Wednesday, August 24, 2005

Jeans and Economic Theory

My little sister, who is going to a sort of boarding high school in Minnesota (for athletes not dopers or delinquents), was in town this weekend and informed me that I needed new jeans. I agreed, however she pointed out that since I had a big boy job, I should start spending big boy iron on clothes. She proceeded to pull up various $200+ jeans on the internets to show me what she meant. Now, I dress well, but I try to dress on the cheap. I pull it off for the most part, but little EK told me pulling off cheap jeans is impossible. I agreed to meet her in the middle and will tonight buy a little EK approved pair of jeans. Who cares? Well, since I am finally going to be forced to go shopping, I will also be picking up a copy of Freakonomics, THE economic buzz book of the day.

I am stoked.

The blog is fantastic as well, especially the post about peak oil.

The cover story of the New York Times Sunday Magazine written by Peter Maass is about "Peak Oil." The idea behind "peak oil" is that the world has been on a path of increasing oil production for many years, and now we are about to peak and go into a situation where there are dwindling reserves, leading to triple-digit prices for a barrel of oil, an unparalleled worldwide depression, and as one web page puts it, "Civilization as we know it is coming to an end soon."

One might think that doomsday proponents would be chastened by the long history of people of their ilk being wrong: Nostradamus, Malthus, Paul Ehrlich, etc. Clearly they are not.

What most of these doomsday scenarios have gotten wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it. Add to that the march of technological innovation (like the green revolution, birth control, etc.). The end result: markets figure out how to deal with problems of supply and demand.

Expect a Freakonomics review by next week while the ladies will decide if the jeans were worth the big iron. Expect some extrememly positive reviews...