it's simple!
02 Dec 2005I realize now what the inspiration was for one of my aborted posts – the one about arguing economics on the Internet. It was this post by Glen Dean.
In it, he says:
“There are two reasons (price of gas). One is the price of oil, and the other is refining capacity in the United States. It is really just simple 12th grade economics, supply and demand. With economic growth in places like China and India, demand for oil has increased significantly.”
Just about any time you read someone saying that anything is “really just simply 12th grade economics, supply and demand”, what they really mean is “I don’t understand economics or the complexity of this situation, but here is my opinion anyway.”
Saying “It’s simple supply and demand” is admitting that you aren’t being honest with your readers or yourself. Very few things are “simple supply and demand”. Marshall’s theory of supply and demand for imperfectly competitive markets is a framework – a model (and one that breaks down under some circumstances, if you side with Keynes). It’s a helpful model, but you have to understand it before you can apply it, and you have to understand that economies are dynamic entities and that their dynamics are multi-causal. The fluctuations in the price of oil and gas wouldn’t be the much-studied topic they are if it were merely a matter of “simple supply and demand.” An honest analysis of the market for oil and gas involves many variables, including but not limited to: aggregate supply, aggregate demand, cartelized control over prices by varying supply on the margin, price stabilization by reserve injection, refinery efficiency and output, distribution costs, etc.
This is all just a subset of the maxim that generally any time someone rolls their eyes and asserts that “it’s SIMPLE!” it rarely is. This goes doubly for analysis of social phenomon (of which economics is one), where multi-causality is the law of the land.