David Calderwood, October 2002
With the Iraqi war expected to flare from a chronic phase into acute,
considerable ink has been spilled discussing the possible economic ramifications
of this war and war in general.
Could the US President and his advisors believe that a good war is just
the tonic needed to end the economic downturn and cement the administration’s
success in the next election?
Frequent guests of LewRockwell.com may justifiably harbor such suspicions
regarding the motives of our leadership in pursuit of an all-out war with
Iraq.
The relationship of war with ending an economic downturn can provide difficulties
for those who follow a logical line of reasoning. How can destruction
on a massive scale be good for the business of society? Adherents of this
absurd view often point to World War II as the poster child for their
theory, at least in the modern age, and they could note, were they so
bold, that the largest rally of the current bear market occurred in the
months following last year’s September 11th attacks.
As usual, they’ve got their theory wrong. It behooves us all to recognize
Hans Herman Hoppe’s recent observation in Democracy, The God That Failed,
that history can be compatible with mutually contradictory theories. The
“war is good for economics” camp has their theory wrong, and they are
about to break a whole lot of Bastiat’s windows (not to mention kill a
lot of people and turbo-charge anti-American sentiment) yet reap none
of the benefits they expect.
Support for this view comes from an unusual quarter, one that serious
students of history and policy should consider indispensable. Robert R.
Prechter, Jr. is best known as a financial forecaster and foremost living
promoter of Elliott Wave Theory, through the company he founded, Elliott
Wave International. Less known is his 1999 book (now in its second printing)
The Wave Principle of Human Social Behavior and the New Science of Socionomics,
(New Classics Library, 1999, 2002), a book that among other things credibly
turns the “war is good” idea on its post hoc ergo propter hoc ear.
This article focuses on but a tiny fraction of the implications propounded
in Prechter’s book. That fraction, however, is a supreme challenge to
the concept of causality when it comes to war, peace, and economic prosperity.
Prechter literally inverts the foundation of causality that has confounded
mainstream pundits and historians and has contributed to horrific policy
missteps in the past and present.
The thesis of the book is radical: Instead of exogenous events like assassinations
of archdukes, famines, or surprise attacks on naval fleets being the cause
of war, it is an underlying endogenous mass social mood that governs such
events and drives all social manifestations of euphoria (peace and prosperity)
and despair (war and economic malaise). Even more radical, yet exhaustively
supported, is Prechter’s illustration of how this endogenous alternation
between optimism and pessimism demonstrates a repeating pattern that allows
for accurate forecasting of the character of social events in useful ways.
The Wave Principle, first discovered by R.N. Elliott in the 1930s through
careful observation of the stock market, is described by Prechter as a
combination of two kinds of fractals. Fractals, of course, are patterned
objects that show similarly complex forms at all degrees of observation.
This means that if you examine them from up close or afar, they look the
same. Indefinite fractals are typified by seacoasts, jagged at all levels
of observation. Self-identical fractals are represented by the beautifully
complex form of the Mandelbrot plot, where all components have the same
exact form as the whole. The waves produced by the stock market were found
to be a combination of these two kinds of fractal. Prechter has termed
such combinations “robust” fractals.
Those familiar with the Elliott Wave Principle relate it almost exclusively
to the investment markets, where it forms its own branch of the arcane
science of technical analysis. Prechter’s book touches on the market utility
of the Wave Principle, but mostly in the context of validating the principle
itself before delving into the social forecasting implications in later
chapters.
The Wave Principle rests on a foundation of both modern science and centuries
of observation. Commentators too numerous to quote have written of humanity’s
predilection for bouts of mass insanity, with perhaps the most descriptive
being Charles MacKay’s Extraordinary Popular Delusions and the Madness
of Crowds, published in 1841. More recently numerous scientific publications
have described the brain structures we share with our herding mammal relatives
and behavioral experiments that document their operation in humans. Prechter
examines this literature and finds it consistent with structures and functions
needed to explain why, in the aggregate, human behavior would follow the
patterned progression described by Elliott.
Briefly, the pattern has a period of progress followed by a period of
regress. Each progress, or impulse, is made up of five waves—first up,
second down, third up, fourth down, and fifth up. The regression is typically
three waves, denoted with letters for clarity—wave a down, wave b up,
wave c down. Each wave has subwaves, depending upon whether it itself
is part of an impulse or corrective regression, and each larger wave is
part of yet a larger wave structure. This is the fractal nature of the
pattern.
The excitement of the book soars when Prechter begins to relate social
dynamics to the operation of the Wave Principle. By using the stock market
as a direct measure of the state of social mood, he shows example after
example of social manifestations of the underlying mass psychology, from
the old standby of hemline heights to a more subtle chronicle of successful
movie genres.
The gravity of the investigation grows, however, when he discusses the
cycles of peace and war and relates them directly to the labels placed
on the historical stock charts using the Wave Principle.
When it comes to war, Human Social Behavior graphs show that they usually
occur during or after the “c” wave in a larger degree structure. Prechter’s
book denotes the degree as “cycle,” which in practice tends to be a part
of the pattern that plays out across a span of years, often decades.
The thesis of Human Social Behavior then is that, far from ending the
economic malaise that preceded it, war is simply a manifestation of the
social mood that delivered the decline in the first place. War, then,
is incidental to the economic upturn that follows. With war or without,
the upturn in social mood was due to occur at that point. Libertarians
would note that in this context, the war actually saps some of the vitality
of the next upturn by having destroyed capital (human and material) which
otherwise could have contributed to a greater prosperity.
What does this have to tell us about war with Iraq?
The value of the Wave Principle and the science of socionomics which Prechter
promotes is that if we know where we are in the progression we can make
forecasts about the future path and its social manifestations with sometimes
a high level of probability. Prechter is on record as the perhaps the
only person ever to have accurately forecasted a mania in the investment
markets a decade before it occurred, when manias are so rare as to occur
perhaps once a century. His forecasts for an historic bust to follow it
are still playing at a mutual fund near you.
The war on Iraq, however, is not slated to occur in the “same place,”
Elliott wave-wise, as FDR’s supposed savior, World War II. In fact, Prechter’s
forecast attaches the highest probability for a stock market bottom still
a year or more off, with profoundly difficult economic times to immediately
follow. This is the pattern of market cause and economic effect that can
be seen time and again through history. A student of this view would see
that war with Iraq will not help George W. Bush’s re-election in 2004.
His political fate was sealed, according to the socionomic view, when
he became president during the greatest bust in modern history. All a
war will accomplish now is disruption and destruction.
There are many reasons a cynic could cite for the Bush administration’s
hell-bent pursuit of a large scale war now with Iraq. World hegemony,
installation of puppet governments across the Middle East to give the
US de facto control of its oil and gas reserves, the settling of a family
score with Saddam, or hubristic visions of perpetual empire might occur
to any reasonable observer. The one that should not be considered is to
wage war for economic benefit. In no case does war help, and in this case
war’s coincidence with a deepening economic bust could be political suicide—generating
intensified anger against the Bush administration among citizens who suffer
the waxing of an intensely negative social mood.
David C. Calderwood is a businessman, student, and author of the novel
“Revolutionary Language,” selected January 2000 Freedom Book of the Month
at Free-market.net.