[ExI] retrainability of plebeians

[BillK]

On 4/29/09, Rafal Smigrodzki wrote:
> ### Acceptance of certain basic economic knowledge is indispensable
>  for any discussion of economics. Since you seem to be playfully
>  rejecting the basics, I see no reason to continue.
>
> ### Let's wait for Bill to take umbrage at being characterized as an
> anti-free-marketeer and a supply-and-demand denialist....

That's the point I'm trying to make.
Rafal loves theoretical discussion where intricate logic can 'win' the argument.

I point to all the real-life exceptions where humans don't behave the
way the theory says that they should behave.

(I would happily call myself an anti-free-marketeer because a truly
free market society has never existed and *can* never exist while
trying to get unequal humans to deal, negotiate, trick, con, etc. each
other. A regulated market is the best you can get in practice, and
even that has human failings).

I'm not so sure about being a supply-and-demand denialist, but there
are definitely many situations when it just doesn't work in real life.
That's why you have all the different schools of economists, all
arguing that the others are talking / doing the wrong thing.

Let's see....    The basic theory is childishly simple.
*All_things_being_equal* if the price of goods increases consumers
tend to buy less and if the price reduces consumers tend to buy more.
Note: 'All things being equal' defines the theory. In real life things
are often very unequal.

The theory of supply and demand is important in the functioning of a
market economy in that it explains the mechanism by which many
resource allocation decisions are made. So Rafal understands,
(correctly, I may say) that pointing out all the flaws in supply and
demand theory is also pointing out all the flaws in free market
theory, as it actually occurs in the messy, inconsistent and
unpredictable real world.

The basic theory of supply and demand assumes that markets are
perfectly competitive. This means that there are many small buyers and
sellers, each of which is unable to influence the price of the good on
its own. This assumption is central to the simple understanding of
supply and demand taught in introductory economics. However, in many
actual economic transactions, the assumption fails because some
individual buyers or sellers or other external forces have enough
market power to influence prices.

Then there are all the other exceptions, like -
where the supply is fixed. If you only have 1000 widgets, then the
price can be as high as you like, providing at least 1000 people will
still buy one,
where there is a monopoly supplier, or only a few buyers and sellers,
the price is easily manipulated,
where the price drops and consumers stop buying because they think the
price might drop even more next month (depression),
where the price rises and consumers buy more because they think the
price might increase even more next month (inflation),
where the reward is not in the price paid and the price is really
irrelevant. Consumers buy things for many reasons, not just that the
price is right for them at that time,
and so on.

And no market is isolated, they all interact with each other. If
popular fashion, or a TV campaign gets consumers buying widgets, then
these consumers will be buying less sprockets or grungeons. So the
price in one market affects the price in other totally unrelated
markets.

Then there are all the problems of market interference, price fixing,
taxes, subsidies, bailouts, rationing, externalities, etc.

What I am saying is that there is no *law* of supply and demand. It is
a useful part of economic theory, but it only applies in very
restricted times and circumstances. Like most ideal theories, once the
list of exceptions and special cases becomes too large, you have to
examine every real life case on its own merits, because trying to
apply a global 'law' will lead to error.


BillK