This article was last modified on November 4, 2007.


The 2007 Economy, As Seen From Below

This week’s issue of Time (November 12, 2007) had a small section on page 17 called “Hot Commodities” where they list a few things that have sky-rocketed in the past few years. I’d like to share their information with you, as well as my thoughts and reflections. Do keep in mind I have no professional training in economics, so any corrections or suggestions would be appreciated.

Petroleum

Time lists crude oil at $90 a barrel, but I believe it has risen more and I have heard projections to $120 and beyond. On Nember 1, the trading price was around $92 and in the days just prior, it had reached a peak of $96.24. This is around the same level as 1980, the current record-holder on oil prices. (If we adjust for inflation, 1980’s oil was being traded for $95. This could easily be surpassed in the next week if tensions with the Middle East remain high, to name just one factor.)

Compare this to just a few years ago. In 2005, crude oil was $60 and in 1998 it was an unbelievably low $15. Costs at the gas pump are obviously noticeable. I’m fond of saying I started driving when the gallon price for gasoline was $0.87, which was quite reasonable and you could find the change in your couch. Now, $3.00 is nothing unusual just a few years later — the cost of gasoline at the pump has more than DOUBLED in just a few years and TRIPLED in under 10. Other things made from oil (heating oil, plastics, etc.) are also obviously affected, which really hits home for a lot of people. And we need not even get into the rising costs of transport (trucks and planes use gasoline), making pretty much all goods susceptible to rising prices if being shipped in from other places (watch the price of your Fiji water go up).

Gold

Gold is at $782 per troy ounce and was at $465 in 2005. A month ago, on October 1, 2007, gold hit a 28-year high against the United States dollar due to the dollar’s off to record lows versus the euro: gold was up at $743.70 per ounce, its highest since January 1980. As we just pointed it, the price has already increased even more.

This probably won’t affect many people directly, but the implications are not good: gold is growing in popularity because a) inflation is a very real issue and b) the value of the dollar is not what it was just a year or two ago. Gold is a solid investment. It’s essentially a universal currency (as you may know, paper money used to be connected to a nation’s wealth in gold — we have Fort Knox — and now it’s not, leaving the dollar to fluctuate as more is printed while the amount of gold changes very little, making it go up in value in relation to the dollar.)

Corn

We’re seeing corn being traded at $3.52 for a bushel, while it was only $1.81 in 2005. Why is corn so valuable? Because the oil prices are having people turn to ethanol, a gasoline-grain hybrid. I’m not a fan of corn-based ethanol, because the prime reasons for using it are easily negated. One, it’s allegedly better for the environment, but that has yet to be shown. And two, the savings at the pump are far outweighed by the additional costs to corn-based products. Corn not only feeds us, but it feeds animals — cows that give us beef and milk, for example. So if it costs more to feed an animal, it costs more to buy what an animal produces. If additional farmers use land for corn, this may reduce corn prices (due to increased supply), but you run into other consequences: increased prices on crops that will be phased out, and the possible environmental impact of poorly rotated crops.

Copper

Like gold, copper is going up. It sits at $3.67 a pound, while it was $1.94 in 2005. Takes 367 pennies and weigh them. If they weigh more than a pound, you know what that means? It costs more to make pennies than pennies are worth. This is something I say just as a side note (I’m not one of those people who want pennies discontinued)… the real issue is where copper goes. Electronics, and many other goods.

Further Thoughts

We’re being hit everywhere: travel, food, heating… while the average American is losing money. Compare your hourly wage right now to your hourly wage a year ago. Compare the inflation rate. Chances are, your checks went up LESS than inflation, meaning your raise did nothing to stop you from going BACKWARDS. What do you call it when prices go up, inflation goes up, and wages go down? I call it a recession, and a pretty intense one at that.

Compare what we’re seeing (with gold and oil) to the early 1980s, a recession that San Jose State University calls “the most severe and the most significant in terms of economic policy of the post-World War II recessions.” What coupled the recession of the early 1980s was an unemployment surge. The standard 6% unemployment rate around 1979/1980 rose quickly to 7, 8 and 9 percent. In November and December 1982, it peaked to 10.8% unemployment, about double the rate it’s at right now (November 2007). If we see levels like this again, we will be in grave trouble — as already stated, not only would the jobless rate be high, but the jobs in existence simply wouldn’t be paying at the levels acceptable for comfort. A “big box” income (Wal-Mart) is peanuts compared to a unionized paper mill, and guess which one is more common while the other disappears.

We won’t even discuss how the housing market bust after-effects could play into all this. If you’re not feeling the pain yet, chances are you will soon.

Sources

“Hot Commodities”, Time, November 12, 2007.

San Jose State University, Department of Economics, “The U.S. Recession of 1980-1982”, http://www.applet-magic.com/rec1980.htm viewed November 4, 2007.

Also try another article under Political
or another one of the writings of Gavin.

Leave a Reply