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10/1/2008
Lasee: The Law of Supply and Demand
The law of supply and demand isn’t a suggestion. Just because we don’t talk about it, doesn’t mean it no longer exists. Kind of like the law of gravity, it is always present.
In talking to many people in lots of places, I find most people (unless they run a business) have little concept of the law of supply and demand.
Simply put, when supply is greater than demand, prices tend to fall. When supply is less than demand, prices tend to go up. This is true for paper, gas, natural gas, money or food. No matter what product or service, when more people want it than there is product or service, prices go up.
The law of supply and demand just is. Whether we like it or believe in it. When it comes to most goods or services that people use, it is a large part of what determines a price in addition to the cost of making goods or services. If someone can’t sell what they offer for more than their production cost they simply will not make it.
Now, the law of supply and demand does not solely determine the prices of some things. Why someone would pay $500 for a pair of blue jeans is beyond me. Presumably, the designer companies could make as many pants at similar costs as Levis or other popular brands. But, enough people are willing to buy at the high price so the price is artificially high on certain goods. This means the producer makes a larger profit per purchaser. This invites competition.
I don’t know if any of you have run up high debts on credit cards, or borrowed too much, or maybe experienced a reduction of your income at some point in your life. When this happens, most reasonable people cut back on spending to “catch up.” They eat out less, buy less expensive jeans, or maybe none at all and put off as many expenses as possible until the financial balance sheet improves. This has an effect on those that they were buying from.
Seems to me that we have had a pretty good time of it, worldwide, for the last few years and many borrowed to do it. Including some individuals, some businesses, the federal government and Wisconsin’s government. This has caused a problem. Collectively, we have over-consumed and borrowed from the future to do it.
What Washington politicians are doing now is fighting the reasonable natural consequences of over-consumption. At some point the party is over and the cleaning up must proceed.
Our politicians in Washington are trying to craft a scheme to prevent the world’s economy from feeling the painful effects of our over exuberance. (“… how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” Alan Greenspan, 1996 speech.)
Just because we don’t teach our children the law of supply and demand doesn’t mean the law has been repealed. When will we learn – and at what cost?
Frank Lasee is a Republican and represents the 2nd Assembly District.
COMMENTS
Of course, if there is an increase in the "supply" of paper money, without a corresponding increase in the value of what's behind it, the value of the paper money goes down. Henry VIII debased England's currency to pay for his government's debts, by adding base metals to the gold and silver. Hence, people demanded more coins for payment of an item, as they knew they weren't getting as much gold per coin (called inflation). England's economy went on to suffer.
Ours is rightly suffering because in the past Congress gave the Federal Reserve the power to print money, and even now Congress isn't keeping tabs on the Fed. We don't even know who they are! Our country is practically run by a group of bankers who keep their identities secret, and Congress doesn't care.
emily matthews (Wed Oct 01 13:22:24 2008)
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