I think part of the intended interpretation of Dath Ilan is: “it would be easier to run an adequate society if everyone knew some basic economics”.
I know almost no economics. Even my understanding of supply & demand is shaky. Is there some bit of economics I can learn and start applying on Earth to see why this claim might be reasonable?
At the risk of saying the obvious, let’s start with the supply and demand.
Imagine a market with one unified product (this is the basic model, of course it gets more complicated later), thousands of producers and thousands of customers who can observe each other. The idea is that although the price is a result of mutual negotiation of all these producers and customers, each individual producer or customer feels helpless and treats it as a constant.
If you increase the price, more producers will be willing to sell (let’s assume that their alternative is doing something else outside of this specific market, each producers has different options, but these options are unrelated to the price at this specific market), and fewer customers will be willing to buy (again, assume they have alternatives at different markets). If you decrease the price, fewer producers will be willing to sell, and more customers will be willing to buy.
The idea is that although each individual producer or customer feels helpless (it seems like their only option is exit), together they set the price; specifically the price will stabilize at the level where the total selling capacity of the willing producers is equal to the total buying capacity of the willing customers.
(Famous exceptions to this rule are land and labor, because the land is not really produced, only a constant amount exists; and if you pay people more, their free time becomes more enjoyable. If a producer or a consumer has a monopoly or a cartel, they can dictate the price. Producers try to change the situation by creating brands. Etc.)
Many people already fail to understand this basic point. For example, what happens if you make increasing prices illegal during the shortage? Fewer producers will have an incentive to produce the product. Yet, most people will approve of the ban, and then complain about the shortage. (Because their intuition is that shortage is bad because it makes things expensive, therefore making expensive things illegal will make the shortage go away.)
The employers who complain about the shortage of qualified employees are making the same mistake. The reason they can’t get anyone is that their salary offers are not competitive. Insisting on keeping the salaries at yesterday’s level no matter what is not going to make the “shortage” go away.
Speaking of the job market, as an employee you should want there to be as many employers as possible, because then the salary (the price of your work and talent) will stabilize at a high level. Yet, many socialist leaning people want to make entrepreneurship more difficult, and then they complain about not being treated well. (Intuitively, they see hurting the employers as a collective revenge, not realizing that much better—and better targeted—revenge would be the freedom to walk away without consequences, which you only get when the number of free positions exceeds the number of job seekers.)
Taxes make things worse for both the producers and the customers. Some people believe that there is a huge difference between whether the tax is paid by the producer, or by the customer, but those are just two ways to describe the same reality: the customer pays C, the producer takes home P, the state takes X = C—P. You can describe it as “the price is C, then the producer pays the tax X, and takes home P”, or you can describe it as “the price is P, but the customer also has to pay the tax X, making their total expense C”, those are just different words describing the same outcome.
...uh, it seems like actually quite a lot would change if even this simplest thing became common knowledge.
I love economics (I’m an engineer and accidentally stumbled into it and now am PhD econ since 15 y or so and lecturer) and much of me believes DI quote exactly hits the nail. Sometimes, say 20% of me*, thinks that even reasonably advanced economics doesn’t help not so smart people really be smart. Still, I think the statement survives.
PM me if you’re interested in me sharing some materials personally with you! I’m also happy to have brief chats on things if useful.
Smartness + econ really is king.
One thing I can say upfront: I’m convinced on in LW or EA circles I have the impression to often find smarter quasi-economics analysis than among economists opinions/statements, so it’s all a bit a funny world with econ (a rant e.g. here).
*My exact literal and ungrammatical statement makes little sense but I reckon you see how I mean it.
I think part of the intended interpretation of Dath Ilan is: “it would be easier to run an adequate society if everyone knew some basic economics”.
I know almost no economics. Even my understanding of supply & demand is shaky. Is there some bit of economics I can learn and start applying on Earth to see why this claim might be reasonable?
At the risk of saying the obvious, let’s start with the supply and demand.
Imagine a market with one unified product (this is the basic model, of course it gets more complicated later), thousands of producers and thousands of customers who can observe each other. The idea is that although the price is a result of mutual negotiation of all these producers and customers, each individual producer or customer feels helpless and treats it as a constant.
If you increase the price, more producers will be willing to sell (let’s assume that their alternative is doing something else outside of this specific market, each producers has different options, but these options are unrelated to the price at this specific market), and fewer customers will be willing to buy (again, assume they have alternatives at different markets). If you decrease the price, fewer producers will be willing to sell, and more customers will be willing to buy.
The idea is that although each individual producer or customer feels helpless (it seems like their only option is exit), together they set the price; specifically the price will stabilize at the level where the total selling capacity of the willing producers is equal to the total buying capacity of the willing customers.
(Famous exceptions to this rule are land and labor, because the land is not really produced, only a constant amount exists; and if you pay people more, their free time becomes more enjoyable. If a producer or a consumer has a monopoly or a cartel, they can dictate the price. Producers try to change the situation by creating brands. Etc.)
Many people already fail to understand this basic point. For example, what happens if you make increasing prices illegal during the shortage? Fewer producers will have an incentive to produce the product. Yet, most people will approve of the ban, and then complain about the shortage. (Because their intuition is that shortage is bad because it makes things expensive, therefore making expensive things illegal will make the shortage go away.)
The employers who complain about the shortage of qualified employees are making the same mistake. The reason they can’t get anyone is that their salary offers are not competitive. Insisting on keeping the salaries at yesterday’s level no matter what is not going to make the “shortage” go away.
Speaking of the job market, as an employee you should want there to be as many employers as possible, because then the salary (the price of your work and talent) will stabilize at a high level. Yet, many socialist leaning people want to make entrepreneurship more difficult, and then they complain about not being treated well. (Intuitively, they see hurting the employers as a collective revenge, not realizing that much better—and better targeted—revenge would be the freedom to walk away without consequences, which you only get when the number of free positions exceeds the number of job seekers.)
Taxes make things worse for both the producers and the customers. Some people believe that there is a huge difference between whether the tax is paid by the producer, or by the customer, but those are just two ways to describe the same reality: the customer pays C, the producer takes home P, the state takes X = C—P. You can describe it as “the price is C, then the producer pays the tax X, and takes home P”, or you can describe it as “the price is P, but the customer also has to pay the tax X, making their total expense C”, those are just different words describing the same outcome.
...uh, it seems like actually quite a lot would change if even this simplest thing became common knowledge.
I love economics (I’m an engineer and accidentally stumbled into it and now am PhD econ since 15 y or so and lecturer) and much of me believes DI quote exactly hits the nail. Sometimes, say 20% of me*, thinks that even reasonably advanced economics doesn’t help not so smart people really be smart. Still, I think the statement survives.
PM me if you’re interested in me sharing some materials personally with you! I’m also happy to have brief chats on things if useful.
Smartness + econ really is king.
One thing I can say upfront: I’m convinced on in LW or EA circles I have the impression to often find smarter quasi-economics analysis than among economists opinions/statements, so it’s all a bit a funny world with econ (a rant e.g. here).
*My exact literal and ungrammatical statement makes little sense but I reckon you see how I mean it.