Products

What is the total cost of a car?

• Price tag on car 
• Fuel efficiency (subject to driving conditions) * Cost of fuel * Total distance  
• Maintenance Intervals * Average Maintenance Cost 
• Insurance Costs  
• If on debt, payable interest. 

What you finally pay for owning a car is much more than the price tag. I don't know of a single portal for cars which compares this total cost. I don't even know if this data is public. 

Product Equivalence 

Cars do compete with cars, but then they do complete with motor cycles and buses and autos. So competition for car could be a good combination of motor cycle (short distance), bus (little longer) and train (much longer).  

Conditional Products 

Car insurance is needed only if you have a car and so is car maintenance. Given that most car manufacturers in India only provide maintenance  through their own car dealers, the market is monopolistic. Most spare parts are produced only by the car manufacturers and retailed only through car dealers. The point essentially was conditional products skew the free market. Samsung refrigerators need water purifier that can only be purchased from Samsung. This is where I feel we need some law that forces manufacturers to make sure that the price of all parts put together in the car is not more than the car itself. Or at least this information is public so that we can calculate the expected maintenance cost. May be I should add repairability section also.

Returnability or Repeatability

The margin on small diamonds are over 50%. So you can buy it for $1000, but when you go back to sell it, it will only fetch $500. The value of car drops by 10% as you sign the check.  We only look at "a" sale in free market, but not the second sale of the same product or third. Basically what happens to product price over lifetime, given nothing major happens in the economy. No one seems to talk about this in economics. The question really is about extent of damage that can be caused by asymmetric information in free markets. If manufacturer is forced to define "Product Lifetime" then in a free market, manufacturers should be ready to take the product back given the percentage of "Product Lifetime" used by you.  

Rentability 

Technically a house is worth some function of rent it can fetch at max to be a reasonable investment. A taxi is worth it if "total cost" + labor (driver salary) < total profit. May be some taxi service can use cars parked in office all day and give people rent.  But that apart, many things are not rentable at all. Obviously this is not applicable to food. But if something is rentable, it gives some idea of its time value, which can then be used to calculate its total value, given the life time of the product. 

Product Lifetime

Mobile phones typically last 2-3 years unless stolen. TV and refrigerators can work for 10+ years unless new technologies make them obsolete. Software has much shorter lifetime. Laptops again hardly go beyond 3. Vegetables at edible probably for a week or so, even though the production cycle takes months. Cereals last longer. Movies have few weeks at max to get even. Cars run for 5+ years easily. The reason I am talking about product lifetimes is because they are useful when talking about rentability (above). They give a better idea of the utility of the product because you can divide this number by days or months or years and see if that is good enough for your budget. This also comes into picture if you need to resale it.  

Demand Supply Curve

We have two ways of looking at how prices impact demand. In case of price increase for a product,

• People consume less of the product.
• Number of people consuming that product goes down.

When rental prices go up, people just can't rent room for less hours. They become homeless. You can't buy half an apple from the market. Or have half the education, by attending few classes. You can't buy half a car or smaller seat in a bus for less price. 

I guess their is a big problem as well as a big opportunity here. How can we make most price changes impact only people consuming less instead of some people not consuming stuff at all. If nothing else, half an education is so much better than no education at all. 

Most measures of economy use money to represent growth. But may be if we start looking at units of things, the units that can be purchased and not abstract infinitely divided units, we will start making a better sense of how economy is doing. Are these units getting cheaper or costly because people can only buy them in units. 

The demand supply curve hides this important information from us. May be we should split it up.  Or may be other way is to make everything purchasable by making it infinitely dividable. That brings up whole new circus that I will explore in another post.

One way to do that is by sharing. We share the same roads, bridges, power plants, dams, hotel rooms, restaurants. Renting is also a form of sharing. May be people can share jobs. Instead of firing people, you make them work less and pay less. 15% less hours per day = 15% less pay = 100% employment which is better than 15% unemployment. People who work in shifts can share the same house - you sleep when I work and then I work when you sleep. May be schools for poor children where they can work half of the time to pay for their own education. 

Meaningful Currency

What does $1 means? And what is 1 rupee?  Currency in inherently meaningless unless compared with either other currencies or goods they can buy. What if we use a measure of currency which is inherently meaningful. Here are few examples:

What if prices of food products were written in "cost of meal for a poor child"? So the cost of one zinger burger at KFC would be around 15 "meals for a poor child".

What if price of car was written in "cost of safe drinking water per person". May be we have car that costs safe drinking water for 10K humans.

May be we could do the same for stock markets. Or put it in balance sheets for a company.

May be we could tell people their salary in cost of primary education for a child.

May be that will make us more human. May be it would be nice to live in less abstract world.

On poverty and hunger

The biggest confusion around poverty and hunger is they are treated as social problems. No one had bad breadth until someone invented mouthwash. No one was poor, before money was invented. If we think about them from economic perspective, they are easily solvable problems. I don't think we today don't have means to feed everyone on the planet. The problem is it is not profitable to do so. And why is it not profitable? Labor is cheap. Hence doesn't have money to buy stuff. It is a vicious cycle.

The perfect competition if it ever existed in capitalistic society, it existed in labor markets. Everyone who owns any means of productions, knows that it is not always  profitable to produce more to make more money. You need to produce only as much as is necessary to maximize profits. The problem with labor is, that too much of labor is essentially too cheap. The only way to survive is to work more, save more if possible and charge as less as possible. 

So the solution is very simple. All that labor needs to do is reduce its supply, to get better wages. Now the question is how does labor reduces its supply. Lets just take automobile industry as an example. Let all workers of automobile industry create a new company, lets call it India Automobiles Worker Association. This company provides labor to all automobile companies. Now if this company feels that prices of things have gone up but their "salaries" or whatever terms of contract they had with the automobile companies are not working out, instead of stopping work or protesting, they can simply stop sending 10% or some number of workers less to one or more factories, effectively creating "shortage of labor".  The assumption is that the money from 90% of the workers is enough to feed the whole 100% in the short term. Technically this should cause increase in wages for workers and then the rest can start working. Just like companies stop production to stop prices from falling, all we need is some workers stop work to stop wages from falling. It is a perfectly capitalistic mindset at play. 

All we need is corporations of labor, which can manage their own supply to get best price for themselves. Sometimes our own good is based on good of others. If traders can have unions, industries can have unions, why can't labor have unions. Why should labor union be restricted to a factory. If labor is treated as a commodity, then why can't labor organize into bigger and bigger units and manage their own supply to compete with rest of the economy. Why should labor be employed? Why can't you buy labor from a company in number of hours of work you need and it should be totally up to that company to send whichever person they think would fit the bill. 

According to me, assuming interdependence, labor corporations owned by labor which divides its income among all the owners irrespective of if they are employed or not and manages its own supply to maximize income for all its owners are the best solutions to decreasing poverty and hunger in the world.   These labor corporations can merge to make bigger corporations or divide if it is not possible to align interest of everybody, just like regular corporations. They can sign deals with food suppliers or schools and ensure food and education for themselves by operating as one, instead of fighting among themselves. Just like greed of individual can be good for all (capitalism), greed of all can be good for each one of them (communism).  But all doesn't need to be all, just the economic group for which it really makes sense. I call it capitalistic communism.

Less jobs is actually a nice thing. It only means our engineering is advance enough that we don't need everyone to work. Which means people can work less and have more time for themselves. The problem is how we interpret and deal with it. Free people can be asset as well as a burden, depending upon how we look at them. Free people can educate themselves, work on socially significant problem, not addressed by the free market. But our economy punishes people without jobs. US unemployment rate is 15%. If everyone works 15% less and takes home 15% less pay, we can easily support 100% employment. We get the same result using labor corporation, giving 15% people life and opportunity to do something for the community. And by making it 20% voluntarily, you can get wages to increase and come to a point where community as a whole makes more money with 20% less people working or everyone working 20% less.  The idea of creating jobs is not sustainable. Less jobs is not something wrong with people, it is actually the measure of our technological advancement. If the businesses don't need more people, it is just a fact of life. When trades happen with millisecond frequency, when companies exist or die based on quarterly review, who cares about what happens in next 10, 20, 50 or 100 years. Businesses solve people problems. But people are produced by people who live. Educated people are produced by people who live and make enough money to send their children to school. Healthy people are produced by people who make enough to feed and have shelter and access to hospitals. It is hard to think 100 years down the line. You need to listen to you parents and their parents and read lots of history and books and think about future, not just yours, but future of your children and their children. Our notion of economy doesn't captures people and life and we will have to pay for it with people and life.

BTW we have another solution if we do away with the concept of human dignity (which is anyway gone, just don't realize it) to legalize slavery. Slave is an asset and the owner ensures that he/she is alive for being of any use to him. It won't solve the poverty problem because technically slave has zero money, but it does solve the hunger problem by being of value to at least one person in the economy.

The imperfection of perfect competition

The conditions for perfect competition seem impossible to achieve. 

• Many firms 
• This is in conflict with economy of scale. If their are too many firms, the economy of scale will never happen. In fact the best economy of scale happens when we have a monopoly.  What that means is that the prices are not lowest possible.
• Little barrier to entry 
• Many industries have big barriers to entry. Be it money, time, patents. Only handful of industries participate in natural resource extraction, because barrier to entry is very high. Phrama requires years of research. Telecommunications need huge investments in infrastructure. It is sort of illogical to try to get into a business which is not defensible.  
• Homogeneous products
• Marketing and advertising have only one function, create differentiation.  
• Complete Information 
• This is in conflict with "many firms". It is not possible to have complete information about infinite firms. This is also in conflict with division of labor. If everyone needs to know everything about what he needs from another, he might as well build it himself. 

Perfect competition looks like a myth which only exists in theoretical models, except may be for unskilled labor. There are many. No barrier to entry, by default everyone is an unskilled laborer. They have nothing to differentiate by definition and because the only information required is do they have functioning limbs, it is easy to see by inspection.