History Keeps Repeating But What Have We Learned? – Analysis

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We are in a cycle of historical oscillation marked by economic instability driven by a pathogen, reminiscent of the situation the world faced at the end of the First World War and the outbreak of the Spanish Flu pandemic.

More than a century later, where do we go from here? As a result of the effects of the COVID-19 pandemic, combined with wars and economic shocks, we could be at the beginning of a new supercycle of history that will create challenges on every continent.

Here, perhaps, is where the historical aspect of the economic cycle, or oscillation, applies. This economic and political ecosystem consists of a long-term economic cycle, marked by periods of evolution and self-correction brought about by technological innovation, that result in a long period of prosperity — in theory.

We are at a tipping point into what might be a cycle in which many aspects of “what was” are consigned to the history books. The existing literature is no longer useful. Models to help us understand historical cycles use a mix of methods, taking physics and historiography and putting them into the critical thinking “blender.” The result is three different equations for economic cycles that give revealing answers on causation factors but leaves out an important element: Time.

To be sure, the time at which an analysis of the cycle segment occurs is a major point of necessary intellectual departure and requires discussion. Many people fail to understand that when a document is written, the conditions under which the author or authors write it play a key role in the interpretation of what is coming next.

Research shows us that the global economy tends to be very cyclical in nature, meaning it is prone to alternating periods of “boom and bust.” The four stages of an economic cycle are expansion, peak, contraction (also known as recession) and trough, followed by another expansion that marks the beginning of a new cycle. A typical economic cycle lasts about five-and-a-half years, although some are quite short, as little as 18 months, and others can span more than a decade.

Different types of economic catalysts can trigger oscillations. A few specific examples from recent history include the industrialization of the US in the late 19th century; the reconstruction of Europe and Japan after the Second World War, and the emergence of China as a leading global manufacturer.

It is notable that political-economic models developed after the Second World War were augmented by the realization that a new global economy was going to emerge. With geopolitics currently in disarray, the type of economic cycle the world experienced in 1918 is recurring now, marked by contraction and then a trough, which is being exacerbated by the emerging bifurcation of the global economy as Russia is ostracized by Western countries. Technology and interconnectivity accelerate the effects of the supercycle, meaning reduced food security and more volatile economies.

A crisis that was not forecast, such as the financial crisis in 2008, suggests that the understanding of economic processes may be incomplete.

Research certainly shows that commodity supercycles are driven by supercycles in the broader economy and are sustained by rising demand for raw materials, manufactured materials and sources of energy. But the commodities sector is especially cyclical, more so than the broader economy, because of the lag that necessarily occurs between supply shortages and the provision of additional production capacity. Commodities producers who are struggling to meet demand often respond by initiating the development of, for example, new mines or oil fields, which can take years to complete.

A complication for the currently emerging low point of the cycle is the requirement for proactivity on climate change issues. But it is important to realize that a sustained transition to low-emission power sources and modes of transportation, along with a move away from industrialization and toward digitalization, could significantly affect the trough of the supercycle.

Broad market transitions can negatively impact commodities such as oil, coal and natural gas, but at the wrong time. The importance of commodities in this cycle is going to shift in terms of potential during the upcoming downturn.

Geopolitically, the game is just beginning and nation states will find themselves in various stages of economic decline this year. Heading into 2023 might be a rough ride, with product shortages and, probably, a more complex geopolitical environment. Threat levels are rising not falling.

The current dangerous international environment is accelerating these factors, especially in relation to commodities. This situation, which has developed over decades, means a larger shock is coming. For example, the US is forecast to enter a recession in 2023. But other countries are facing shocks now, including China.

So the balance of the international system is being disrupted. We are seeing these factors develop faster because of social media and high-speed global connectivity, elements that did not exist in the early 20th century and are complicating the current cycle of oscillation.

Dr. Theodore Karasik

Dr. Theodore Karasik is a senior advisor to Gulf State Analytics and an Adjunct Senior Fellow at the Lexington Institute in Washington, D.C. He is a former Advisor and Director of Research for a number of UAE institutions. Dr. Karasik was a Lecturer at the Dubai School of Government, Middlesex University Dubai, and the University of Wollongong Dubai where he taught “Labor and Migration” and “Global Political Economy” at the graduate level. Dr. Karasik was a Senior Political Scientist in the International Policy and Security Group at RAND Corporation. From 2002-2003, he served as Director of Research for the RAND Center for Middle East Public Policy. Throughout Dr. Karasik’s career, he has worked for numerous U.S. agencies involved in researching and analyzing defense acquisition, the use of military power, and religio-political issues across the Middle East, North Africa, and Eurasia, including the evolution of violent extremism. Dr. Karasik lived in the UAE for 10 years and is currently based in Washington, D.C. Dr. Karasik received his PhD in History from the University of California, Los Angeles.

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