As I write this article in 2008, the economy of the United States has clearly exhibited signs of crisis.
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A market in the simplest form is a place where buyers meet to facilitate exchange. These days, we are seeing less and less exchange. Many business owners are standing still, waiting to see how things progress in the economy.
For the most part, the news is not good.
The real estate market has deteriorated into something that hardly resembles a market and is certainly not a well functioning market. High inventories and diving prices have ensured that the screeching halt that residential construction has experienced will also take its toll on other forms of construction.
Combine this with a frightened financial market, credit crunch, weakened dollar, insanity on the energy front and a stuttering job market and you have the recipe for a recession.
Slowly but surely, even the most optimistic economists are coming around to the fact that the economy is going downhill. There were moments when people were clinging to small signs of revival, but the overwhelming truth is that business cycles come and go.
Business owners and entrepreneurs would do well to ask some important questions about the economy. What are other businesses doing to combat this current downtrend? How long will this trough last and how deep will it run? Is this the end of the United States as the dominant economic power? How is all of this going to impact me and my business?
How Economic Pressure Breeds Success
The good news is that every cloud has a silver lining.
People may get carried away worrying about the economy, but through crisis there is often bred a sense of urgency and innovation. Take, for instance, the energy crisis of the 1970s. OPEC decided to respond to the Yom Kippur war by refusing to ship oil to nations that had provided support to Israel. Of course, there were many more variables to the equation, but the end result is fairly straight forward. The price of oil increased dramatically and most countries made decisions to reduce their dependency on foreign oil. One example of this is the birth of Brazil's sugar ethanol program.
Without the energy crisis of 1973, it may have been years until Brazil found it cost effective to begin turning their vast sugar cane resources into energy. As a result, sugar ethanol is about six times more effective than ethanol extracted from maize. It reduces greenhouse gases by ninety percent. 100% of Brazil's fueling stations hold this ethanol blend. This is all thanks to the motivation of crisis.
Although the current crisis is not a direct result of a foreign embargo, the difficulties that exist are just as menacing. Inflation adjusted prices now represent a larger problem than prices in the 1970s, as the United States has become more reliant on foreign oil. Also, emerging markets represent a facet of demand that is not easily contained. Morgan Stanley recently predicted oil would reach $150 by early July. This may not be a sustainable rate, but prices of $115-125 may prevail for the foreseeable future.
Solutions Are Just Around the Corner
Somewhere there is an entrepreneur who has a passion to harness the winds or the sun. There are people working diligently on a compressed solar cell that will revolutionize energy production in southern states.
Unfortunately, it is impossible to discern when a breakthrough will occur. The country continues to hold its collective breath and wait for rescue. Until then, the motivation of crisis will have to be relied upon to breed a sense of urgency in our entrepreneurial workforce.