Monday, August 23, 2004

Simple but true 

Milton Friedman explains why some prices should rise, via John Ray.
'WHEN THE PRICE of a thing goes up,' wrote the British economist Edwin Cannan, in 1915, 'a good many people ... abuse, not the buyers nor the persons who might produce it and do not do so, but the persons who are producing and selling it, and thereby keeping down its price ... It certainly would appear to be an extraordinary example of the proverbial ingratitude of man when he abuses the farmer who does grow wheat because other farmers do not ... But have we not all heard the preacher abuse his congregation because it is so small?'
While I am thinking of that notion, I should remind faculty and high school teachers looking for a good book with which to teach economics painlessly (i.e., no graphs, no Ben Steinesque lecturing) of The Invisible Heart. In its first chapter the protagonist Sam Gordon states:
"By the way," Sam was saying, "that 531 billion barrels of reserves and the 16.5 billion barrels of consumption were actually for 1970. If nothing else had changed, we should have run out of oil around thirty years later. But by the time the year 2000 actually rolled around somehow reserves had somehow climbed to a trillion barrels even though the world was using about 26 billion barrels annually. We suddenly had almost forty years worth of consumption left."

"How could that be?" a student asked.

"Self-interest. When the price of oil jumped up later in the '70s, consumers found ways to use oil more efficiently and producers found new reserves. So we're even farther away from running out of oil than we were in 1970. Never underestimate the power of self-interest. ".