Monday 11 April 2011

"Everything Competes With Everything"

Brian Micklethwait is reminded by Rob Fisher of a brilliant little economic aphorism he once wrote:
"Everything Competes With Everything"
Where some people tend to focus upon competition within a delineated area of production (e.g. electricity generation) and consequently worry about the threat of monopolies, what may often elude their focus is the fact of competition between different areas of production (e.g. electricity versus coffee).

The implications of this observation are profound. As just one simple example of this, consider that, were the price of domestic electricity to rise significantly later this year or next, my probable response would be to spend more time in the park with my dog drinking coffee than I currently do in my apartment. In doing so, I would be spending less on electricity and more on coffee. That shift in spending less money on one type of product (electricity) to spending more money on a second type of product (coffee) will be facilitated by a third product - my prospective purchase of the iPad 2. Assuming its' battery life is as good as claimed, I'll be able to charge it at home (or elsewhere) for less electricity than I would use were I spending more time at home (where I use an old laptop), and yet I'd be able to get approximately the same amount of web-time. *

In a non-rigged market therefore, gigantic windfarms would not only have to compete with other sources of electricity generation like gas-fired power plants, but they'd also have to compete with completely different sorts of things - like coffee (and who knows what else...). This insight is an acute recognition of the essential unpredictability of human economic activity over time and thus the hubris of "rational" State involvement in the economy.

*See comment.

2 comments:

  1. *That paragraph is actually a rewrite of an earlier version in which I mistakenly compared different sources of electricity production as an example of competition between areas of production - doh! I realized my mistake shortly afterward and hurried back home to correct it.

    Error and miscalculation is also a significant contributor to the unpredicatability of economic activity...!

    ReplyDelete
  2. Interesting post.

    -Derek-

    ReplyDelete

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