Fallacy of Composition: No Backtracking in the Market

 

For better or for worse, we are born with limited physical and mental capacities vis-à-vis unlimited desires of indefinitely many kinds. Providentially, we have to gratify each desire bit by bit every once in a while. Yes, consumption of goods and services is periodical while we are in Here.

             On the other hand, nothing pleasant to consume comes for free. Consequentially, we have to produce utilities, necessary or desirable, directly or indirectly, and that also periodically. In modern times, our life is communal as well as private; we spend some time in the public arena producing some things potentially utile and consuming other actual utilities. Particularly we trade periodically in the public market of consumable products on one hand and creative services on the other.

             Now, a clear definition, may it be implicit, of the accounting period becomes an integral part of the market framework; for instance, a month for the potato or a fortnight for the working hour. Again, the benefit of potato is in return for a monetary price, while the cost of work in return for monetary income. In the place of financial law, money is real, sovereign and legal. Thou shalt not dismiss money anywhere in economy!

 

23) The Backward Bending Demand

             Once upon a time in Ireland, potato was the staple food: The household budget for the individual item took, say, a half of that for all the foods. In a certain year out of so many, the harvest of “potatos” (to a former US Veep) was extraordinary so as to pull the market price down substantially, say, by half. Then, owing to the saved budget, the household could afford some meat which partially substituted potatoes as meal.

             Lo and behold, the Giffen good with a backward bending demand curve!

             The real question: “Are we convinced?” The answer: Individuals may, but never all of us. First of all, the market paradigm is for a given month; the demand for potatos should  regardless of the harvest have sloped downward over the month. Second of all, meat is merely one individual food out of indefinitely many foods so as to marginalize the meaning of comparing the potato to meat. Why meat, why not venison, or why not anchovy?

             Thirdly, the demand curve per se completely disregards like nobody the opportunity cost. The law of decreasing marginal benefits which defines the demand curve shall always and everywhere decreases . 

             “Let the Sunshine In,” all in all, the demand curve can by no means bend backward per accounting period. No crossover is applicable to the accounting period! 

 

24) The Backward Bending Supply

             Ditto. The supply curve slopes upward due to the law of increasing marginal costs such as working pains among other costs. To the rest of us at least, work gives us “pains” as opposed to “pleasures.” In the mainstream of the economy, the “Invisible Hand” Adam Smith talked about does not Let In benevolence, volunteerism, exercising for fitness and the like. No backtracking labor supply,  please!

             In fine, we copy from somewhere else:

Tiger Woods as Rational as Rich

By way of closing, take Tiger Woods circa 2020 for example. If he, who has become wealthy for long, were to follow the backward-bending labor supply, he would like to squeeze some time out of his busy schedule and play in “Korn Perry tournaments” while shunning the “major” events including Masters Tournament.

         Quite on the contrary, he participates only in prestige golf contests. To tell the truth, his upward-sloping labor supply curve has shifted up ever since his wealth became substantial.

 

“And that’s the way it is” (to Walter Cronkite).