakespeare by no doubts important, but more important for the time being,are the comments going around him.” In your post you write not without a reason that-“Whether his predictions are right,Dent
    makes me think and it’s new lens for looking at the big picture.What I
    think is is interesting is that his fundamental model is based on demographics and trends.” It is fascinating to read also the editorial reviews that competent customers wrote about the ideas developed in his
    book. Dent predicts the following-“The economy appears to recover from the sub prime crises and minor and minor recessions by mid-2009 —
    “the calm before the real storm.” I think he is right, not just only
    given his track record, but since there are some other factors, like that the U.S. dollar has already perished, and that hyperinflation can’t
    be cured by hyperinflation! conventional wisdom will no longer apply, and investors on every level –from billion dollar firms to the individual trader–must drastically reevaluate their policies in order to survive. Assuming you are CEO of a company today, what do you do? -I did be extraordinary focused on investments outside of this
    country. To the extend you have a global footprint, if you are not investing in Asia and the developing countries, you are out of your mind because that’s the source of growth.I would also do everything I could within the Western countries to gain share in the next six quarters, whether through acquisitions, prices,or whatever it takes to get you in an extraordinary strong market position. If you,re not
    there, then I would get out of these businesses. I think we’ll find consolidation hitting those businesses in 2022 and 2012 when we’ve gotten rid off the riffraff. We.re definitely going to be rid of a lot
    of other things as well. Finally- It comes back to market share. The stronger your relative market share -That is the distance you can place between you and your nearest competitor-the better off you,ll be.

  14. I do recall from a documentary, and tho this may sound pretty obvious, “they who had more money going into the depression did better than those who did not.”

    I doubt you could go wrong having a piece of land to farm with chickens, a hog, hay and a bunch of seeds to plant in the spring.

    @Barbara — I agree that small businesses are opportunities, as well as the backbone of this nation. It would be great to see lower taxes for us.

    @Patricia — I so wish I had an i-Phone, I’d be on it a lot as I rode my tractor over my fields.

  15. Dr.Michael says:

    Dear Jannie,
    The irony: We know less about the sources of value in the economy than we did 25 years ago.
    Have people stopped listening to music? Of course not. But GDP is a measure of current market value of production. So if you listen to a free song, there’s virtually no contribution to GDP (perhaps a few fractions of a cent for the electricity you use). Similar economics apply to reading The New York Times online. Yet if you buy the same newspaper at a newsstand, you add $2 to GDP, whether or not you get around to reading it. The Google Inc. searches you do, the Wikipedia articles you read and the Facebook Inc. photos that make you laugh don’t directly affect GDP for the simple reason that their market prices — what you pay for them — are zero. But this doesn’t mean they have no value.

  16. Cath Lawson says:

    Hi JD – I’m good at spotting a downturn in the stock market ahead of time and the housing market is even easier. But I never thought much about these long term patterns before. And I had no idea that things like a decline in the number of people being born could make a difference too.

  17. JD says:

    @ Dr. Michael

    It’s a great reminder that the game is survival of the fittest. I’m refreshing on Lean principles as a way to achieve that.

    @ Jannie

    It reminds me of the saying, “the rich get richer.” One book that really helps me think about surviving the times is, “It’s Not the Big that Eat the Small, It’s the Fast that Eat the Slow.” I’m cutting all the deadwood and living lean.

    @ Cath

    The pattern does make sense on one level. If we figure that the biggest expenses people have are houses and college tuitions, then it makes sense that when the baby boomers buy houses, the market should rise, and when the baby boomers retire and sell their homes, the market should fall.