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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (19811)	12/30/2004 1:04:28 PM
From: GraceZ	Read Replies (2) \| Respond to of 116555

How long can this producing-more-than-demand-free-market system go on before exhausting/squandering all the natural resources in the world? Producers who produce more than demand have losses and eventually go bankrupt in a free market system, it is a self correcting problem. Loss is just as important as profit in an economic system for directing resources to the highest value use. With China and India joining the game, this day may come much faster than anyone prepared. Economics is nothing more than the study of the use of scarce resources which have alternative uses.. The cost is that an alternative use might have added a higher value to the economy. It has been proven over and over again that free markets lead to far less misallocation of these scarce resources than collective economic systems (no matter how pure their intentions are) simply because of the feed back mechanisms inherent in a free market system. Politicians make political decisions (which have economic consequences), individuals make economic decisions and the mass of individuals which make up the market have far more information in total than can ever be known by any central group or committee. There is no system complete enough to adjust supply, demand and price to reflect the market than the market. Where you see prolonged shortages of basic goods (or ruinous surpluses), severe degradation of the environment or large disparities in standards of living you will always find government interference in the free market, where the government has interfered in the price mechanism. Price is a wonderful thing because as it rises with either rising demand or curtailed supply, it discourages use that is discretionary, leads to substitution and leads to the incremental rationing of scarce resources. Collective systems try to do this by rationing using political controls, they institute protections to alleviate "problems" that the free market would automatically resolve incrementally using price as a disincentive or incentive. So in a collective system, these problems resolve themselves with policy changes which are frequently far more painful and destructive than free market forces would bring about. One complaint a good friend of mine has to economics is that he claims it doesn't take in to account "the environment". Using the above definition of "Economics is the study of the use of scarce resources which have alternative uses.", how could it not take the environment into account?