I’ve just been wandering around, mainly to try and get my system moving again after a couple of days of illness and sleeping… not the most successful trip ever, and after just 3km in a very slow 45 minutes, I’m sweating madly and the flu-like symptoms I was experiencing at one point almost had me convinced I was having a heart attack. But what it did give me was time to think a bit, especially after stopping off at Poundland.

The fun of Poundland, of course, is that everything is the same price – one pound. (You can check this, of course, by taking a basket full of things to the till and asking the price of each one in turn. It does, however, tend to get you thrown out of the shop, especially if you appear to be enjoying the sales assistant’s growing annoyance with your seeming ignorance.)

But it does raise the question of how they actually manage to get the goods in there. Of course, quality varies – caveat emptor, as they say – but this is part of the fun. Some things are bargains, some are “meh, it was only a pound” and in the bin they go.

Which led me to wonder whether this was a deliberate policy by the manufacturers. Do you simply make a thing as cheaply as possible, knowing that it will almost immediately be recycled? Knowing that the pollution caused by its manufacture and global transport, the vain squandering of the earth’s non-renewable resources, the assumedly low wages paid to the few non-mechanical employees used to manufacture these products, and the no doubt minuscule corporation tax paid due to tax minimisation strategies, all of this is simply in vain and that the epitaph of your company is solely that you made a lot of money making worthless products nobody ever actually used?

And that led me to another thought. Companies like these can’t survive long – eventually people will begin to realise what they are doing, and stay away from their products, however cheap they are. Either adapt, or die – that’s economics, right?

Well, yes it is. But is isn’t the real world.

You see, the problem with economics is that is assumes that every decision made by every actor in every transaction is a rational one, driven by more information that most consumers actually have. Here in the UK, for example, most places proudly advertise – or they used to – that they do not use any genetically modified ingredients. Now, it’s that they don’t “knowingly” use any. Which implies that, at some point in the chain, they expect their suppliers to be lying to them. And if you get found out lying to your customers, you shrug it off – no big deal, it’s just business, right? Unless your customers start leaving in droves, in which case you suddenly become very trite and sorry.

The problem is that everybody tries to maximise their income and minimise their expenditure – even if doing so runs contrary to their best interests in the long, or even the short term. For example, nuclear power is cheap, but would the human race even survive another nuclear disaster the size of Fukushima? Or what would happen if there was another large oil spill, similar to the Gulf of Mexico one?

Putting it like that – “maximum income, minimum expense” – that just sounds sensible, right? But this is what creates monopolies, and companies’ arrogant, bullying behaviour and exploitation of their suppliers, customers and competitors. That’s what worries me about things like GM foods – it places too much power in the hands of a few unelected, unaccountable corporations. (Science says GM is safe, but who paid for the science? The GM companies? So my next question is whether you then trust that the science is accurate and unbiased? Just a thought)

And that is the problem with economics. It treats the market as a set of actors with easily defined behaviours, who will always act in their own best interests. It takes no account of misjudgement, rapacious greed, or blind stupidity.

And that’s why we’ve got the economic crisis we have, ladies and gentlemen. Economists – the most naive pseudo-science on the planet. Except, perhaps, astronomy…

One thought on “The unfounded optimism of economics”

  • In fairness to PoundLand, I should point out that a lot of their products are actually very good value – confectionary, food and stationery being three that spring to mind.

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