Uh-Yeah...

Alright, after watching last night's very skillfully played script by our new President, time for the reality check. Sorry folks, I have to side with the Republicans on this one. The current economic situation is bad, but it is not as bad as they would like us to think it is. I understand that it is a crisis when someone lost their job, however that's always going to be the case no matter what economic state the country is in. The problem I have has to do with how the 2008 Market Downfall is being played up as though and compared to the 1929 Market Crash and the ensuing economic Depression that followed.

Looking at a Linear graph of the Dow Jones Industrial Average or DJIA for the entire history we can see that yes there appears to be a major Downfall in 2008. However, when looking for the 1929 Market Crash, it hardly shows up as even a bump in the road.

"Why?", I asked myself. Well, if most you are familiar with Economies of Scale you'll have some insight to "why". As it is, the Linear graph does show a dramatic change in 2008. However, this is kind of misleading, because the scale at which the change occurs is vastly different than the change that occurred back in 1929. When you take into account the Economy of Scale you can see that the 1929 Market Crash is much more and vastly larger than the 2008 Market Downfall. So how do we display a graph to show this? Simple, use a Logarithmic graph to show the change in value. Below you now see that the 1929 Market Crash has a greater change than the 2008 Market Downfall.

So, what would the 2008 Market have to actually change to in order to be like the 1929 Market change? That's simple, use the Logarithmic data to find a DJIA value that would comparable to what we would see in 1929 to 1932. On 1929-08-30, the DJIA was at a high for the year at 380.33. On 1932-07-08, after the Market Collapse, the DJIA was at an all time low of 41.22. On 2008-05-02, the DJIA was at a high for the year at 13,058.20. Using this we can see what it would take for the 2008 Market to actually fall to, in relative terms using the Economy of Scale. We'll use the Natural Logarithm as a Scale factor. Also, the 1929 and 1932 values are X (1929) and Y (1932). The 2008 value will be assigned, A and it's potential Crash value will be assigned, B. We're ready, let's do the math.

First, take the Natural Logarithmic value of each variable, as follows:

Ln X, Ln Y, Ln A and Ln B

Now, express them as a change quotient relative to their previous Market values and dates of change, as follows:

(Ln Y - Ln X) / Ln X, for 1929 Market Crash

(Ln B - Ln A) / Ln A, for a possible 2008 Market Crash

Finally, set these equal to each other.

(Ln Y - Ln X) / Ln X = (Ln B - Ln A) / Ln A

All that needs to be done is solve for B and we can see what the DJIA would have to be at to be like the 1929 Crash.

(Ln Y - Ln X) / Ln X = (Ln B - Ln A) / Ln A

(Ln Y / Ln X) - (Ln X / Ln X) = (Ln B / Ln A) - (Ln A / Ln A)

(Ln Y / Ln X) - 1 = (Ln B / Ln A) - 1

(Ln Y / Ln X) = (Ln B / Ln A)

Ln A · (Ln Y / Ln X) = Ln A · (Ln B / Ln A)

Ln A · (Ln Y / Ln X) = Ln B · (Ln A / Ln A)

Ln A · (Ln Y / Ln X) = Ln B · (1)

Ln A · (Ln Y / Ln X) = Ln B

e ^ (Ln A · (Ln Y / Ln X)) = e ^ Ln B

A ^ (Ln Y / Ln X) = B

B = A ^ (Ln Y / Ln X)

The '^' means raised to the power of.

Now, plug in the values: A = 13058.20, X = 380.33 and Y = 41.22.

B = (13058.20) ^ (Ln 41.22 / Ln 380.33)

B = 377.07

By my calculation, the 2008 DJIA value of 13,058.20 would have to fall to 377.07 to be anything like the 1929 Crash.