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vice prices continue to rise. Look at the price of a car versus what it cost just 10 years ago. Although the rate of change has slowed down in recent years, the numbers are substantially higher than before. That slowing is not deflation. If you do historical research on inflation, you'll find very long-term cycles in inflation too. Historian David Hackett Fisher recently wrote a book, The Great Wave, about cycles in inflation. Beginning with medieval European price series data, he observed that since the 12th century, there have been four episodes of inflation, each running roughly between 90 and 120 years. During those periods, inflation starts from nothing and rises to a level which is unsustainable. At the peak of each cycle, some sort of crisis pricks the bubble. Centuries ago, the crises were violent. More recently, they have been political and especially economic. Either way, the events cleared away the previous structures, inflation ceased, and despite renewed economic and population growth, prices remained unchanged for decades. In fact, inflation typically is flat for nearly 100 years following a crisis period. The last noninflationary phase occurred during the Victorian era of the last century. After the Victorian period, the population growth and the resulting economic demands reach a critical point and the cycle begins again. This has happened four times since 1200. |
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We are at the end of one of those 100-year inflation cycles. My long-term cycle work suggests that the new millennium is probably not going to be a continuation of what we've seen in the last 20 or so years. Professor Hackett's inflation cycle suggests that real deflation is on the horizon, and there will probably be some kind of an event that triggers the approaching changes. What exactly is going to happen is impossible to forecast, but there is a high probability that conditions will be different, maybe much different from what we take for granted now. But for those who understand the message of cycles, there will be great opportunities. |
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Neal: Nina, thanks for sharing your thoughts. |
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Note: Nina Cooper can be e-mailed at: ngcooper@internetni.com. |
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