Sunday, April 14, 2013

Economy: Laws Of Economics Don`t Exist? Really?

Last week as I browsed the headlines in the media I got the usual dose of stupidity. The nonsense award of the week goes to the magazine "The Atlantic" ( They had the headline: The 'Laws of Economics' Don't Exist.

Really Atlantic? Then show me a new Porsche for 10.000 Dollar, rent me a luxury apartment in Manhattan and a Mansion at the Côte d'Azur for just 100 Dollar per month, sell me a flight from London to Singapore for 50 Dollar and grant me a visit at Salzburg Festival for 1 Euro.

Rare goods like diamonds, truffles, tickets for the Metropolitan Opera New York and a dress from Christian Dior are expensive. There is no free lunch. Period. And if something is suddenly in abundance like strawberries in June, its price falls and rises again when the supply dries out.

And there is more. How many US. citizens try to smuggle themselves south across the Mexican border? Many people who live in low income countries try to get into a high income country as the lines of Mexicans at the U.S. border show?

Gold everywhere in the world is traded at around $1.470 per ounce. If gold cost just $100 in UK and $2.000 in France, people would buy it in London and sell in Paris to make a gain of around 1.900 per ounce. A buying spree would raise the price in London and reduce it in Paris till the price at both places was almost the same (there are some costs transporting). This is called arbitrage, comparable to the laws thermodynamics which explain that heat is moving from a hot place to a colder place as long as there is difference in temperature.

The Atlantic columnist claims that people don`t act rationally. How arrogant! It might seem irrational to ruin one's health by smoking or to have unsafe sex. But people do it because they experience a gain (pleasure) which they prize more than the costs (health). Maybe it is irrational to continue reading the Atlantic.

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