Every now and then it looks as if the market is nothing short of childish or naïve. It rides from one bubble to the next, then panics when they eventually – and entirely expectedly – burst. A cute little press release with little real impact can send a company’s stock soaring, while temporary setbacks are punished with vigor. Enter the fun and games of the quartile economy, which I doubt anybody anymore thinks is a good idea – but nobody has the willingness or courage to change.

The economic “fundamentals” are a funny bunch. In theory these basic rules lay the foundation for all kinds of economic theories, predictions and so forth. Consider the law of supply and demand; it’s taken for granted that increased demand will raise prices until there is increased supply. Only that theory is not working so well for things like oil and food, now is it?

Basically what is happening is that the markets are getting a reminder that most of the business in the world is still based on physical, by definition finite, things – for example, if we are running out of easily accessible, cheaply producible oil, that’s that. In the long run, the only thing that will bring down the price of oil is demand destruction. And mind you, expensive oil is one of the best things that has happened to this planet in a long time.

On food production, if the weather doesn’t co-operate, crops will not grow. Again, that’s that. if the prices are high, farmers will eventually plant more, as is happening – but whether or not that ends up with more being produced is completely up to the increasingly unstable climate.There is no current technological feat that would make large-scale farming immune to weather.

And don’t even get me started on the ingrained notion of infinite growth. There is no such thing. That ought to be clear to anyone who’s gone through elementary school and learned that the Earth is a relatively small planet. Keeping this in mind, I find it completely, utterly strange that economic press everywhere always proclaims almost the end of the world when the growth of growth slows.

With the economic crisis going on now, the nightmare of all economists is also present: negative growth. Consider this recent quote from NY Times – which, after all, is one of the more level-headed publications out there:

Another month of weak retail sales in July added to evidence that the spending power of American consumers has weakened considerably
[..]
Retail sales declined 0.1 percent in July

OH NO! Stop the presses! The retail sales, which have been growing at an incredible pace over the past years, have gone DOWN! By 0.1 percent! They’re all the way down to the level they were on like two weeks ago! Sell! Sell! Sell! ;) Seriously though, since when is decline of 0.1% “considerably” after long, unprecedented growth? It’s as if the market doesn’t understand that the longer something continues to increase, to more likely a decrease is – not the other way around.

Now, even though this clip is old (from last year) and deals with only the subprime crisis, it’s the best explanation ever on how the market works: