Our mathematical models can also predict crisis and expansion cicles.
The spanish crisis that started on summer of 2008 was predictable. I actually predicted it in the thesis I prepared during the period 2006-2007 . I anticipated the year it would start, it’s length and also asserted that its evolution would be quite independent to the global economic context.
How could that be done? Our mathematical models predict future real estate prices. But prices and production are closely related as all economists know: increases or decreases on prices take to evident variations on housing construction. We also all know that housing construction is an important part of national GNP’s. So it’s not difficult to conclude that variations of real estate prices and housing construction can take to expansion cicles or either to crisis.
I’m now writing a book trying to explain how Spanish crisis could be easily anticipated with my econometric model. The numbers were clear, there were not many alternatives to the new economic turndown.
Following the same procedure, we can now assert that many countries in the world will soon enter in a long declining path, just as Spain started in 2008 and Japan also did 17 years before, in 1991. These change of tendence is as predictable as unavoidable. But being unavoidable doesn’t mean that these countries can’t soften most of the negative consequences of their imminent economic turndown. This is one of the goals of my book: to help them to be more prepared for the new paradigm. This new paradigm consists of an initial crisis followed by a long and nearly perpetual “secular stagnation”. Paul Krugman has recently talked about this.
Predictions I wrote during 2007, one year before Spanish crisis had started
They can be found in the thesis I presented in UPC Barcelona’s University on february 2008.
Pag.103
Conclusions on future predictions:
• “Starting, on 2007, of a new cycle (1) in the housing construction sector.
• This new cycle implies, at least, a certain slowdown of construction, more or less important depending on the circumstances.
• The new cycle will be long (20 years). “
Pag.77
“At graphic 4.1.c we can observe how demand is starting to diminish for the first time in our recent history, and this demand will continue to decrease until 20 years time from now, at least (…).
Pag.98
“We have some possible horizons, but the most probable ones (Horizon 1 and 2), take us to an important drop of construction levels with economical consequences still to be seen, but which can be quite remarkable.”
Pag.100
“I would like to go beyond these thoughts. Spain has been presented to the world as an economic miracle and the model for many countries because of the good macroeconomic figures held for 20 years.
It will be in the forcoming years that we will see whether this economic miracle is due to the supposed good work of our finance ministers and our business men, or if it has been a rise rather unsustainable (…) . Time will tell, but I opt for the second option.
I feel that in the coming years, new generations will feel somehow deceived by our politicians of the last 20 years. While this “Spanish economic miracle” has worked on, our finance ministers have unstoppably been receiving international acclaim (Rodrigo Rato has been president at the IMF for the last years). But we will sooner or later realize that we have had all these good financial results supported by an unsustainable long term policy (…).
Throughout history, Spain and the Spaniards have been aware of their economic backwardness compared to other European countries. But in the last 30 years, Spain has made an important change from an economic point of view, (…) and this complexation has even turned into an unjustified pride in some cases (remember certain attitudes of the ex-president José María Aznar) (…)
But perhaps we will have to put again our feet on the ground again and we’ll see how the “economic miracle” was due to exceptional, temporary and unsustainable circumstances. Certainly, we have progressed in the last two decades, but not as much as we thought.
(…) I think it is inevitable to understand that some kind of change is coming. “
Canals Housing 