Monday, January 19, 2009

Basics of Economics

Thought I may as well share some basic economic principles shared throughout the science, straight out of my old notebook. For myself as much as for my readers.

Four Principles of Economics

1) Scarcity
- Without some kind of scarcity in everything, there are no reasons to make choices. The ultimate reality is, nature an ultimate scrooge, and the ultimate source of poverty, by virtue of the fact that if we want something, she doesn't just hand it to us magically from the sky. Without scarcity, there is no reason to for people prioritize their desires, and therefore, there would be no trade. Basically, the whole notion of scarcity determines supply and demand, which simply put, means that everything comes with a price-tag save the only two things that really are free (usually): Air and sunlight.

Please, never mix the basic concept of scarcity with the term "shortage." Shortage is a different term in regards to demand somehow exceeding supply beyond what natural market forces would decree. For a recent example, we recently had a shortage of oil brought upon the fact that China was basically hogging all of it for itself via government subsidized of gasoline. This is the sort of crowding out that would properly define a "shortage," not to be confused with the basic concept of "scarcity," by which everything has to come with a price.

2) Only Individuals Choose - There is no "hive mind" amongst human beings. Likewise, there are no choices to be had between individual brain cells. Therefore, all economics begin on the individual level; its hard to determine what a synapse has to do with monetary policy. Likewise, just because you join a group doesn't mean that you've suddenly joined a "group mind" as though everyone is psychically linked and thinking precisely on the same page with the precisely with the same values. Otherwise, why how would people ever leave a group?

This principle also makes another important, basic point: Economies are made purely out of people. There is no economy where there are no individuals. The moon has no economy. However, it can be said that there was one briefly, once you had astronauts being forced to make tradeoffs concerning their life support on the moon.

3) People choose rationally - There is purpose in what people do. A means to their ends. When we aim for a value, we do so deliberately.

4) Unlimited Wants and Desires - People are greedy. Greedy greedy GREEDY. We just are. Its in our DNA as a species. Why are we "greedy?" Because we have imagination. Achieving old goals begets new goals, new ambitions. Without greed, there would be no objectives in our lives. That's not to say all greed is monetary and material, but lets face it, there's always, always, something that you want, something you don't have yet, that you want to strive for. Your mind is always generating a new list of "things for you to achieve and/or obtain", and it won't ever stop until the day you die.

There is nothing intrinsically negative about the reality of unlimited wants, although most people are certainly aware of how it can be. It all depends on how one goes about their ambitions. Whether its done legitimately and voluntarily, or whether its achieved with force and fraud. As I always like to say: "Greed is good, because in order to feed your greed you have to serve others needs. Selfishness is bad, because its when you start to get selfish that then you start stealing."

~David Morris~

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