Saturday, December 11, 2004

Counterintuitive

When explaining economics to someone in the abstract, when things get cheaper people buy more, when things get more expensive people make more, it all seems so obvious as to be pointless. But enter reality, and for reasons that I beleive are deeply biological, folks revert from understanding markets to some sort of collectivist coordination fantasy.

For example, people chide the pharmaceutical industry for spending too much effort making me-to drugs instead of new drugs. These folks call such action wasteful, and say that high-drug prices are the consequence of this inefficient management.

In fact, me-to drugs are the solution to high drug prices, not the cause. If a good has more substitutes, its price will come down. This is really simple and obvious, and yet it does not seem to be obvious at all.

Similarly, Landsberg lays out why there is no one more generous than the miser...
—the man who could deplete the world's resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.

If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer—because you produced a dollar's worth of goods and didn't consume them.

It's worth reading the whole thing because it is correct, entertaining, and short. But it seems that we are biologically wired to imaging goods as fixed sum entities that just appear (as if they grow on trees, or graze in large herds perhaps) where one person having them means another person goes without.

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