Economics for Drunkards

I hope the title does not scare you away.  This is not going to be a voyage through the academic doldrums of the dismal science.  The first reason being, economics is dull.  The second, I am not qualified to present such a tour.  Let me assure you, among most of my readers, I am probably the closest to being qualified.  But the truth is, of the hundreds of pages read, and the myriad lectures attended in completion of my business degree (which included three Economics classes), I remember only three things:

·         The natural price of any commodity is determined by the intersection of the supply and demand curves.

·         Economics is the only science that uses the term “utile” (yoo-tile).

·         The girl that sat in front of me in Intermediate Micro Economics was stunning.

I am sure that somewhere in a previous post I shared my belief that Economics is a behavioral science.  And as such, much like its academic kin, Psychology and Sociology, provides tools for explaining what happened in the past but has demonstrated damn little usefulness in predicting future events.

In those aforementioned academic brushes with Economics, this student was exposed to various mathematical tools that when faithfully applied resulted in the production of very impressive charts and graphs purporting to divine future events regarding monetary outcomes given specific assumptions about human behavior.  And it should be obvious to you by now that it is not the fault of the tools, but the humans’ failure to behave as predicted that causes the problem.  For this, we must cast some blame at the feet of the Psychologists.  Much of Economic Theory is predicated on the assumption that people, known rather dispassionately to the economist as consumers, will always behave in a manner that advances their own self interests.  This consumer is known as the rational man.

It is hard to build a reliable test for living, breathing human subjects, as they are often smarter (albeit, less educated) than the experimenter.  So, the economist has no choice but to create the surrogate rational man and subject him to the experimental psychologist, who learned very early that the way to avoid chaotic results was to abandon humans as test subjects in favor of white mice. Therefore, it is easy to understand why economists are frustrated when their test population shows a preference for beer over cheese.  A mouse will quickly learn the shortest route to its reward and continue to shave time off of its maze navigation building on its success.  The student volunteer; being motivated by that cool, frothy elixir will, after repeated successful attempts begin to demonstrate a rather sharp drop-off of performance, quite often pausing in mid-test to nap.

To overcome this weakness in test design, the economists introduced a second variable (pizza) and a unit of measurement to conveniently assign a relative value.  This unit is the “utile” which has no naturally occurring mathematical properties.  It is only useful in identifying the degree of preference for one consumable over the other.  The rational man will always assign a lower utile value to the next unit of any consumable than he did to the last until, when finally sated for his desire of the consumable in question the utile value drops to zero.

Let me try to demonstrate the theorem:  A hungry rational man will buy a pizza.  And he will buy some beer to accompany the pizza.  If that rational man is still hungry and thirsty, he will continue to buy pizza and beer in such quantities as his cash permits.  But as his hunger is sated and his thirst slaked, the amount he is willing to pay for each additional pizza or beer decreases: That is to say, the cash has a greater utile value than the next pizza or beer.  (If you are with me so far, you have completed the minimum work product for Econ 101.)  But the rational man does not behave like the typical student.  It is evident to any person visiting a frat house the morning after a party, that while there may be boxes of unfinished pizza lying about, one is highly unlikely to find an untapped keg or capped beer bottle.  The evidence seems to establish that unlike most consumables where the utile value decreases as availability increases, an inverse relationship, beer (and other intoxicants) demonstrates the opposite trend (a positive relationship).  The more one drinks, the more one wants to drink; until of course one passes out.

 

There is one other well-tested example yielding a similar outcome.  But this is hardly the place to analyze the phenomenon unfolding within the environs of a strip club.  I wonder what ever happened to that girl from Intermediate Micro Economics.