• Choose a category
• All
• Classic-Fiction

By Root 1392 0

started growing again, we started hitting some of the same constraints. Oil prices, which dropped to a trough of $33.73 a barrel after Christmas in 2008, were back above $80 in April of 2010. In August, on fears of a global shortage, the Food and Agriculture Organization’s food price index surged to its highest level since September 2008. Martin Wolf, the usually serene economic columnist for the Financial Times, wrote that limits to economic growth could topple civilization. A world that over the past two hundred years had grown itself out of many of its problems could easily slip back to a zero-sum reality in which one group’s gain would result in another’s loss, in which the only chance to get ahead would be to steal, repress, and plunder. Democracy and peace work in a world of increasing opportunities where people can invest and trade their way to prosperity. If there are limits to growth, Wolf warned, “The political underpinning of our world falls apart.”

And if there is any doubt that resources in the future will be more expensive than they were in the past, one need go no further than Ehrlich’s basket. Between 1990 and 2008 the basket roughly doubled in price, after inflation. The price of tungsten zoomed up 150 percent. The price of chromium jumped 138 percent. Simon got lucky in his choice of decade. But it would seem foolhardy for us to trust that our luck will hold forever.

EPILOGUE

When Prices Fail

THERE’S A WEB SITE called Zillow that will spit out a price estimate for pretty much any house in the country. Its algorithm, based on the sales history, the prices of homes sold nearby, and other public data, has a fair track record. In New York and Los Angeles, its estimates have a median error of about 12 percent.

I used to visit Zillow to keep an eye on the Los Angeles condo that my wife and I lived in before moving to New York in 2004. It’s a pretty town house a ten-minute walk from the beach, with a wind-swept roof deck full of cacti and a view of the ocean. But it’s not the house I pined over. I was nostalgic about the financial gamble, possibly the best deal I will ever make. We bought the place for $369,000 and sold it for $575,000 less than three years later. That is a $206,000 return, on a down payment of only $70,000. Like looking at the worn snapshot of a loved one, keeping an eye on the price of my old home brought me closer to that odd burst of luck. Perversely, it taunted me with the hint that I could have made more.

Financial ruminations of this sort can produce whiplash, however. I felt a pang of envy as the place zoomed past $800,000 a year after we sold it. Then it dipped, reassuringly, seesawed, shot back up past $900,000, dropped precipitously, bounced, and ended 2009 around $700,000. The roller-coaster ride has taught me one thing: it’s hard to tell how much a home is worth. The rise and fall of my former L.A. condo offers a bigger lesson: prices can fail. They can get it wrong in a very big way, in fact—steering our decisions in unprofitable directions.

These decisions can be very costly. Skyrocketing house prices persuaded many to spend all their money on homes they would never be able to sell at a profit. Billions of dollars coursed through the Los Angeles real estate market every day. The fortunes of millions of people depended on the price of their homes. But evidently nobody had a clue about what houses in Los Angeles were really worth. So it was across the country, as house prices went for a feverish ride and took our prosperity with them.

The financial disaster unleashed by the collapse of housing led to the sharpest economic contraction in the United States since the 1930s—pushing unemployment above 10 percent for the first time in more than a quarter century. Ricocheting around the world, it knocked $3.3 trillion off the world economy in 2009. Who knew the price of houses could pack such destructive power?

PRICES DO A pretty decent job organizing the world, much of the time. Both shaping human behavior and shaped by it, prices distill people’s knowledge, beliefs,