By the way, here's something you libertarian minded folks might like to listen to:
Economist Noah Smith was so focused on libertarianism’s theoretical flaws, he overlooked its political importance. Trump’s tariff policy opened his eyes and made him re-assess the virtues of both libertarianism and Econ 101. Listen as he and EconTalk’s Russ Roberts explore the way political...
www.econtalk.org
An excerpt:
-I taught supply and demand for 30 years. It was the heart and soul of the micro- or price theory classes that I taught. But, I felt differently about supply and demand when I was 25 years old coming out of grad school than when I was 55 years old teaching it for the 30th year.
Supply and demand--and this I think explains why I think people don't--I agree with you, I don't think people--it's really hard to absorb it. It's really hard to use it as a tool.
But the reason is--I have a different interpretation--
the reason I think it's hard is that it's not true. Supply and demand--so I don't agree with you about the empirical side. I'll make my rant and then you can react to it. It's a waste of time to estimate supply and demand empirically. I think empirical things matter, of course.
But, the reason people don't believe it is because it's not true. There's no price--there's not one price called P-star. We say, 'Oh yeah, but that's only for a particular quality.' Yeah but, every quality is different. Every house has its unique aspects. And therefore this whole thing is like a--literally
is--a mental construct, not something that exists in reality and is not the way actual prices are set. Actual prices are set by landlords and developers and people in construction who put a label on it.
And, the deep insight of economics is that you're not free to put whatever price you want. And, the reason is because there's competition.
And, I'm going to get at that--imperfect or perfect, doesn't matter, something, it's really in between--I'm going to get at that with this weird construct called supply and demand. Which doesn't exist. There's no such thing as a supply curve. There's no such thing as a demand curve. That, you can't find them. They are our way of organizing our thinking about the fact that thousands of people are constantly buying and selling. And, how many are trying to move into an area to buy, versus how many new houses get built because there's a improvement in technology that lowers the cost of making houses--those have different effects.
But, you can't really model. You
could: You can have multi-agent interactions and some kind of simulation.
But in general, if you want to have a simple way to organize your thinking about the way prices change in the real world, we're going to use this tool that's
really not realistic. It's not true. But it's very useful. It's not true, this perfect competition. Ever. It's a silly, abstract idea. But it helps you think about how competition works in the real world. And, it insulates you for making stupid--sorry--foolish--sorry--
inaccurate statements about what happens if holding everything else constant, you built more houses. And then prices
would fall. It insulates you from mistakes like, 'Gee, if we keep out foreign goods, I bet the prices of American goods are going to go higher.' And those simple tools are very, very useful.
