The problem with “Supply and Demand”

Supply and Demand is the most famous and important idea from Econ101. “Supply and Demand” is often pronounced colloquially as self evident wisdom, without need for further explanation.

Unfortunately, this simple concept gets some things wrong, at least the way it’s often presented. I’m gonna explain one of these problems, but first I want to take a moment to look critically at our habits for engaging with others about ideas, especially online.

Improving Online Dialectic

The online-o-sphere is rife with debates, disagreements, strong ideologies and opinions. It’s a carnival of diverse thought and conflicting ideas. It’s easy to treat it like a battleground.

From now on, I’m not going to worry about proving ideas right or wrong, at least not initially. Specific statements can be right or wrong, but ideas and schools of thought are not always so clearly defined or delineated.

Instead, I want to ask: “Does this idea have merit? What insights does it provide? Does it have problems? What blindspots does it fail to consider?”

Instead of rushing to a conclusion, where we embrace an idea or reject it, we should try to be mindful of its dialectical utility. This means looking for insights and blind spots, trying to understand what role it can play in helping us learn.

Debates of rightness and wrongness are often illconcieved.

Just take a moment to consider how hard it is to be dismissive of this statement “While you have some good insights about X, I think you have a blindspot about Y.” When you find your discourse descending into to namecalling, it stops being useful.

Most ideas have both insights and blindspots, there’s always something there to discuss. Following this pattern leads to debates that are less about winning and losing, and more about discussion and learning.

Looking for Blindspots

It’s tempting to immediately point out other people’s blindspots, but we should first undertake the responsibility to be aware of our own blindspots.

By definition, this is very challenging. We all have a limited perspective. How can we foster awareness and appreciation of the limits on our own knowledge and the value of others’ perspectives?

Looking for blindspots is hard. I think the best way to do this is by articulating our assumptions and examining them critically.

What are the assumptions made by “Supply and Demand”?

I want you to take a moment and list all the assumptions made by “Supply and Demand”.

. . .

Perhaps the most frequently noted assumption is that of a “uniform product”. If the goods in the market are of different quality, supply and demand won’t resolve to a single price.

Another important assumption is that everyone has equitable access to a perfectly frictionless marketplace. Again, this isn’t always accurate in the real world.

These assumptions are important, but I want you to dig deeper! There is something even more fundamental to the “Supply and Demand” concept. I’ll give you a moment to think.

. . .

Sorry I made you play “Guess what I’m thinking?” I hate that game in school. I won’t blame you if your answer is different from mine.

The central assumption of “Supply and Demand” is it accepts ownership as an a priori concept.

If you said something like markets or government, I’ll still give you credit. Those are closely related.

Markets require a foundation of governance under which the concept of ownership is created.

But ownership, as a concept, also has some problems. “Is our whole intellectual foundation just a pile of worthless garbage here, Derek?”

Yup. You nailed it. jk.

Ownership is just a Useful Fiction

99% of the time, the way we interact with other people with regards to objects conforms to the concept of ownership.

Because of this, we take it for a self-evident truth, when really, it’s just a very expedient, utilitarian, convention.

My job here is not to go around crying “No one owns anything! It’s all in your head!” Or as my brother often says, in satircal mockery: “Property is theft!” (He hears me criticize the libertarian nonsense “taxes are theft”, a little too frequently).

Instead, I would rather have us recognize ownership as a specific instance of the more general concepts of legal authorities, priviledges, and obligations.

Ownership is a Design Problem

I’ve talked before about how ownership is equally concerned with both our interactions with people and our interactions with the objects owned. Different inidividuals or entities take on different roles. The owner both manages the resources and exercises authority to exclude or permit access by other people and define their terms of use. All of these roles must be created under a legal framework which itself defines what the owners can do.

I’ve also discussed previously(on twitter) how computers have opened a door to more nuanced and complex concepts of ownership. We create these amazing online worlds with virtual resources and develop very real communities around them. Websites often create many roles for interacting with resources to facilitate their best use and development. Some of these roles are “owners”, “administrators”, “moderators”, “users”, and “guests”. These online communities show us that we have a lot of options for legal rules we create defining resource roles. Not everything has to be reduced to an exclusive single owner.

Just Like “Legal Rights” Generalizes “Ownership”, “Prioritization Schemes” generalize “Markets”

Markets are a prioritization scheme with a specific distributed design. The problem with markets as a prioritization scheme is that we don’t always recognize the way our collective priorities emerge from our distributed behaviors.

While a top-down, “command and control economy”, sounds like a simple way to create a prioritization scheme with deliberate large scale priorities, it’s not the only way to cognizantly manage our collective priorities nor the best one.

I think we can design resource roles and rules that lead to coherent priorities from both an individual and collective perspective. We make decisions as relatively autonomous individuals, but our individual actions create effective collective behaviors as well. In my mind this is what MMT is about, and Brian Anderson’s #fixingcapitalism as well. The design of our institutions is critical in this process.

Under Supply and Demand there is no guarantee that prices resolve to accurately reflect costs. This is because our design of ownership inhibits the way we engage resources. Resources can be leveraged for exploitation, usurpation, rents, and other unfair advantages. We shouldn’t take ownership as a given, but something that needs good design and needs to evolve gradually.

Under incrementally better political arrangements, prices will better reflect costs, allowing us to more effectively and consciously decide our prioritities, both individually and collectively.

The ideal, for me, comes down to two things, instead of “Supply and Demand”, it should be about “Costs and Priorities”.