Economics 102
The field of
economics cannot deal very well with three
situations:
1.
When there are increasing returns to scale;
2.
When there are irrational consumers;
3.
When there is abundance.
We certainly can
discuss certain aspects of these concepts. But everyone who has ever
taken Econ 101 knows that economists assume that there are decreasing
returns to scale (we use fertilizer applied per acre as an example -
eventually putting on more fertilizer will decrease yields).
Economists also assume that people make rational decisions (people don't,
and Nobel prizes in economics have been awarded to psychologists and game
theorists who have documented that inconvenient fact). The field of
economics is even defined as addressing the problem of allocating
scarce resources among competing needs.
Notice the use of
"needs" rather than "wants." We never get enough of what we don't
need. What we truly need was defined by Abraham Maslow, and his work is still
valid.
Economists are in
denial about increasing returns - if they existed, they think we would
always end up with monopolies. We don't, but for many subtle
reasons: The limits of the market, differential wage rates, new and
better products, etc. It's a messy marketplace!
And it is full of
irrational consumers!
They buy lottery
tickets, although it can be proved that they will be economically better
off by not buying the tickets. They marry, even though the odds of
that decision being a good one are, at best, a 50/50 proposition.
And they run red lights, jump out of airplanes in parachutes, use credit
cards that charge them 30% in interest, and smoke.
But economists have
the hardest time when dealing with abundance.
Most people can
afford to eat more than what they do, spend more of everything since most
people leave an unspent inheritance, travel more, watch more TV, read
more, walk more and think more than they do.
We have an
abundance of choices that is unique in human history. We are wealthy
beyond measure in comparison with the empires of the past: Rome, The
Middle Kingdom, Britain. What can economics tell us that we may need
in order to live in such a world?
Plenty,
actually.
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The
most important insights relate to how to use time in the
best possible way.
Time is the ultimate scarce commodity, yet everyone
has all there is. The use of that time defines us as human beings,
and economics rises magnificently to this task. Economics needs to
know what we want in return for the time we have been given, and plots a
path, or reveals a strategy, that will most likely get us what we
want.
You say you need to
write. The economist observes you watching TV, and decides that you
really want to watch TV. The economist calls this "the revealed
preference axiom." You say you want to write a book, but your
behavior reveals something else. And economists always believe
behavior over talk.
How do you want to
define yourself as a human being? What do you want to achieve on
this earth? What do you want to acquire, given the fact that the
hearse you will eventually need does not come with a luggage
rack?
Once you know, some
of the most magnificent minds that ever lived stand ready to help you with
how you get there. How you can maximize your contribution. How
you can minimize your cost of time. How you can produce the
satisfaction that comes with achievement. How you can move ever
closer to the life you want to live.
You can get those
incredible returns by developing your own monopoly advantage. You
can make the "irrational" rational the way Galileo, or Einstein, or Edison
did. And as you find the abundance that is there for all those who
see it - use it to make a better life, and a better world. Once you
do, you will have passed Econ 102. And somewhere, in an abundant
heaven, Adam Smith will nod and smile.
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