Why Study Economics?

A friend, let’s call him James, told a story of a business owner who discovered that white males bargain for better prices than do women and black people. The reason, the owner figured, was because white males are less “oppressed” by the culture and therefore have more “social confidence” than do women and blacks who are “systemically oppressed.” Therefore, to remedy this social injustice the owner did away with bargaining and instituted a flat price for his products. All would pay the same. The salesman is, thus, a model of fair and just business practice.

However, by instituting a flat price the business owner has not actually benefited the “less confident” nor alleviated the “socially oppressed” since women and black people must still pay no cheaper a price than previously. Furthermore, the owner has actually hurt the people he intended to aid: while under the free-bargain system it was rare that a black person or woman got a deal, yet it did happen now and again. However, with the flat price system it is guaranteed that a black person or a woman will never get a bargain. As for the white males, they now are being punished by paying higher prices than normal. Since the white males now must pay a higher price, they are that much poorer and thus have that much less money now to spend on their wives – women are still hurt in the end. Furthermore, the business-owner is now making more profits than previously due to not allowing anyone to bargain. Thus, not only he but also his wife – another woman – is that much richer at the expense of other white men and by relation other white men’s wives. One woman profits at the expense of other women. In short, the flat price has not helped the “oppressed” but only has institutionalized their “oppression” while benefiting the owner. Yet, at least the white male privilege has been torn down.

Another example my friend gave was of a heavy equipment business that does not keep its excess profits but gives them away. The heavy equipment company over the years has given away some $100 million dollars of its profits to various donations, thus helping the poor and unfortunate of society. This is truly a good deed and I in no way wish to diminish or even mitigate such practices. However, it should not be inferred that giving away profits is the only way to benefit society.

It is not true that one can either keep profits or help society. Rather, keeping profits for the purpose of expanding employment or lower consumer costs are two ways excess profits can aid society. For instance, the heavy equipment company could have retained its profits and used them to employ $100 million worth of new employees. These previously unemployed or less-gainfully employed persons would now use their new wages to provide their children with food, clothing, housing, education, healthcare, etc. The newly hired employees also would have built new houses and purchased more cars or perhaps themselves donated the money to their churches or even cooked extra meals for their sick and needy neighbors. But now the community will never see those jobs nor the tangible benefits those jobs would have brought. Another option that the company could have pursued was to retain their surplus profits and then lower sales costs to the consumers of their products. Instead of charging, say, $100 an hour for bulldozer rental, they could have begun charging $50 an hour. Thus, the consumers – probably construction crews – would in turn be that much richer. Perhaps they would have been able to spend the excess money on better quality materials or engaged in more construction projects: more bridges and buildings would be built for new businesses across town. Or the construction company could have used the extra money to pay their hard-working construction workers higher wages which would have benefit their lower-middle-class families. In short, donating profits is an honorable deed that does benefit society. But it is false to think that retaining profits only benefits the employer or that the only way allocate profits justly or beneficially to all is by donating them. Yet, unlike these trickle-down effects that require careful thought to envision, the company’s generous donations provide immediately viewable results.

This is why studying a little economics does the people good. You can start with this classic work: Economics In One Lessonflyer2-245x300

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