Survival 101

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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The late Paul Samuelson had written the book on Economics. But sadly, he did not write-in the manual for survival. The late Milton Friedman had written the book on money. But sadly, he did not also write-in the manual for survival. Beginning with the formalization of economics as a science since Adam Smith in 1776, the material philosophers somehow always managed to fail to answer the most elemental matters of species perpetuation: the quality of life and the technical change that enables it.

Economics 101 says equilibrium price is set at the equilibrium of the downward sloping demand curve and the upward sloping supply curve. As more is consumed, the price falls. As more is supplied the price rises. When these two desires intersect, we get a market and a market price. The word ‘more’ is about quantity. It says nothing about quality. It does not differentiate between savoring one bottle of vintage wine at the modern day Wall Street prices of around $5000 and getting drunk on 5 bottles of $10-a-bottle of wine on a Friday night.

Monetary Economics 101 is worried about how much money to supply to minimize price increases. Price increases when the demand curve shifts to the right, that is when more (quantity) is demanded, crawling up the supply curve at a higher intersection point. It can only be held back by doing one or both of two things: by also increasing supply or shifting the supply curve to the right, so that the point of intersection of the demand and supply curves does not shift up. Or by restraining demand alone from crawling up the fixed supply curve. Inflation is zero in both cases. Technical change creates supply by creating a market and the market creates the demand and both demand and supply set the price. All of geopolitics has always been about supply favoring one group against another.

The gross domestic product (GDP) measure would become worried if consumption habits are advised to be restrained because the standard of living is directly measured by the quantity of the various things consumed. U.S GDP rises if the traders on Wall Street get drunk on 10 bottles of $5000 bottles of wine instead of one, as long as it does not add to the imports. Likewise, it also rises if 100 of the $10 bottles are consumed by the middle classes. With real things, satiation indeed reduces the quality of consumption because more of something after sometime does not result in the same level of personal satisfaction. Demand, in economics, reduces utility if it is more but adds to the GDP. This, however, is not true of knowledge. The utility of knowledge rises with every additional unit consumed and supplied.

All of economic science has nothing to say about technical change which improves the quality of life. After all, eating mouthfuls of corn is not as satisfying as drinking Coca Cola made with corn syrup. Eating cocoa beans out of the pod is not as gratifying as eating Belgian or Swiss chocolate. The bridge to both the quality of demand and supply is technology. The price reflects it because people are willing to pay more for better things even if it means not as much of the quantity of inputs has gone into them. Both demand and supply could be more efficient from a quality standpoint with better technology, and economics can do little about it.

The reality of the natural endowments which support economic activity in aggregate is the finite or the fixed supply curve in the very, very long term. The illusion of survival in spite of slow death by resource depletion is just that: an illusion. In the end game, only demand, not supply, can be restrained through technology and restrained consumption habits. At some point all the technology in the world cannot provide infinite supply of resources. They have to be sought out using technology just as Columbus needed ships to look for gold elsewhere to bring resources back because the natural comfort of the earth is always the most cherished, because living elsewhere is more difficult and could take much longer than first figuring out how to live in the Sahara or the Death Valley.

If the change that is necessary to build a new bridge or a building or a power plant takes time, the preparation to eventually seek more resources takes even longer. And this preparation is necessary beginning now because it is less efficient to prevent others, even if that is through the bloodless economic conflict of intended deprivation because of the expectation that others will eventually figure out the technologies, from accessing the same resources through geopolitics than it is to focus more constructively on creating the necessary conditions for continuous technical change.

The efficiency of demand and supply determines how long the natural endowments on Earth will last and economic science, as it stands, is epistemologically inadequate to answer this question.

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About Chandrashekar (Chandra) Tamirisa

http://www.thecommonera.com/Common_Era/Me.html
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