nmwIt’s time to do away with the supply curve — let’s ban it from economic theory!
| September 30th, 2009What do markets have to do with peace + compassion?
That was one of the subjects of a recent panel discussion at a “peace summit” — see “World Peace Through Personal Peace“.
Let’s go back to economics 101
There was this talk about “consumer surplus” and “producer surplus” — see the “surplus” diagram (courtesy of tutor2u.net).
What’s wrong with this?
What’s wrong is that these so-called “measures” are completely abstract and imagined. The only fact that we have is that 1 person is willing to do/create X for $Y and another person is willing to pay $Y for someone to do/create X. In fact, if the demand for X only supported the price $Y/2, then perhaps everyone would do something else instead. For example, there is no reason to believe that anyone today would be willing to hand copy bible texts for $1 per day (perhaps not even for $10 per day). The plain and simple fact is that AFAIK, no one hand copies bible texts. But according to the law of supply, there ought to be an infinitesimally small price at which this service is offered at least once, and that more and more of this service would be offered is the price were to increase. But the entire supply curve for this service is merely imagined, because there is virtually no demand for it.
Likewise, I will probably not paint the first half of a room for any less then I would paint the second half of a room. Indeed: following Taylorism’s “time and motion studies”, the contrary is more plausible. It is quite likely that once I’ve painted 10 rooms, painting an 11th room would not matter as much as painting the first room.
Another thing that’s wrong with both the supply and demand curves is that they assume that resources are infinite. On the contrary, I might paint 20 rooms, but at some point I will need to eat, sleep, etc. — and so my demand for rooms to be painted will decrease and my demand for sandwiches, pizza, a hotdog or a beer may increase.
It’s time to throw the supply curve out of economics
Frankly, I see little evidence of supply. I feel that wanting and desire are our primary motives in almost anything that we do. So everything follows the law of demand — there is no law of supply.
Wow! :O — I just thought that up… I actually have not thought this through at all.
Do I demand “rooms to be painted”? Well, I do derive satisfaction out of a room that is covered in a clean coat of paint — but that is not the same as actually painting the room. I would rather drink a beer than paint a room, and there are other things I would rather do than drink a beer, too. Nonetheless, if I were asked whether I would prefer to have a new coat of paint or a beer, there are times when I would probably say that I would pay more for the new coat of paint.
By and large I think it’s correct to say that I have a negative demand for painting a room. Painting just one single room might be worth -X to me, paint 2 rooms might be worth -1.9X, 3 rooms maybe -2.75X and so on — but like I mentioned before, at some point this curve will inflect: At some point one additional room might actually be worth only -1.1X, then -1.2X and so on and at some point it will become quite inelastic (-2X, -4X, …) and the the positive demand for painted rooms will be insufficient to cover my extremely negative disposition to painting an one more additional room.
What does this have to do with compassion?
If I am at a point where my disposition to painting one more room is at -1.1X, then it would be incompassionate to expect me to paint a room and pay me only X to do so (I would be losing 3X). Practicing compassion at that point would be to offer the job to someone else (who would have a less negative disposition to doing the job) or perhaps shifting demand (as my econ professors used to say: “upwards and to the right”).
To a large extent, the current situation of the global financial crisis is now that there is a collapse in positive demand — and this is roughly equivalent to saying that there is a collapse in compassion for the disposition (negative demand) of workers performing tasks. However, to a smaller extent, the crisis is also simply an abrupt realization of many that they maintained to have an extremely negative disposition to doing tasks (perhaps -100X or -1000X) and now that others no longer show a strong positive demand for such services (e.g. automobole manufacturing or financial services), they find they can “only” paint a room for -X (or perhaps repair a car engine for -2X?)
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| September 25th, 2009
nice message — very touchy-feely
nmw
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