A WEEK IN ECONOMICS (27/05/13 – 02/06/13) THE ELIXIR OF LIFE

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Week-in-Economics

In the Greek town of Ikaria inhabitants live to 100 years old (well not all!). They appear to have the elixir of life, and researchers have flocked to this little known town to understand how a man who smokes cigarettes at the age of 90 has survive without any discernible ailments.

Ikaria is not a rich town. People do not have the luxury of food assortment, job diversity, product variety, and entertainment venues to spend time. Yet, by all accounts, they appear to be happy, if not a little old. Most are still quite active, but are not stressed in their activity. No deadlines beckons, no quest for competitive supremacy drives them. They just live because they like living.

Entering the intense commotion of cities, with their bright lights, fancy cars, and go go go mentality, the quietude of such natural surroundings is incurably broken. Natural, green areas implant themselves in the flurry of activity and for many this offers some form of connection to nature. Otherwise, it is in front of the computer, on the phone, in a car, on a plane, working for an objective, playing to let off steam, and worrying about tomorrow’s paycheck.

In modernity, there is a growing disconnection with organic living. People migrate to cities to secure high wages in order to procure suitable housing, food, health care, luxuries and savings. Rural areas are perceived to be backwaters with little wealth generation.  There, most have to live by the toil on lands, extracting resources and selling onto the market.

One would think that the resources produced would be sufficient to satiate their own needs, but this does not appear to be the case. Resources extracted are far cheaper than the end product it produces. In turn, less profits are made for the labour extracting the resources.  To explain, a mobile phone may be worth 130 pounds, but the palladium and copper and other metals used to create the phone is bought by the manufactures in bulk for a fraction of the price.  Perhaps this is capitalism in a nutshell. As the unionist William Haywood quipped “The barbarous gold barons do not find the gold, they do not mine the gold, they do not mill the gold, but by some weird alchemy all the gold belongs to them.”

In a product cycle, those who extract the resources are likely to receive a meagre salary for their toil. Their income potential is limited, and thus it is no wonder that many migrate to big cities for a greater income. On the other hand, the director of the company that sells the product is likely to receive a far more handsome salary.

Today, the culture is such that those at the higher end deserve a sizable proportion of the profits the company makes. It is argued that these people have more technical skills, take a greater portion of the risk, and manage far more people. But this is just ex post justification.  Ultimately, white collar workers have a greater control of the money that is coming into the coffers of the company.  They can distribute accordingly. The blue collar workers have far less control.

Governments then target this distribution through tax, but the income proportion is still dependent on the hierarchy. Now that white collar workers have more income in their accounts, they are in the position to spend on a wider range of products. They can make investments to secure theirs and their progeny’s future. They can save. The blue collar workers do not have the same luxury, especially in poorer countries.

But in spending more, more resources need to be extracted to satiate the needs of the consumers. Here scarcity becomes a problem – the fundamental reason for the study of economics. How do we allocate goods and determine prices given that the earth’s finances are finite? Every economics student introduction to the subject starts with this question. Yet, for the average person, this is not a consideration. In fact, for every company that offer goods, scarcity does not factor in to their pricing model.

Ultimately, the consideration is on costs, and more specifically, land, capital and labour costs. No resource has a price.  The extraction of any resources, the manufacturing of any good, and the sale of any product is priced according the labour involved and the effort expended, the capital used to create the good, and the land on which it is created. The pricing of each of these factors of production is determined by human value, not scarcity.

If scarcity was a key factor, then the extraction of resources would be valued at much higher prices than they are currently. Today, the extraction of resources is being undertaken at such a frightening rate that critics are speaking of resource crisis, in particular, food , climate and energy. New research on land, oil, bees and climate change points to an imminent global food crisis but governments are failing to heed calls.Climate change due to global warming caused by the production of fossil fuels is pointing towards a change in the way we produce our energy, but no renewable sources of energy offers the same efficiency as the burning of fossil fuels.

If scarcity was a real issue, production rates would be far less. Moreover, only a small percentage of the world’s population is benefiting from the extraction of resources.  Even the poor have demand for good food, electricity, and luxuries. They just do not have enough money to purchase, mostly because their salary is low and range is limited.

Hence, what is needed is a rethinking of prices, wages and assessment of needs. The needs of an average individual in the developed world are perhaps too high, and as they have the ability to buy what they desire, they forget that their demand has grave effects on the earth. Prices do not reflect the scarcity element. Prices are meant to be value by which people can exchange goods. If a group of people are being priced out of the markets because of the actions of another group that have more money to exchange, then it is not the scarcity element that is reflected in prices, but the needs of the company extracting the resources.

Thus, greater consciousness of a more organic way of living is required, and that is why much can be learned from Ikaria in how to approach life, and how much to appropriate. In addition, those “gold barons” need to consider the labour extracting the resources. Higher wages for them could mean higher prices for the end consumer. But this could result in less demand, and a greater distribution of wealth. Whatever the choice, returning to nature in a dynamic, yet stressful world, holds the key to a more sustainable way of life.

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