Admitting to Economic Crisis

I generally don't like to comment on the current economic situation in our fair country. However, it seems only responsible to point out a couple things to those that reject the idea that we are in a recession or that there is a crisis.

There seems to be some doubt from some people that we (in the USA and every other country) are in a recession and that prices are rising while income is falling. I am really happy for these people, as the current situation has not yet touched them, or they are sufficiently capable of ignoring it. Perhaps they are Senators. The fact of the matter is we are approaching a turning point in the global economy unlike anything in history. Consumers are just beginning to catch wind of this.

A few things that are and will be affecting the all of us:

1. The American dollar has lost 35% of its value since 2002. This means that anything that is imported, now costs 35% more. Look around your house and tell me how many things you see are imported. Now look in your pantry, you'll be surprised how much FOOD is IMPORTED. The upshot is that much of the rest of the world is following us down the tube, keeping the dollar equitable, but portending to bigger problems later.

2. Not only has the price of a barrel of oil (75% of the cost of gasoline) doubled in the last half decade, but the dollar now buys 35% less barrels (see number 1). Compounding that demand for oil in those 5 years has risen 25%. That being the case, it is incredible that we are only paying $3.50 at the pump. I suspect that we are still buying gas that was purchased at cheaper oil prices with more valuable dollars. Once we start buying gas that was created from oil at today's prices with today's dollars, we will rapidly realize gasoline prices 60% more than what they are today. Demand will drop significantly, which could lead to a collapse of the economics of that critical market.

3. How much of our economy rides on the price of oil? How much BIG business? The answer is anything that relies upon cars, trucks, trains, airplanes, and energy for manufacture and distribution. Or anything that relies upon the manufacture of plastics. That encompasses ALL of the Fortune 1000, which directly affects EVERY consumer. That is you.

From these three things, it is evident that much is riding on the price of oil. Unfortunately, no one is willing or capable of taking definitive action on this. Fortunately, this market, like any other, WILL right itself. This does NOT mean that the price of oil will fall. It means that we will simply learn how to do without. This will not be an easy, nor short, transition. It will take decades. But I do think it will happen MUCH faster than most realize. We won't have a choice.

For us in the USA, we have the unfortunate circumstance of a government that is committing TRILLIONS of dollars to propping up the existing oil-based economy, instead of funding the transition of the economy. Hundreds of billions have gone into the war in Iraq, which is now, or has always been, about controlling oil influence in the world's most oil-prolific region. Hundreds of billions have gone into bailing out oil-dependent industries like automobile manufactures and airlines. This last may have been unavoidable to keep jobs in our economy, but it should have come with more oversight over change. The point is, can you imagine where the US economy would have been in 5 years, if those trillions of $$$ would have been invested in cheaper, emerging technologies that will replace global oil dependence over the upcoming years? Talk about a leadership position! We'd be leading the global economy again, instead of dragging it down like an anchor.

Do with this information what you may...

I went to the grocery store last week and bought exactly the same thing on a grocery receipt I had from the same store six months ago. (I found it when cleaning out a drawer.) My bill last week: $93.54. My bill six months ago: $74.93. That is a 24% increase in food prices, that I will not take to the bank.

What's the trend that is going to impact business landscape 10 years from now?

As all types of resources become more in demand, we are moving to more commodity-driven market places. Oil has lead the way, with wheat and corn close behind. These three items drive cost of living indexes, and the daily patterns of us all. We like to think we live in the age of technology, and to be sure, innovation is increasing rapidly. However, it is traditional commodities that now drive our markets in ways we could never have imagined.

Globalization only expounds this phenomenon. Commodities are much more heavily contested and traded (driving prices further). We are feeling the full weight of population explosions, as global population growth and consumption has finally outstripped our ability to increase resource delivery. As the American dollar plunges in value, the USA's ability to purchase resources becomes crippled, while other nations abilities is enhanced. (There is a positive side to this, as the USA has the opportunity to become more of a producer of resources, mitigating its huge consumption trend.) This upset will take years to stabilize, and will create new way of doing things. Off/on-shoring will take an entirely new meaning.

What does this mean for technology? Technology will move to a more utility role. It will be the medium/tools that the new global commodity market is driven with. Innovations will center more on telecommunications, logistical mapping and control, trading, and process analysis. Business solutions, as opposed to consumer solutions (which have driven technology over the last 5 years). As consumer consumption slows down and business demands increase, this is already beginning to show in the market. Technology will always be innovating, however it will now be the tools of innovation, not the product of innovation.

As with technology, everything else will be driven by the acquisition and transfer of resources. Developing countries are well positioned to take advantage of this, which will ultimately balance the global economy in a way that is difficult for us Americans to imagine. The great fortunes, innovations, and entrepreneurs of the next age will be the innovators of this model.

Pensacola: Impact Entrepreneurship in A Small City in a Changing Economy