Economics Quiz

Apparently, the Dow is on the longest bull run in 80 years.

Anyone know what was 80 years ago? Let's see...

1927! All right!

Wait, hold on. Didn't the Great Depression start, like, 2 years later? Oh, man, this could be bad, huh?

The stock market in 1927 seemed indestructible. You put money into it and it magically made more. Today, for the people who have money to throw around, it's about the same. It's true, we did get some legislation passed to insure the money that is in banks, but that won't do companies that much good. They may well have tremendous bank accounts, but they also have an absurd amount of their assets in a globetrotting freight system, or invested in stocks, or in capital.

This is all fine, so long as the system doesn't change drastically. The trouble is, as many folks in the hip economic circles are quick to point out, the system is about to change drastically. I know I've explained the peak oil crisis to most of my friends, but if I haven't, here's a short synopsis:

Global oil production follows a bell curve. No matter what, really. If we come out with some new technological wizardry to pull oil out of the ground faster, the curve gets steeper, it doesn't get un-curved. This has to do with the Laffer curve, an esoteric bit of economics that I'm not smart enough to understand. So once we go past that peak, we get diminishing returns from there on out.

This causes serious problems for the globetrotting freight system, and for manufacturing plants that rely on cheap energy, and for a bunch of other immediately obvious things within the business sector.

Less obvious, however, is its impact on the housing market. Since after WWII, Americans have been carving out their little distilled pieces of nature -- neatly groomed lawns with some decorative trees and shrubs, spreading out for miles and miles from the city's center. Sure, the suburbs were great; our streets weren't as crowded, there were lots of people to get to know in our neighborhoods and there was lots of space for recreation. Everyone could have a garage, and the supermarket made everything that much more convenient. Unfortunately for us, this social structure is really oil thirsty. Companies need trucks to get their products to stores so you can buy them. You have to drive to the stores. If oil's not cheap, errands aren't cheap, and neither are the products we've come to rely on (often, also made from oil -- be it in the form of pesticides, fertilizer, or plastic).

So the value of our tidy little houses starts to go down. This may be an even more serious problem for the American economy than any of the above, because the main given in our economy is that houses appreciate in value. This is getting something for nothing. If the houses get difficult to get to, and it gets difficult to supply suburban houses with goods and services, then all of a sudden they're worth about as much as a pile of building materials, carpet, pipes, and wires. The Dow goes down.

They say history repeats itself. Can we last until 2009? Will it happen sooner? My fear is that, even if it doesn't happen until 2029, we won't be ready for it.