Friday, June 20, 2008

Rational People Think at the Margin

I have heard more than one person proclaim "if markets worked someone would have figured out something to replace gasoline" or something to that effect.

The truth is there are LOTS of someones trying to figure something to replace gasoline.  In the meantime we are all making small adjustments to our lifestyle and choices to cope with this additional cost to our budgets.

None of these changes are earth shattering - that is what is meant by "at the margin."  We are driving less, we are taking more public transportation, we are buying homes closer to work and we are deferring purchases that we would have otherwise made.

We aren't rushing out to buy a new home just because the price of gas is high - but if we are in the market for a new house, we will take its proximity to work or public transportation into account.  Its the billions and billions of little decisions like this that drive the economy forward.

When a company is looking for opportunities to become more efficient they don't look at redesigning the whole factory.  The look for opportunities to cut a penny here or a couple seconds there.  In the long run they add up to real money/productivity.

This is one of the most glaring failures of government programs.  They don't look to make incremental improvements, it is big bang or nothing.  No politician is ever going to run an election with the slogan "I made collecting taxes 1% more efficient."  So therefore, government never gets any better, it just gets more costly.

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1 comment:

  1. I agree, incremental change is really the only form of change that works.

    Even if all new cars got 40 mpg tomorrow, it would still take years for the car fleet to turn over and be replaced by new more efficient cars.

    People often look to government to fix a problem and fix it now. Most of the time government can't fix the problem, and even when they can government solutions take years to work.

    But, if a lot of individuals make a series of incremental changes the problem can be solved much more quickly and without governmental interference.

    Constitutional a blog covering 2nd Amendment Issues, Big Government and the Nanny State.