That is what the first two weeks of economics teaches.
The rest of the curriculum is about how wrong that is.
The rest of the curriculum is about how wrong that is.
Mainstream neoclassical economics is mostly preoccupied with what ought to happen in some mathematically defined fantasy world and business school is the study of what actually does happen.
In fact when you get into post-graduate classical economics, it's mostly just a formal branch of mathematics with models and axioms. It's got nothing to do with how people actually engage in the real world with the distribution of resources.
It's based on some mathematically defined homo-economicus and has a bunch of assumptions like infinite knowledge, exclusively rational and always correct based on some utility function calculation, etc... as if every single person, without exception, pours over arbitrarily complex excel spreadsheets covering a wide variety of properties for every single purchase and they all, in unison, arrive at the exact same conclusions and without any more thought immediately respond to the price signal. Oh and they also are acting only in their self-interest without any regard, at all, like some kind of narcissistic psychopath, for anything but themselves.
That's why the advanced economics books are just proofs, axioms and math while the business books are things like real world sales numbers. Classical Economic theories predict real world human behavior about as much as an astrology chart. (There's lots of revolutionary work in economics in the past 30 years that present other models but many people outside the discipline haven't gotten the memo yet and think James M Buchanan and other Virginia and Chicago school people from the mid-20th century are all of economics - it isn't and never was)
I've given a pretty good multi-year study into both. One of them reflects reality more.
Price signal is real, don't ignore it. $100 packs of gum won't sell ... unless they do (https://www.mastika.store/products/mastika-gum-gold)
It's part of the "4-6" ps of marketing. (usually price/place/promotion/product - sometimes people and presentation). As you can see in that link, those things are part of it.
It's way more complicated than sellers stupidly slashing their profit margins in some purely competitive feeding frenzy for your dollar. That does happen - but usually only in collapsing markets where price, speculation, information, and value are counterintuitively all unknown.
Robert Shiller has documented this, how the predictive capacity of neoclassical models reach their highest accuracy during market panics. So there is that
Take auto insurance... probably the biggest TV advertiser in the US. Highly regulated product, nothing tangible, it's all the same. But the gecko and Flo and Jake from State Farm are there every commercial break to pound your head in to differentiate their product from alternatives. Doesn't hurt that price discovery is painful in this industry, they know it is unlikely you'll compare more than 2, mayyyyybe 3, companies.
Meanwhile there's essentially zero marketing for health insurance in USA, because people have no choices, the employer chooses for you.
Once you stop thinking about what they actually care about, you're drifting away from a successful execution.
This is from copy to code. From price to presentation to features and flow.
It's not a nice to have or something that's tacked on, it is the soul of the product in the prospects mind - the driving force for the whole effort from the first keystroke to the last signoff from QA, your product lives or dies by your market models and theories and how focused your execution of them were.
Doing this right is the difference between Creative Zen, Apple iPod and Sandisk Sansa or FirefoxOS, Android and MeeGo.
Technical competency is a necessary ingredient but it doesn't get you there alone.
If you want to build something that doesn't bomb, you need to study marketing, significantly and heavily.
I really don't think it's possible
Classical economics are impoverished frameworks for dealing with the richness of human experience.
It discards reality, replaces it with simplicity and then re-presents it as reality.
There is no constructable Valhalla that will follow the rules.
What we have isn't a fall from grace of some theoretical perfection.
It's an unrepresentative mathematical model that has at most coarse correlation with fungible markets.
I always encourage people to analyze the code for various backtested trading bots of you're really interested in how these markets actually work
People generally miss fundamentals and don't account for a moving store of value, they often assume its constant. Economics is marginally only used to sell something often with deceit in mind on someones part.
As for what's driving inflation, its obvious its the fact that government is spending more than they have each year, printing the difference, and have now gone gangbusters with manufacturing spending to offset china imports.
They are also printing money to buy back bonds to control yield curve in lockstep with other central bank currencies (you see these fluctuations in the relative value of the currency).
The corruption, fraud, and graft that this money is funneling to have become so large that its inflating the dollar as its not necessarily creating economic activity. Rising interest rates have stressed the already overleveraged companies to the point they are shutting down or massively laying off.
Some producers base their prices off a business as usual approach. Others project profit sufficient to normalize against changes in the currency price level and any additional expenses/shortfalls in supply chain problems during the short term. While prices may be inflexible for some things, that's only if there's no shortage and the product is available.
Also, you have distributors refusing to do business with smaller companies (as has been seen with a couple of the small time farmers). They want shortages, so they can have an excuse to charge more. Classic characteristic of stagflation and lack of antitrust.
All of this can only get up to a point before food becomes relatively unavailable, and then everything hits the fan.
They generally aren't that monolithic.
You seem to be conflating shortage and scarcity, which generally aren't the same.
It's an interesting theory but I'd like to see some evidence.
For instance, the general consensus is the supply chain issue is from Lean manufacturing which, although has a lower overall cost, trades that off with a much lower tolerance for disruptions. It presumes availability and it turns out these supply lines were both much longer and more delicate then presumed.
You can see that in practice. Monolithic traditional manufacturing didn't have such issues. Things like paper products for instance. When the demand for toilet paper shot up in March 2020, the supply was able to meet it within days, compared to the years for electronics and automobiles.
These are pretty studied topics in the journals. You seem to be interested. They're pretty approachable. Go check them out.
Scarcity is just a given in a scarce world. The perception of shortages on the other hand acts similar to static versus dynamic friction. Once things get moving they become less sticky.
Most of the issues originate in one industry, that says it doesn't pick winners and losers, but consistently does at the tax-payer's expense. They also have a very sordid history as a private institution and to date have never met their chartered mandate. I've read a lot about the history of the Fed.
The supply chain issues rely on cheap labor and cheap transportation that were optimized in many respects for single points of failure due to cost savings. If your an authoritarian regime you usually have both. I've worked as a System's Engineer, and we always look for these in any system for improved resilience in the design.
The lack of silicon processing is a special case, and underlies the complexity of manufacturer; the same issue affected both electronics and automobile shortages. The methods of manufacturing are much more specialized and fault intolerant in the former (because only 1 company supplies the dependencies, ASML) than the latter (paper).
Macro at all levels is Keynesian theory plus increasing levels of math. IMO, much of macro resembled alchemy.
Several upper-level classes, though by no means all, took the assumptions in earlier classes, tore them down, and then re-built economics from there. These are assumptions like preferences being transitive, perfect information, rational self-interest, etc. Many of the claims of econ are defensible even when the assumptions are not. Game theory, for instance, is a very solid defense of economics (albeit one I don't agree with). Institutional econ, political econ & public choice are another family of approaches. Some approached like behavioral economics attempt to "debunk" old theories, though these have had problems with things like replication.
Also, econometrics is quite widespread now. Undergrads typically must take at least one semester of it, and OLS regression is essential for understanding certain papers in most upper-level classes. Econometric models are empirical and have only a tenuous relationship with the mainstream theoretical models like supply & demand, AD-AS, ISLM, or the various growth models.
It's not too dissimilar from physics (economists are infamous for physics envy), where Newtonian physics is wrong but still worth learning.
Economics has "friction", too.
I only did 101 and 102, but even then the professor always spoke in terms like we were some old village, probably to make things easier to understand. But obviously those analogies don't apply to the world today, mostly.
So the history of finance and commerce has been a cat-and-mouse game where the cats find new ways to cheat people, and the mice try to recognize and prevent those schemes.
One example: cartels. If an industry is dominated by a small number of large players, they can collude to set prices and stifle competition through regulatory capture, acquisitions, cornering supply chains, etc. It works like a monopoly, but no individual member is large enough to pursue as a monopoly. It falls apart with too many members, because the rewards for defecting are high.
Last time I looked into some companies from my home country that were part of daily life in my childhood I see that most have been acquired by a larger corporation, or became corporations with multiple mergers themselves.
It's been happening pretty fast the past 20 years.
I would pay a lot more for many small electronic gadgets if I knew that they would 1) work better and 2) last longer than the cheap ones. However, It's basically impossible for me to find out how good is the signal on my bluetooth usb stick or how long my plant LED lights are going to last without breaking so I just buy the cheapest since the price doesn't seem to be a very reliable indicator of either of those things. I'm sure there are players on the market who make things that I'd like to buy, but it's impossible for me to find them and verify that they actually do what I want so they are not getting my money.
They can just look at what their "competitors" are doing. I raise my prices a little bit. You see me raise the prices a little, and you raise them a little. And then I see that and raise them a little more. Then I do a tiny round of layoffs. You also layoff some people. Then I do a bigger round of layoffs and communicate big profits publicly. And you follow suit.
You and I never talk, never "collude". But we are effectively communicating through our numbers. As long as we have captured a big enough market, we don't need to talk, and we both benefit.
I don't know if there's even a term for this kind of "tacit collaboration". Perhaps "anticompetition"?
It's an important first step to realize this is happening. Larry Summers was like, "I don't think suddenly corporations got more greedy", implying that because corporations have been maximally greedy the whole time that that can't be the cause of additional inflation.
But it can be that it causes a new, unfortunate reaction with a new set of incentives, and this is exactly the situation we find ourselves in. It used to be OK (well, not really but let's stipulate) for corporations to be maximally greedy, but now it's not.
So what's the next step? I don't really know. People float stuff like a tax on profits or price controls. I generally think those are probably too blunt, though I could get behind a tax on profits I guess. I might prefer some kind of blanket industry regulation ("Hi Coke, Pepsi, we know you didn't mean to exactly but you inadvertently increased the price of 80% of world soda by 20%--please stop") because this kind of thing seems like it can be nuanced and tailored to a specific situation. Maybe also a prohibition on stock buybacks to lower investor pressure to juice short-term profits--but I haven't thought this one through very much.
I mean, everybody who have seen their neighbor's electric / gas stove wanted one for themselves very quickly to avoid the need to lug wood. And when radio and TV came? Don't even get me started. Fridge, washing machine, dishwasher, vacuum cleaner, camera, car, phone, portable music player, PC, laptop, cell phone...
It all sells / sold really easily just by word of mouth and you just needed to run slightly faster than competitors to capture higher portion of the market. So the incentives were mostly aligned and capitalism delivered value (in those areas).
Now there is no easy way to create a good or service that will instantly save multiple hours per week for almost everybody. No easy way to make luxuries of past like having oneself painted or being served a meal (women must have loved that) available to masses. But still, some that provide meager improvements managed to take off. Robotic vacuums, food (and grocery) delivery services come to mind.
Hence the rush to convert the market shares into an enduring rent.
Eventually corporate landlords will realize that they have the ultimate power and just tax everyone so high that only the basic subsistence is possible, with zero luxury. Maybe then the public will finally reconsider the arrangement.