Mailvox: the inactive aspect of demand

Jed requests an explanation:

Vox, can you explain [that “not buying something is at least potentially an economic activity”]?

How is not playing baseball considered playing baseball when one is merely sitting in the stands? This only works from a socialistic standpoint which is exactly why Democrats saw no problem including it in their law.

First, the baseball analogy is a bad one. The logical error that Jed commits there is his assumption that economic activity = buying something. This is not only incorrect, since X!=not X, but indicates a failure to understand what economics is. This failure is further evidenced by the incoherent assertion that it “only works from a socialistic standpoint”, whereas the truth is that because economic concepts always work, socialism itself does not.

Now for the explanation. Recall the basic supply and demand curve. Since the demand curve is the expression of the buyers’ willingness to buy at various price points, it by definition takes into account the decisions of those who are actively choosing not to buy at a price above their buy point. They are engaging in exactly the same economic activity in not-buying that they are in buying, the only difference is that the price point happen to be above their action trigger.

This isn’t as confusing as it sounds at first. For example, no one has a hard time understanding that a woman has gone shopping even if she didn’t end up buying anything while she was out at the mall. This is why, in the introduction to RGD, I pointed out that Leonard Read’s famous story of the pencil only told half the story as “The story on the demand side is arguably even more amazing, as the myriad assignments of personal value for a pencil made by the millions of people who buy pencils and by the tens of millions who elect not to buy them are all factored into an incredibly massive but ever-changing computation that always manages to produce a definite price for every single transaction that takes place at millions of different points in the space-time continuum.”

This doesn’t mean that every non-purchase can be considered economic activity, only decisions to not make a possible purchase can. One has to be somewhere along the demand curve in order to qualify. Thus, a decision to not purchase U.S. health insurance by someone in Indonesia is not economic activity because the Indonesian is not a potential participant in that market. But the decision by individuals in Chicago or Raleigh to not purchase health insurance is economic activity because they are potential participants in the market since they would be interested in purchasing health insurance if the price fell low enough.

Now, none of this can be used to justify the Commerce Clause given the principle of non-infinity and the fact that it is supposed to be a specific exception to a restriction, not a free Federal do whatever the hell you want card. But the basic concept of the non-buyer as economic participant is a perfectly sound one.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: