Economics 101. Thrown in your face

A few months ago I bought a Netbook. Amazed that it cost around half of my monthly rent, I couldn't help wonder how cheap things can get. Economists often attribute this as the work of the efficient market. Roughly it means that every process involved when building my Netbook is trimmed and worked on until perfection due to the fierce competition from Netbook producers. Every wasteful step is bound to be either detected and corrected or, if not detected, lead to a more expensive product which no savvy consumer will buy. Sort of.

This applies to labor as well and hence jobs are being outsourced to people with low salary demand, since only a fool would buy a more expensive product than necessary. While this may be a local dilemma for the people losing their jobs it is usually argued that the world as a whole will be better of than before since; We will now be able to buy cheaper goods; some Asian who got your job will be able to feed his family; you who lost your job may suffer in the short run buy will eventually be able to move on to do more productive things.

Economists are trained to argue that this is good stuff, and one has to admit they seem to have a point; all the cheap goods in the world for everyone and the only cost is that when you can't keep up you just leave your job to someone more efficient and learn something new that is in demand. You could even get public support to go to school and learn something that you can do better than that Asian who took your job. It's like a global running competition where everyone on earth is running for the same team and where you just can tag an Asian when you get exhausted and get some rest in a bar before you continue with new strength.

As a physicist you usually get the habit of worrying about what happens with a system after a really long time. Although earth will circle the sun a lot of times it is still interesting to ask what happens after a REALLY long time; will we crash into the sun? Drift away in space? Collide with Mars? And although my Netbook will probably work fine for a while; How is it most likely to brake down? This occupational habit makes me a bit of an odd conversationalist since I often wonder more about what happens in extreme cases than in most likely cases.

When analyzing the economist's efficient market I can't help wondering about the limits. Can people always jump ships when things turn competitive? Is unemployment not an issue with this system? An economist will tell you that there is nothing wrong with his model and that the fact that we have a lot of unemployment is rather connected to an unreasonable restricted labor market where salaries are not determined by efficient markets but by unions. Unemployment, he would say, is caused by the fact that society demands salaries for its people that are not reasonably justified in an efficient market. The economist will quite convincingly defend his model i a similar way and blame its apparent failures on the fact that it was not properly implemented in the first place.

After having tried all your good arguments to prove that his ideas about the efficient market sucks, including the bellow the belt ones which is basically just pointing out that he is a capitalist pig, the economist may get on the offensive. From claiming that it makes most economical sense, he now attacks and plays the solidarity card. This involves facts like the living standards in formerly poor Asian countries like South Korea. These countries used to be dirty and poor before we let them take the jobs we didn't really want to compete for, but are now growing both rich and stable. The economist will, together with some other arguments, claim that the competition in the free market is a better policy for improving poor countries than the policies which pretty much only involves sending poor countries some 1 % of GDP to feed the poor. The fact that the economist (Probably working on Wall Street with a Christmas bonus 8 times you annual salary. And yes; his Christmas bonus comes in cash and has the words "Bailout Money" written on every bill with a smiley next to it) is now reaching for moral high ground in your discussion deeply angers you. But what can you do?

Economists are good to measure things. If you still claim that the economist is full of shit he will point out how much better we are now compared to 200 years ago. With some fancy arguments he will take the credit for this.

We suspect that this self serving economist is full of shit, but we have a hard time arguing with him since most of what he says makes sense. But is he REALLY right? I have some thoughts on that that I will share in a while.