Sunday, July 14, 2013

The Economics of Sunshine

It's not often you see this in Ireland:


I was so surprised by the weather forecast on RTE the other evening that I hit the pause button and took a photograph. One for the grandchildren perhaps...

Funny enough, it seems that there is a causal relationship between the sun and the economy. And not just for ice cream sales. According to John Hampson there is a historic association between solar cycles and financial/economic cycles. The influence of the 11-year solar cycle (measured in sunspots) on the Earth's geomagnetism drives patterns of change in commodities, stocks and other economic indicators on a fairly predictable basis going back to the 19th century (since data hasn't been available for much longer).

It might sound more like astrology than astronomy, but the data shows that stock markets rise strongly on average in the period between the solar minimum and the solar maximum (referring to the number of sunspots as an indication of the solar cycle). The same data shows that recessions then follow the solar maximum...

Unfortunately, despite the good weather we're enjoying right now, we've just reached the solar maximum as part of the latest solar cycle. Odder still, solar maximum 24 (the one now ending) has been the weakest in 100 years, and nobody knows why. It might explain the rather flaccid nature of America's economic recovery since 2008 come to think of it.

The last time there was such a weak solar maximum we had the Maunder Minimum which coincided with the Little Ice Age.

Hmmm, I think I'll have a cold beer after that...



2 comments:

  1. Fascinating.

    Economics is such a young science compared to sciences like maths and physics.

    The sociology aspect of economics is very young too. For that very reason it is often neglected in favour of the other components of economic science - like the interpretation and utilisation of economic statistics; the study of economic history; the formulation and development of theory and hypothesis...

    Perhaps one day some of those old components of science - like astrology, alchemy, theurgy even... thrown out by Francis Bacon and others when today's modern science was invented... will be taken back out of the dustbin of history...

    Our modern science is very poor at understanding and explaining why people behave as they do. Perhaps there is actually something in the sun, the moon and the stars and the magnetic fields of the earth and so on, that could make something really awe-inspiring, on the same level as physics today, out of 'the dismal science'.

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