How Economics works in the real world

I first encountered text-book Economics when I was struggling through a course in Macroeconomics in college. I had been making my own living out in the world for some 25 years at that point and, after returning to Missouri, reading widely with my broadband Internet connection. What stuck in my craw repeatedly was the basic premise of Economics - that man's wants perpetually exceed his ability to supply them.

This is patently false. While in New Thought, one sees (through Wattles, Haanel and others) that thought effectively creates all it needs and anything it wants, supplied through the Universal Mind / Formless Substance. But I was also bothered as I had gotten other data prior to finding New Thought basics.

Buckminster Fuller (in his Spaceship Earth) had pointed out that us as a nation had been producing and exporting for many years far beyond our own uses. In researching this, I found that this datum was true. Factually, we had been exporting surplus grain and other food internationally since before we were a nation. The Roaring Twenties and our own Manifest Destiny of expansion (with our own agricultural, sociological and ecological naiveté) through this great land of resources resulted in a temporary glut of cheap resources, which we promptly shared with the rest of the world - for a price.

While we reaped the whirlwind of the Great Depression and Dustbowl Agriculture results, as a nation we fed our starving and clothed our poor while we regrouped and re-patterned our socio-political structures. By the 1950's we had introduced the Green Revolution through re-purposing chemical agricultural technology we had possessed since at least the 1880's.  We began to feed the world who couldn't feed themselves.  Modernly, we have gotten so good at this we have shrunken our agricultural population down to less than 2 percent of the total American population while increasing the that total many times over.

Malthus, the first Professor of Economics, turned out to have also been one of the first to use questionable science to prove his hypothesis as "scientifically" supported fact. It was he who came up with the point that the geometric progression in population wasn't going to be met by the arithmetic increase in agricultural output. Similarly, scientists of his day "proved" that heavier-than-air flight was impossible as the engines of the time couldn't lift the materials required to carry man aloft. In both agricultural economics and airplane flight, they had ignored the underlying re-purposing of technology which made the whole system efficient for any expansion. Malthus was also unaware (or ignored) the fact that as personal standards of living were raised, as disposable income became greater and spread throughout a burgeoning middle class, people actually quit having large families in favor of enjoying life more (and incorporating the technologies of birth control). [This is a bit short-handed; if you'd like to dispute or comment on this and other points, please go to the blog of this name - gothunkyourselfagain.blogspot.com]

I had also been studying the subject of Computer Information Systems, from the heady days of the birth of the Internet, through the NASDAQ bubble burst and into the reality of broadband paucity in the rural Midwest. A series of papers forwarded my research into the reality that increasing broadband capacity through the rural areas would enable economic independence while preserving quality of life issues. People could operate their businesses virtually anywhere, creating niche-market items and having substantial exchange for their services. The low-paying factory, agricultural, and warehouse jobs no longer would require under-trained rural citizens to provide a living wage for these people.

At this point, I thought that the two principals of Economics, Supply and Demand, were now replaced by Information and Service. Working with this hypothesis still came up short. The various theories of economics could not always be explained by substituting these terms for them. However, Supply and Demand didn't explain the Open Source Economic Model (see Raymond's The Cathedral and the Bazaar), which had cooperation and quality of service/product as the highest goals. Open Source businesses didn't always become viable, either.

Recalling my work in the Ability four-way, I tested the idea that Supply, Demand, Information, and Service worked interconnected. This worked.  I had at this point a four-way relationship (or "four-way thunk", which needed exploration.

Service

Basic Economic laws had to be examined as part of this research. The stated basic law of the inherent failure to supply needed demand had already been disproved by Fuller. Looking into the overall scene, I could see that the basic action was in barter. One exchanged some service of one's own (which includes manufactured products as well as physical action) for another valuable - some service of another, often represented in government-backed paper issue. A service can be a finite product, which decays quickly (food products) or slowly (fine jewelry) over time, needing eventual replacement or increasing value (real estate) for later re-barter/exchange. A service can be a completely transient product, such as getting one's car washed, or shoe's shined, or valet car parking, or hat/coat checking, access to trading on stock markets, etc.

What makes any service valuable is that it increases the quality of life or the capacity for growth. Businesses are formed to organize a production line around creating and supplying a service or group of related services. Individuals exchange their work talents and time as a service in order to obtain pieces of paper which would increase their quality of life. Cars sold by manufacturers buy a better quality of life for various reasons. They are designed to last only so long and then be replaced.  Practically, this is usually only so long as it takes to pay such off. Houses are today built on this model, only lasting slightly longer than the life of the first owner, just past the point where the mortgage is paid off. Food is only valuable if it pleasures the buyer (and doesn't poison him).

Information

Information facilitates exchange. The more data one has about a service, the more one can make up his/her individual mind about it and make an informed choice. As well, selected information is where sales and PR personnel live. Currently, in our age of increasingly transparent media, we can see what kind of slant people put into their text much earlier. Blogs show this in their increasing influence on political races, extending into policy choices in off-election-year party operations.

With information, one can work out whether buying an item, or supporting a political party is worth the value of exchange. As well, our Internet-enabled Information Age also forces companies to have an increased communication with their buying/supporting public.  One company saw its stock fall almost overnight when an online discussion forum pointed out that their lock could be opened with a pen cap. They didn't respond and people were able to independently verify the fault of this product.  Other stories abound where executives got onto public forums and or started blogs where they addressed posted concerns and told all reading public what they were doing to handle the problem. Sale increased, even though the fault wasn't yet fixed.

This fast information interchange has also started cluing in the public to the PR stunts and routines of traditional Madison Avenue marketing. While not cynical, certainly the public has been jaded with their now 24-7-356 media access. So they can smell an insincere pitch a mile away. Businesses have to wake up and have real conversations with their buying public. False information is uncovered more rapidly, so PR firms have to really have integrity in dealing with the public to avoid irreparably damaging their client's reputation.

Supply / Demand

This covers production and distribution, as well as pricing. Probably the greatest model down this line is Wal-Mart, which brings products from across the globe into its hub-and-spoke, warehouse-to-store system. Computers monitor purchases and automatically order replacement stock, which is automatically loaded on a truck shipped the next day. This merchandising data is then also provided to Wal-Mart's own suppliers so that their own warehouses (conveniently located near Wal-Mart warehouses) can then re-stock Wal-Mart's.

The general theory is that the less supply, the higher the price (demand). This works in general terms, but not wholly. Information can show that there is actually a larger supply or a substitute good is more readily available. As well, if you can't buy it locally (poor service), it doesn't matter how much the price is. As the old Midwestern saying goes, "Make do, do over, or do without." If service is poor (such as presentation or overall quality) this sets up local niche markets to provide the same good for less. Again, Wal-Mart's Sam Walton showed the clue - sell a lot more for slightly less. While others are trying to monopolize the market or organize an oligopoly to control prices, the independent can take any commodity good and out sell them.

Similarly, any commodity good can be increased in quality on a custom basis and sell for quite a bit higher price. Value-added farm products sell for more than the generic pre-packaged goods stocked on shelves by the mega-markets. Currently, there is a rising trend of farmer's markets not being able to supply all the possible demand locally, even though anyone could get cheaper goods imported from another country.  

Convenience stores get around this by selling commonly vital goods (milk, bread, hot coffee) on a 24-hour basis for slightly more, charging for the service. "Super Wal-Marts" (Wal-Mart stores above a certain size) have started entering this field by staying open 24 hours a day and having self-check out possible, again providing more service.

As covered above, there is practically no way modernly to create an artificial shortage of any essential (and few luxuries). Someone can always break the impasse through a different supply line or substitute good, or simply supplying the withheld information.

Service is directly related to supply and demand, as noted in the examples above.

Add in the PR and sales brochures, as well as word-of-mouth and you have quite an influence on the traditional market models.