Saturday, May 23, 2009

Supply and Demand curves are theoretical wrong

Bad assumptions built into economics for a hundred years.

The assumption built in to supply/demand curves is that transactions occur in point time, nothing is learned about the changes in the macro distributions of goods during the transaction itself.

That is not true. Customers can see the queue in the grocery store, as can the clerk. Each party gets a small trace of the differential reduction or enhancement in a shelf full of apples as they buy. Construction workers sense of how many fellow workers queue up for a job interview. These people are professional micro-transaction makers, they have sufficient knowledge of how things work and they speculate in the goods when they shop.

Bankers have fast adaption, so money users can simply wait the next day, week, month and find changes in money distribution. The key to money is that it adapts and publishes much faster than other goods, that is its value.

So, the consumers and workers always make continual adjustments to their knowledge of goods distributions as they shop and work. There is always a force of coherence between macro estimates and micro estimates.

The system never gets stuck in a dis-equilibriated condition, absent a technology shock, positive or negative. Once dis-equilibriated, then the participants who can observe the shock will design the stimulus.

1 comment:

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