The more you know...
Recently I’ve been trying to learn more about economic systems. My knowledge is not extensive by any means, but I found a few concept interesting, and I ran through a few thoughts and ideas as I was investigating.
From my understanding, the law of supply and demand works very similar to a law in physics. In the study of behaviour of people, supply and demand relationships have been tried and tested of time and the same result always occurs. If an available item or service is in low demand, the price will be high. If the available items or services is high demand, and the price will be lower. If the number of available items in the supply chain is low, the price will be low. If the number of available items in the supply chain is high, the price is high. Where these two relationships meet is the market equilibrium. This model is based on the idea that a) the amount of resources sold can increase and decrease, and b) that people will eventually want more or something as more is available or made. But in reality, for an item like oil, that just shouldn’t be the case. The more we want petrol, the more it should cost because we shouldn’t be taking that much out of the ground.
But then I thought, what if, for items where we don’t want overconsumption of, the supply and demand curve switched? What if, we had more demand for the number of items (e.g. litres of petrol), they cost more instead? What if we had a limited supply of items, they cost more instead? But apparently there are other forces like price caps and floors etc that can help with that type of thing.
I also learnt about the concept of specialisation. To maximise efficiency and economy , it makes more sense for people to special and provide one thing than it does for everyone to be specialists in everything. A person might be able to make cookies and be a teacher, or supply education. Say for example, they get paid $60 an hour for being a teacher. And each batch of cookies that brings in $20 takes an hour to bake. Assuming they can’t do the two things at once, the person could spend 9 hours a day making cookies and 1 hour a day teaching. This would bring in $180 from cookie sales and $60 from teaching, which is $240 in total. Or they could spend 8 hours making cookies in 2 hours teaching, which would make $280. So it makes more sense for the person to spend ALL of their 10 hours a day teaching. This is of course not a very realistic scenario, but the same applies for companies. Economically it makes sense most of the time for a company to make all of their money from producing one item or type of item or service. A quote I heard in relation to this was that “self-sufficiency is inefficiency and this can lead to poverty.” That is, if you try and to everything yourself at home, make all your bread and grow all of your vegetables make all your own cookies etc. then you don’t have enough time to do other things that might bring in resources and income. This is what we see today, people work to make money so that they can spend that money on the things that they don’t have time to make at home. And this makes sense. I feel this every day. But the comment about it being completely unsustainable I disagree with for a few reasons.
The model doesn’t factor in the cost to the environment. There is a cost to the environment in the travel that the items take, the impact from the packaging of items that are sold, the impact o the environment from tilling the soil, the impact on people from unfair wages in making clothes etc.. So in terms of efficiency, yes it makes sense to have specialisations. However, the system of specialisation in the delivery, production and packaging of items is not sustainable and needs to be fixed to obtain overall sustainability of the system. One of the best ways that I have seen this in practice is the use of microgrids that was shown in the movie ‘2040.’ They showed as a system, they were producing and providing solar energy to their community on site, and not having to set up a centralised grid.
Another big concept that I learnt more about is GDP, and the biggest problem that I have with the idea of GDP is that everyone always wants it to increase. We never want to be in a recession or depression. But my question is, why can’t we stabilise GDP when our population reaches stability? Why couldn’t we get to a point where the population of our country is stable, the amount of resources we require to feed, clothe, and educate our people is stable, and the amount of money that we produce as a result of our exports and imports and production is stable? This would mean that everyone would have a job and our unemployment would be low. And people would only need to buy what they need. Of course this will never ever happen. But I think the idea of a constantly increasing GDP is ridiculous and unattainable.
Some other things that were confirmed for me were that money communicates our choices. When we invest and click we are sending messages. One of the things that challenged my thinking was the trade can be good, but I would still argue for Australia, because we are so far away from everyone, that our impact with our traded items travelling needs to be reduced, especially any unnecessary movement of items. Economics should factor in people and ethics more often because exploitation is bad. Likewise, emitting carbon is still bad and should be factored in as part of the economic model. Overconsumption and the marketing and other economic forces that lead to this are bad and should be reduced. And the economic model should be modified to reduce overconsumption of resources.
In some ways, the way in which this economic model would look with reduced overconsumption, some would say for people living in a ‘flourishing economy’ would mean that people need to make sacrifices.