From the comments, on seasonal business cycles

by on December 24, 2013 at 2:49 am in Economics, Food and Drink, History | Permalink

ohwilleke reports:

While “Christmas” is new, the notion of a consumption splurge after the fall harvest, followed by a lean late winter-early spring season (Lent/Ramadan) before the spring harvest is deeply rooted in pre-modern agricultural reality. When you have an abundance of perishable goods it makes sense to consume them before they go bad, and then to string out the more limited supply of durable foodstuffs when fresh foodstuffs are scarce. In the same way, summer vacation is rooted in the need to free up children for agricultural labor at times of peak demand. As noted above, spring weddings supply a consumption boost after the Spring Harvest and also are timed to minimize the likelihood of critical parts of a first pregnancy taking place during the lean late winter-early spring (although these days it has more to do with the end of the school year).

Only with cheap and fast trans-hemispheric shipping (together with a lack of significant piracy for most of that trade), and advances in food preservation and refrigeration in the last half century or so, have those agricultural considerations become irrelevant (although, of course, excess and lean times should fall at different parts of the year in the Southern hemisphere and in places like Southern India, the Sahel, and the tropics of Asia, African and South America that have different seasons).

Japan and China use end of year bonuses (often as 6-12% of annual compensation) as a significant part of annual compensation as a way to share rather than leveraging macroeconomic risk for firms and the economy as a whole. In good years, when there is more supply, lots of people get big bonuses; in bad years, scarcity is widespread. The main virtue of this approach is that it makes firms more robust and puts them under less pressure to engage in cyclic layoffs but making labor costs look more like equity and less like debt. This too was well suited to an agricultural tradition rooted in sharecropping or the equivalent that was once widespread in all feudal economies as well as in neo-feudal economies in places like the American South. This isn’t a strategy limited to the orient. It is also the quintessential Wall Street economy model utilized by major financial firms like investment banks and the large law firms that serve them.

The pressure from the “real economy” – both the goods and services supply side and the labor demand side – to have punctuated consumption is much weaker now than it once was, particularly in economies or sectors of economies without the strong annual bonus tradition. The largest sectors of the modern economy that are both strongly cyclic in terms of business cycles and very seasonal within each year, are construction and real estate – and these cycles also drive a fair amount of durable goods consumption. Both construction and real estate are weakest in the winter. Agriculture’s share of the economy is now much more stable from a consumer’s perspective and much smaller as a percentage of the total economy. Real estate handles cyclic shifts by being largely commission based. Construction relies on highly fragmented project specific team building through networks of general contractors and subcontractors rather than integrated firms (a pattern also common in the film industry and theater industry).

Bottom line: The finance oriented macroeconomic models obsessed with interest rates, inflation, GDP growth rates, unemployment rates and size of the public finance sector are ill suited to analyzing optimal seasonal business cycle patterns. A more fruitful analysis looks at the roots of current seasonal patterns in economic history and at the way that the “real economy” has changed with technology to see if those patterns still make sense, perhaps for new reasons.

You will find ohwilleke’s blog here.

Steve Sailer December 24, 2013 at 4:04 am

It’s interesting how the movie business has become more seasonal over my lifetime. Even more oddly, although one peak is November / December when indoor recreation such as movies makes sense, the other peak is in late spring / early summer when the weather is nicest for being outdoors.

Steve Sailer December 24, 2013 at 4:26 am

One reason the movie year wasn’t terribly seasonal before 1970s films like Jaws ignited the summer blockbuster tradition was because the cost of manufacturing and distributing traditional 35mm prints was not insignificant: say, $1,500 in current dollars. So, creating and shipping 4,000 prints would cost perhaps $6 million.

In the 1950s-1960s, studios didn’t want to invest that additional money upfront. What if the movie turned out to be a turkey? And if it’s good, then word of mouth will do our marketing for us! This meant that film distribution tended to be somewhat random over time.

But now studios feel like they have more control over the process. Their marketing research is better, and they invest most heavily in lower risk sequels and remakes.

You might think that the industry would therefore want to use its expertise to spread out its product over the entire 12 months, but instead they’ve settled upon two artificial high seasons, with two dreary intervals in-between.

Perhaps the reason is because you can’t have seasons without off-seasons?

Urso December 24, 2013 at 9:50 am

I think marketing people and sales analysts have just become more scientific/ruthlessly efficient over the years.

Benny Lava December 24, 2013 at 6:23 pm

Summer blockbuster season coincides with summer break for high schoolers. So you can predict, based on that, when a movie like Transformers will be released.

RR December 24, 2013 at 4:54 am

Sounds authorative, but Ramadan has nothing to do with seasonal business cycles. Ramadan is on a lunar calendar, so it moves around every year and doesn’t correspond to any particular agricultural season.

prior_approval December 24, 2013 at 6:36 am

Don’t bring facts into the discussion here – it disrupts the narrative.

Especially when seeing that in 2013, Ramadan was from the 9th of July to the 7th of August, according to this incredibly obscure link – http://en.wikipedia.org/wiki/Ramadan_(calendar_month) (in 2012 – 20th July to the 18th of August, and in 2014 – 28th of June to the 27th of July).

RPLong December 24, 2013 at 9:21 am

Thanks. I came here to say exactly that.

Bill Harshaw December 24, 2013 at 8:02 am

Harvest time used to pose challenges to our financial system in the years before the Federal Reserve: if I understand, the money supply had to move West in the fall to accommodate the surge of activity involved in selling crops and repaying loans.

David C December 24, 2013 at 11:28 am

You hear “summer vacation is rooted in the need to free up children for agricultural labor at times of peak demand” a lot, but anyone who has ever worked on a farm knows it is simply false. Summer is definitely NOT the time of peak agricultural labor demand. Planting (spring) and harvesting (fall) require lots more labor than weed control (summer).

My understanding is that the first schools in the US actually had two terms, one in winter and the other in summer, and long breaks in spring and fall.

zbicyclist December 24, 2013 at 12:37 pm

+1. I’ve heard that the main reason for summer vacation was that in those days before air conditioning it was regarded as simply too hot for much learning to occur.

Rahul December 24, 2013 at 1:54 pm

That was the reason in the colonial British Empire at least. Burma, India, Ceylon etc. were just too hot in summer. Not a far stretch to imagine Southern USA had similar problems.

Hell, the Raj even shifted it’s Capital from Delhi to Simla in the Himalayas for the summer months.

farmer December 25, 2013 at 10:00 am

I am a farmer and this is absolutely correct. Spring/Fall= peak, Summer= Low Winter= Very Low

Don Gately January 2, 2014 at 4:57 am

the old season of “harvest” in the uk (which took the french term autumn after a time) was generally held to be the months of august, september and october – It’s not equivalent to fall which has the feel of a post-industrial convention, dividing the year into equal quarters whereas agricultural culture would see seasons as more fluid (and thus be more comfortable with less fixed lunar calendars) the school year finishing in late july in the UK isn’t badly timed for the start of Harvest, as a season.

It also depends on what you’re trying to harvest and the particular functions needed in the processing of a harvest. Children aren’t ideally suited to digging up late season potatoes but might be better picking early season fruit. As the years have passed the things we produce have changed as have the methods. Of course anyone experienced with modern farming wouldn’t see any sense in having child labour available in august.

The conventions which suited old-world nations and their agricultural context then were transplanted through colonisation and migration to areas which might not provide an exact match. Pointless trying to look at agricultural origins of the academic year in the US based on modern day farming.

Spencer December 24, 2013 at 12:41 pm

In 1946-48 I was in the first and second grade down in the little boot-heel of Missouri.

That was cotton country and school gave us a spring and fall vacations to coincide with cotton planting and picking seasons. We went to school in the middle of the summer.

I also picked cotton for a penny a pound and would earn about a dollar a day.

marcus December 24, 2013 at 2:06 pm

fine piece of circular reasoning here

bill December 24, 2013 at 4:10 pm

Is there really an abundance of farm work in mid-summer?
I’m not a farmer, so I’m just asking. I would have thought the greatest demand for labor on a farm would be during planting (Spring) and harvesting (Fall).

Benny Lava December 24, 2013 at 6:25 pm

Depends on the type of farming. Cash cropping is different from animal husbandry.

bill December 24, 2013 at 4:11 pm

Now I’ve read some of the other comments. It seems the farm/summer vacation thing was a myth and the same with Ramadan.

mike December 24, 2013 at 4:31 pm

Is Christmas really new? I thought it was adapted from pre-existing pagan winter festivals that occurred around the same time.

Donald A. Coffin December 24, 2013 at 10:26 pm

Among other things, ohwilleke says this: “In the same way, summer vacation is rooted in the need to free up children for agricultural labor at times of peak demand.”

But implicit in the other things he says is that the peak demand for agricultural labor comes at the harvest–spring, for winter crops, and fall, for summer crops. (I’ve seen this pointed out elsewhere, although I can’t find a reference now.) The identification of summer breaks, especially for schooling, is frequently explained by the alleged need for child labor in agriculture,. Yet educational calendars in other countries do not always (or even often) show the same seasonality as in the US (e.g., for England: http://en.wikipedia.org/wiki/English_school_holidays).

The seasonality of consumption makes some sense, but only in some parts of the world (largely temperate zones), and so is unlikely to be a universal explanatory factor.

Donald A. Coffin December 24, 2013 at 10:34 pm

He also says this: “The largest sectors of the modern economy that are both strongly cyclic in terms of business cycles and very seasonal within each year, are construction and real estate – and these cycles also drive a fair amount of durable goods consumption. Both construction and real estate are weakest in the winter.”

Yet the seasonality of retail sales is extreme. It peaks in December (and has for as far back as I can find reliable data). A chart of the seasonality (which you can see here: http://signsofchaos.blogspot.com/2013/12/seasonality.html) suggests much stronger seasonality than construction or real estate.

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