Category: Wealth

“Well, Eunice is depressed and Corinne is depressed and I was just debating whether or not to join them.” – Soap

Some things are better with beer.  Okay, that’s a lie.  Everything is better with beer.

Economic systems are nearly like a living organism, which makes them utterly unlike Nancy Pelosi, who is comprised of wholly of spare Abraham Lincoln parts from Disneyland’s® Hall of Presidents™ exhibit.  Like a living organism, economic systems start with raw materials and energy and produce products that people consume, like malls, bicycle-powered smoothie blenders, toddler grease, iPaws™ Apple® music for pets, and McDonalds® “food-based products.”  And like any living organism, economies grow, get sick, age, and eventually apply for Social Security.  When economies get sick?  We call that a recession.

How do economies end up in a recession? Describe it with a metaphor that incorporates cars, coyotes, Brad Pitt, and mullets.  (40 pts)

Economies have the potential to become unstable systems.

On a crisp, Christmas morning way back in time, I was driving due east on a straight, flat paved road.  It had snowed a few days before, and the county had been out with a snowplow and had opened up a lane.  On the parts of the road that had been plowed, a thin layer of snow had been compacted by passing tires into a very solid base.  It wasn’t slippery like ice, but it certainly didn’t grab on to a tire like dry pavement does.

But the plow didn’t clean off the entire road.  It left two inches or so of snow on the shoulders of the road on either side.  It was very, very cold, probably -20°F, and when it’s that cold and dry, snow behaves differently – after a few hours snow tends to become more compact, solid, and crunchy, almost like Angelina Jolie’s hair when I pet it when she’s sleeping, before she found me living in her attic and got that restraining order.

I was moving along at about 70 miles per hour – I figured that even if a sheriff pulled me over, he’d give me a Christmas morning break.  Nobody gets tickets on Christmas, right?  Without thinking I gradually drifted over onto that two inches of hard snow on the right shoulder.  Then?

Chaos.

I’d been moving down the road, but now everything was spinning.  The car kicked up a cloud of snow as it spun, and all I could see was white.  The car kept spinning.  Now it was up on two wheels, and I could feel that the car was tilted at about a 45 degree angle.

And the car kept spinning.

As suddenly as the car had started spinning, it slowed rapidly and stopped.  But it was still only supported by the two wheels on the driver’s side.  As the spinning stopped, the car hesitated with the wheels paused above the pavement, like a coyote running off of a cliff.  Gravity finally won out over rotation, and the passenger wheels slammed back to the ground, dropping three or so feet.

I’m not impressed.  I’ve survived worse.

The car stalled.  The defroster was still on, spraying a mist of powdered snow into the interior of the car.  Every window of the car was covered on the outside with a thin coating of powdery snow.

I opened the door and got out.  I had been travelling east, but the car was pointing due south toward a three-strand barbed wire fence.  I looked west, where I’d come from.  A very complicated set of tire tracks described the arcs and whirls my car had made as it pirouetted several hundred yards en pointe to where it sat.  The car had continued to follow the very straight road.

This is the same model, more or less, mine came with optional mullet enhancing. 

Know that feeling you get when you just missed death by ounces and fractions of a degree and your system is flooded with adrenaline?  It feels good.  Much better than being dead.

I brushed the snow off the outside windows – the entire car was covered in a fine powder.  I let the defroster melt the snow that had blown inside though the defroster.  I got back in.  I drove on.  I needed to find a poker game or a lottery ticket or an honest lawyer – no use wasting a lucky day like that one.

That spin out, though, was the automotive equivalent of a bad recession.

Everything was going along fine.  Sure, it looked stable.  And, as long as nothing changed, it was stable.  But when one little variable changed, in this case the friction on two tires on one side of the car, the illusion of stability vanished in a cloud of rotating snow that looked like the an Olympic™ figure skater trying to drill herself into a television announcer contract.

That’s generally the case with the economy.  Everything looks fine.  It’s moving along.  Then?

• Interest rates spike, or
• Someone sticks a pin in a Dow-Jones voodoo doll, or
• Bubbles pricing in stock that people paid way too much for I bought become apparent, or
• It becomes obvious that nobody needs a seventh iPhone®, or
• Housing prices suddenly do the impossible and go down.

What happens then is the economy comes out of the spin, looks around, and starts moving again.  Sure, it was close to disaster but it turns out that, just like the car, the economy is okay.  We can start the ignition and keep rolling down the road, our collective mullets blowing in the wind.

Okay, this is probably the first time you’ve seen a mullet used in an economics metaphor.  You’re welcome.

Everything in the world was fine.  The factories are still there, the people are still there, and all we need to do is have enough confidence to start buying Johnny Depp® movies again, and we’ll be okay.  After a few years, we’ll forget that we’re headed down a snow packed road and spin it out again.  No real harm, no fouls.  And the recessions actually perform a service – a good recession causes poorly managed businesses to fail, and leaves room for well-managed businesses with great products to grow like a well-oiled mullet.

But what causes an economy to fail?  Describe it using a pickup truck for extra credit. (40 pts)

Time went on, and I traded out my car for a used pickup.  It had seen better days, but I was convinced it was solid.  It was making a rattling noise, and I was going to take it to a friend’s house so we could look at it, and it was again around Christmastime.  Sensing a theme?

As I drove down the interstate, the passenger in the car made the comment, “I’m not sure that this pickup is reliable.”

“Reliable?  This old truck is solid.  It’ll last for a decade!”  With that comment, I brought my fist down on the dash to show how solid the truck was.

Whatever sense of irony is buried in the universe activated in that second.  There was an explosion, a flash, and a 12 foot diameter cloud of grey smoke.  A piston rod came apart and shot down through the engine and the oil pan and onto the road below me at the speed of light – I think they found it in Australia when it came up through the ground and up into orbit.  All of the engine oil dropped onto the highway in less than a second.  Every red light on the dashboard lit up.  Oddly, the engine lasted exactly two more miles to a parking lot where I began to walk to a pay phone, which was a thing that existed before cell phones.

This is not the same Jeep®, but looks pretty similar.  Except for the “exploded” part.

Those were the last two miles I ever drove that pickup.  It was dead.

Whereas even large recessions like the Great Depression are hiccups of a functional system (I can get in my car and drive off), this failure was deeper.  The system was broken.

What breaks an economic system?

• Lack of people.
• Lack of knowledge.
• Lack of raw materials.
• Lack of energy.
• The French.

These are factors that will cause a civilization to fail, completely and utterly.  Let’s take them one at a time:

Lack of people.  Like any country, Rome encountered problems.  To fix the problem, the Romans made rules.  But, like Congress today, the rules that the Romans made . . . caused more problems.  Solution?  More rules.  Which led to more problems.  Eventually, it was so bad that the Romans had to make a law that the firstborn son had to have the same job as his dad.   This was fairly unpopular – eventually the people wandered away, which was also illegal, but by this time all the soldiers had walked away, too.  Other causes of depopulation include disease (like Ebola, LINK), bombs, and starvation.

But we still have the recipe – we can make more people if we need to.  One civilization may end, but another one is just a hundred years away, or 40 if you’re in Utah.

Lack of knowledge.  The secret of making concrete was lost for nearly 1500 years with the fall of the Roman Empire.  Knowledge of how to make plumbing out of lead, pyramids, Viking sunstones, and William Shatner’s hair have been lost and found again.  While these didn’t kill civilizations, they certainly contributed to the inability to quickly remake them to their previous glory.

We can experiment, though, and learn again.  As long as we learn to skip the lead plumbing this time and keep it in the paint chips that toddlers eat, where it belongs.

Lack of raw materials.  Ireland was deforested to make ships for the British Navy.  Ireland may have fewer trees, but certainly the British Navy was able to become even stronger.  There was a report issued in 1900 noting that the United States would run out of trees by 1920 because so many were required to make railroad crossties. The ability to treat them with creosote to make them last for longer was developed.  Heck, nowadays some railroad crossties are even made out of concrete, since we found that recipe again.

Humanity has regularly found substitutes for raw materials throughout history.  Soylent Green anyone?

I like the Bald Eagle and Panda Dip® best, myself.

Lack of energy.  300 years ago if your civilization was running out of energy that meant you didn’t have enough oats to feed your horse or your mule or your peasant.  Probably in that order.  Now with a global economy that produces trillions of dollars in food, products, and sweatpants each year running out of energy is something else entirely.  The fate of mankind is the fate of energy – coal, oil, renewable or nuclear.  It’s so important that I’m working on a series of posts on just that subject.  It is the single most important non-political question in the history of humanity.  This makes Climate Change® look like the kiddie pool, so much so that I’ve been working on a post (posts?) on just this question, which I’ll finish sometime before oil goes to $100 and Justin Bieber is elected president.

Without energy we would have all of the economy of 1420’s mud-hut dwelling Frenchmen.  Which brings us to:

The French. 

Well, we have to blame someone else.  They were convenient.

What’s next?  Summarize your previous answers.  Incorporate girls drinking beer. (20 pts)

I fully expect that there will be a recession within two years, and at this point I think the recession will be a lot like my car spinning out – it will be a recession that doesn’t expose structural weaknesses in the economy, but it will be significant.  Reliable?  This old truck economy is solid.  It’ll last for a decade!