The Wave Model Of Economics

Today, I would like to describe my long-term view of economics as a wave.

In idealized form economics, and thus politics, would reach an equilibrium of wages and prices, of supply and demand, and would then remain fairly static, with the exception of shortages caused by changes in population or factors of nature. Let's picture this equilibrium as the smooth surface of a pond.

Economics is, of course, somewhat more complicated than this. the reason for this is that events tend to come along, which we can consider here as stones thrown into our nice, smooth pond. Let's have a look at the major world events that have created waves in the economics and politics of America over the past century.

Republican (conservative) and Democrat (liberal) administrations do alternate on the political scene and this is one form of wave, from left to right. The waves in this model here also swing from left to right, but are of much longer duration. These longer "waves" are the result of "stones" thrown into our "pond" in the form of world events. The usual alternation of parties in power would occur even in a smooth pond, but the waves described here would not.

The First World War was a large stone thrown into America's economic pond. There was a tremendous increase in the production of all types of war equipment. America was involved in the war for only about a year, because it did not enter until 1917. When the war was over, the economy moved to the right as the productive capacity for the war shifted to consumer goods. Confidence from the victory contributed to the atmosphere of the "Roaring Twenties". There were two consecutive Republican presidential administrations as the rich got really rich.

The trouble was that goods were being turned out of factories, using the newly-perfected assembly line manufacturing process, at a rapid rate, but the workers were not being paid enough to be able to afford enough of the goods so that they would all be sold. Manufactured goods began piling up in warehouses, and factories began cutting back on the frenzied production. This meant that workers had even less money to spend on the goods being produced, and it spiraled into the devastating economic crash of 1929.

This led to a dramatic shift leftward in the 1930s, as the government began all manner of projects to get the country working again. This leftward shift was, in my model here, the return wave of the rightward shift following World War One.

The Second World War was another massive stone thrown into America's economic pond. But it's effect was very different from that of World War One. World War Two also involved mass production of war vehicles, aircraft and other equipment. The difference in the economic effect of the two wars is that The Second World War involved far more of a shift in the workforce.

Many more Americans served in World War Two than in World War One, and for a much longer duration. Women, such as the iconic "Rosie the Riveter", made up much of the workforce during the war. When the soldiers returned after the war, it prompted a leftward shift in the economic wave from the extensive government housing projects to the G.I. Bill for veterans to advance their educations.

This leftward wave following World War Two was of much longer duration (or wavelength) than that after World War One. The way I see it, this leftward postwar economic wave continued until the election of Ronald Reagan in 1980. The peak of this leftward wave was the presidency of John F. Kennedy, it's demise was the rampant inflation of the late 1970s.

The rightward return wave, which began with the election of Ronald Reagan, continued until the election of Barack Obama in 2008. The demise of this wave was, of course, the economic crash of 2008. Apparently, the waves from World War Two crashing into the pond have not finished playing out yet.

You may wonder why World War One resulted in a rightward economic wave, while World War Two was the opposite. The reason is that the First World War had more of an effect on the production capacity than it did in the workforce shift, as workers left to serve in the military.

The Second World War resulted in a workforce shift that had much more long-term effect than the production shift. Many more men served in the U.S. military, and for a much longer time, in the Second World War than in the first. Also, the majority of the factories producing war equipment and vehicles for the Second World War were already in existence before the war, producing consumer goods. This had not been as much the case with the First World War.

This left-right wave actually has nothing to do with the usual alternating left-right of the presidential administrations. There will be both Republican and Democrat administrations on both sides of the wave. In the wave pair after the Second World War, there was the Democrat Clinton Administration on the rightward wave and, there were the Republican Eisenhower, Nixon and, Ford Administrations on the leftward wave. But these Republicans were quite moderate in comparison with those on the rightward waves.

As you can see, the amazing thing about these waves is that when there is a wave in one direction for a period of time, the return wave in the opposite direction always lasts for an approximately equal period of time. The economic wave set up by World War One lasted about twelve years in each direction. Not counting the years of World War Two itself, the wave set up by it lasted about thirty-two years in each direction, first to the left and then to the right.

The economic crash of 1987 might have been a good reason to begin a new wave, but it wasn't. Had it been, it would have broken the apparent rule that the return wave must be approximately equal in duration to the initial wave. The Korean and Vietnam Wars apparently did not have enough impact on production and the workforce to change the basic wave pattern.

Economic waves can operate in parallel also. Communism began as a leftward wave in response to the rightward wave of capitalism, and it's abusive nature. The two parallel waves affected each other, just as two water or electromagnetic waves of the same wavelength will, both began with extremes of left and right, but shifted toward the center over time.