Saturday 21 September 2002

Pic of the day: Sunset in the west. (Yes, a real life photo.) Actually it's not quite that bad ... more like a

Double dip

And not for your snacks. OK, let me try this more normal speak on a difficult topic. You see, I read in the papers about these economists. They have a lot more education than I have, and they have a lot of experience: Banking, investment, trading stocks and valuta and stuff. They have done this for a long time. They are not just professionals, they are experts. So why do they say these dumb things? Like, "stocks are really cheap now, it's a good time to buy". Stuff like that.

I think they're lying like a used car salesman in a comic. When you live off people's optimism, it's kinda hard to be pessimist. I think that's why they go on about how everything is going to get better really soon now. Yes, we've had a little dip in the economy (that would be the American economy) – but it won't be a "double dip". Yeah, it's been a little rough lately, but it was all because of the terrorist attack. (Never mind that things started to really slide in the spring before.) Then it was all because of those few companies with the bad book-keeping. (Never mind that they did that because they were already gone bust and tried to hide it.) Now everything is going to get better.

It's sooo not going to get better before it gets a lot worse. So, what do I know that all those million dollar experts don't know? I'll tell you. I know that my humble little paycheck does not depend on lying through my teeth. And boy does that feel good.

***

But seriously, what's the problem? Why can't things just go up and up like they did when Clinton was President of the USA? When everyone was happy and every day was better than the last? Because things weren't as good as they seemed.

It started off well enough. There were some major inventions. First, twenty years ago, we got the personal computer. Then ten years ago we got the Internet. (Actually, it's more right to say they became common from those years on.) Now machines started to help our brain in the same way that other machines had helped our muscles. We could handle a lot more information, quickly. Of course, much of that information was really shoddy, but that's how people are. There was just so much information! Now you could find out who sold the cheapest widgets, who sold the gold-plated widgets, and who sold cheap porn. The new technologies caught on like a brush fire.

Since people could handle more information each (and still have the time to read online diaries at work) they became more productive. This means they created more value for their company, at least as long as they produced something people would pay for. The whole productivity thing really deserves its own essay, but that's the short of it. Productivity goes up, that is good. More value is created in the company, the company becomes more valuable. The shares are really small parts of the company, so they get more valuable too. People who had shares already could sell them for more than they had bought them for. (Or they could just keep them and gloat.)

When this had gone on for a while, people got so used to it that they thought it was a law of nature. Shares would always get more and more valuable, but not necessarily all the shares all the time. But a lot of them, and especially anything that had to do with computers and Internet. So it made sense for more people to buy shares, so they could have them a while and then sell them for more. And since more people wanted to buy shares, the price went up. That's how a market works: When more people want to buy and fewer people want to sell, the prices go up. It's been like that for thousands of years. It worked this time too. So the prices rose even faster, really faster than the values in the companies. Most people didn't think about that. They did however notice that the prices were rising even faster, so they got even more eager to buy shares. And then the prices rose even faster ... you get the drift by now.

This was when things really took off. Not all people traded on the stock market, of course. But often their pensions funds did. And many companies did. Anyway, there was enough of it that many companies seemed to be very valuable even though they were actually making a loss. Since their shares were so valuable, they could just make more of them and sell, and woosh! Instant money! Money to use for fun, fun, fun things! Those were good days. And all the people who sold fun things to these companies also had a great time. And since this had gone on for quite a long time, people concluded that it was indeed going to last. It was a New Economy!

You don't need to be a genius to see what way that would take. But it helps. ^_^

You don't really think we can walk away from that party without paying the bills, do you? The USA in particular has bought a lot of stuff from abroad, and will have to pay for it for a while. Meanwhile, all the others that were used to making luxury things for the Americans, they will have to find something else to do. That will also take a while, I think.

Double dip? More like a tiny blip on the long downward slope, is my guess. You haven't seen anything yet! But don't despair. Unless you've borrowed lots of money to buy shares, that is. In that case, start despairing and get done with it. But the world is not going to end. (Unless the Large Hadron Collider actually manages to create a black hole, like they're trying to by 2005...)