Sunday, May 24, 2009

Obamanomics (and the problem of the two-dollar hamburger)

Barack Obama unfortunately suffers a basic misunderstanding of economics endemic to socialists the world-over. In today's show, I hope to be able to remedy some fundamental misunderstandings about a terribly inexact statistical science.

Before I go too much further, I'd like to thank Walter E. Williams of George Mason University for my admittedly scant economic education. I read his columns most often at Townhall.com, and his knowledge of practical economics is unrivalled.

"Economics" comes from the Greek word "oikonomia," which in-turn comes from the words "oikos" and "nomos," which roughly translates into "household administration." Economics is the predictive science which involves the distribution of resources which are limited, or "scarce," in relation to needs and desires, which are virtually limitless.

Economics education is in a rather sad state-of-affairs today. A large reason for this is that the rudiments of "price," "cost," and "worth" are misunderstood. At first blush, they seem to be different words for the same thing. In terms of economic science, though they are closely related, they are three different things. In order to delve a little deeper, we'll use a hamburger as our metaphor.

For the sake of argument, you are at your favorite burger joint. Your favorite hamburger happens to cost you two dollars everytime you go there. The price of the hamburger is, obviously two dollars, but what is it really worth? Most people's instinct would be to say that the hamburger is worth two dollars, but that's not really true.

Arguably, you wanted your hamburger worse than you wanted your two dollars. From an economical standpoint, that hamburger is worth more than two dollars to you. Conversely, the proprietor of the establishment selling you that hamburger wants the two dollars worse than they want their hamburger (made up of its component parts). To them, that hamburger could be said to be worse less than two dollars. This is how people generate wealth in pursuing capitalist interests.

Obviously that hamburger's price to you is two dollars. What is that hamburger's price to the proprietor of the establishement? Ah hah! A trick question, you see; to the establishment selling the hamburger, there is no price, because they are not the end-consumers. Rather, the hamburger has a "cost," which is the cost of the products used in making it.

All of this is well-and-good, but how does government louse it up? Tune in to Gryph's Gripes to find out.

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