Comments on: Scarce Resources http://www.citizeneconomists.com/blogs/2008/12/29/scarce-resources/ Citizen Economists is an online economics magazine written by citizen journalists. These ordinary citizens provide reports and commentary on the current events affecting the economics of the fields they work in. Mon, 15 Mar 2010 18:40:11 -0400 http://wordpress.org/?v=2.8.4 hourly 1 By: Raymond http://www.citizeneconomists.com/blogs/2008/12/29/scarce-resources/comment-page-1/#comment-4724 Raymond Wed, 31 Dec 2008 06:26:12 +0000 http://citizeneconomists.com/blogs/?p=427#comment-4724 Thanks Dan, Goods and services are scarce because of the limited availability of resources (the factors of production). Such a fundamental economic concept eludes many but I pulled that definition right from wikipedia. Thanks Dan,

Goods and services are scarce because of the limited availability of resources (the factors of production).

Such a fundamental economic concept eludes many but I pulled that definition right from wikipedia.

]]> By: Dirk http://www.citizeneconomists.com/blogs/2008/12/29/scarce-resources/comment-page-1/#comment-4709 Dirk Tue, 30 Dec 2008 17:45:24 +0000 http://citizeneconomists.com/blogs/?p=427#comment-4709 Good article, Dan. One of the factors I feel is overlooked in most considerations of this current financial crisis is that the substitutionary effect on prices that can moderate inflation has been underappreciated. As soon as a price increases more than, say, 5% a year, talk arises of a "bubble" or a "shortage". Yet, it is these kinds of price increases that can affect the economy the way you expect. Substitution has to overcome many factors: inertia- "this is how we've always done it", ROI considerations- will the price stay high enough to justify the investment, and time- some things just take awhile to develop. One example would be a computer program ran by someone like Google, Ebay, or Craigslist that would allow people to enter personal ID data (perhaps using biometrics and a cell phone), desired route of travel, and a time window, and then rideshares would be automatically suggested. This would have the effect of cutting demand (and expense) for petroleum significantly. But this takes time to get traction, and for problems to be solved in implementation. Meanwhile, if someone intervenes to lower gas prices significantly, the return is reduced. After this has happened a few times, just the risk of this intervention will reduce investment. And when the intervention comes in the form of interest rate hikes, creating 2 and 3X cash flow impacts (don't forget, for every dollar of debt service the bank wants to see an additional dollar of profit to maintain ratios), this creates a powerful double whammy that has the potentiall to knock us back to the stone age. I'm still saddened that we don't hear that it was Fed interest rate hikes that created this mess, although you don't hear too many people talk about how it was the cheap money of the 2002-2004 period that created it as much as we did 6 months ago. Because we'll never create confidence in investment and resource replacement/obviation (think wireless for copper) until investors have some confidence that the Fed can't confiscate their profits with future significant hikes and monetary constraint. Good article, Dan. One of the factors I feel is overlooked in most considerations of this current financial crisis is that the substitutionary effect on prices that can moderate inflation has been underappreciated. As soon as a price increases more than, say, 5% a year, talk arises of a “bubble” or a “shortage”. Yet, it is these kinds of price increases that can affect the economy the way you expect.

Substitution has to overcome many factors: inertia- “this is how we’ve always done it”, ROI considerations- will the price stay high enough to justify the investment, and time- some things just take awhile to develop.

One example would be a computer program ran by someone like Google, Ebay, or Craigslist that would allow people to enter personal ID data (perhaps using biometrics and a cell phone), desired route of travel, and a time window, and then rideshares would be automatically suggested. This would have the effect of cutting demand (and expense) for petroleum significantly.

But this takes time to get traction, and for problems to be solved in implementation. Meanwhile, if someone intervenes to lower gas prices significantly, the return is reduced. After this has happened a few times, just the risk of this intervention will reduce investment. And when the intervention comes in the form of interest rate hikes, creating 2 and 3X cash flow impacts (don’t forget, for every dollar of debt service the bank wants to see an additional dollar of profit to maintain ratios), this creates a powerful double whammy that has the potentiall to knock us back to the stone age.

I’m still saddened that we don’t hear that it was Fed interest rate hikes that created this mess, although you don’t hear too many people talk about how it was the cheap money of the 2002-2004 period that created it as much as we did 6 months ago. Because we’ll never create confidence in investment and resource replacement/obviation (think wireless for copper) until investors have some confidence that the Fed can’t confiscate their profits with future significant hikes and monetary constraint.

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