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And on the 8th day, God created capitalism… January 5, 2011

Posted by mareserinitatis in education, societal commentary.
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I have a radio alarm clock because I like waking to music. This morning, however, I think I would have preferred the agonizingly high-pitched digital screech to the airwaves.

The DJs were discussing gas prices and playing the opinions of a few people who called in.

This was, quite unfortunately, a confirmation of something I’d realized a few days ago: the majority of high school graduates have not taken an economics course.

While I am not one who agrees with the notion of true laissez fair capitalism, I do think having economics in one’s education is probably even more important than history. With few exceptions, everyone in this economy participates in the market. Nearly everyone has the opportunity to elect politicians who will determine the course of the market and corresponding government oversight.

I find it disturbing that people are making these decisions on vague notions, some of which are totally false, rather than having been exposed to the fundamentals of economics, how the economy supposedly works, and the historic shortfalls of our economic system. So many people believe in the notion of the Invisible Hand without even knowing what it is and the implications of a truly unrestricted market (unless, you know, you’re Michelle Bachmann).

Let’s look at a couple examples from the radio this morning: “I don’t know why they’re charging higher prices for gas now when everyone needs it. It’s not like Walmart starts jacking up their prices right before Christmas.”

Actually, that’s probably false. What everyone sees in ads are called “loss leaders”. Most retailers are actually raising their price while luring in customers with specific items listed as close to cost (or even sometimes below, hence the ‘loss’) as the retailer feels they can afford. Their hope is that the increase in prices on other items will compensate for the losses on the sale items. While it looks like prices are going down, overall, they probably are not. Either way, at Christmas, demand for some items will increase which, according to the law of supply and demand, means that prices will be greater for those items. (Anyone remember the Tickle Me Elmo debacle?) Same thing goes with gas: when demand is increased or supply is low, you will see a rise in prices.

Two other comments that were played were along the lines of, “Why don’t the politicians do something about this?” and, “I bet crude oil prices are lower now than they were when prices were high a couple years ago.”

The answer to the first is this: this is how the markets operate. Decrease in supply or increase in demand will raise prices. (If you want to delve into it a bit more deeply, you can read this.) Politicians really don’t have much control over it. And crude prices are, in fact, around the same price as a couple years ago. This is not the result of a conspiracy on the part of gasoline retailers; this is a response to the overall demand for crude increasing and driving prices up.

We have a whole nation full of people who don’t understand why prices are going up, that there isn’t much that can be done (or that things that may be done are going to have other consequences later), and that all of this could be a giant conspiracy. And yet how many of those same people are also insisting that capitalism is fundamentally guaranteed in the Constitution or some sort of religious-moral imperative?

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Comments»

1. Fluxor - January 6, 2011

Ah… talk radio. A gathering place for superficial rantings and non-coherent musings.

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2. Jacob - January 6, 2011

The government does do something about high gas prices. They subsidize energy companies and refuse to tax gasoline at a reasonable rate. That’s why our gas is so cheap. What people fail to recognize is that while gas is more expensive today than it was a few years ago, it’s a lot cheaper here than in most other countries.

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mareserinitatis - January 6, 2011

Yeah, I have the feeling if were subjected to the realities of uncontrolled capitalism, it’d be the 70s all over again. But even worse is that people who are calling ‘socialism’ right now are also probably the ones yelling the loudest if gas prices skyrocket.

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3. FrauTech - January 6, 2011

This is why the only radio I listen to is NPR. Actually there was some discussion of higher gas prices at the end of the year in 2010 going up when it usually dips a little and economists were theorizing that it might be foretelling some inflationary pressure to come in 2011. Heard it on NPR!

These uneducated people don’t seem any worse than plenty of other educated people’s understanding of economics. I’ve read on plenty of academic blogs lately people asking why the government is doing X instead of “focusing on jobs.” And I just have to wonder what they think the government could do specifically to spur the employment rate higher that it hasn’t already done. Stimulus, lower taxes, what else should the government really be doing? But again people just expect the government to be there for them (except when they don’t want it, i.e., apparently healthcare) at every stage of their discomfort.

Even after the gulf oil spill people were asking “why doesn’t Obama do something about it?” and what was he supposed to do exactly?

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4. Charles J Gervasi - January 6, 2011

There are two things going on, IMHO.

1. People realize on some pre-conscious level that having all of these roads and parking lots makes it difficult for them to travel to places that would be a short walk if it were for roads and parking lots. They have to carry almost a ton of metal around with them everywhere, and on some level they don’t like that. Cheap energy will probably stay available. They don’t like to think about what would happen in the unlikely event cheap energy goes away.

2. Unlike other expenses, they watch the fuel spending tick away in front of their eyes at the pump. They may spend more money per month on travel, healthcare, groceries, and things like that, but they find sitting there watching their energy use tick upward in front of their eyes unnerving.

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