Monday, October 12, 2015

Economic Ignorance

The Change Express machine at the local bank says that if you are an account holder, they will convert your change to bills at no charge. But if you aren't an account holder, you'll have to pay 10% of the transaction. When Lillian read that she said, "Wow, that sucks! Why do they take 10% just because you don't have an account. I mean, it's YOUR money, right?"

I see this kind of thinking from time to time, especially among young adults. It supports the forgotten quote that I have been trying to find again which says something about ignorance of economics being a scourge on society or something like that.

In the example above, Lillian fails to recognize transaction costs and up front costs of the Change Express machine that the bank has to somehow recover. She may think that they should be able to convert coins to bills for everyone since  it's a bank and "they've got all the money," but that shows an ignorance of the business model of banking.

The lack of knowledge of how business is conducted seems to be pretty widespread. Our lives are shielded from the manufacture, transport, marketing, consumption and eventual disposal of consumer goods. The most obvious example is in the food industry whereby most of us would become vegetarians if we saw how our pork, poultry and beef were made.

We don't know and we don't want to know.

Our meats are no longer raised but rather manufactured on farms using industrial scale methods whereby animals never stand or see the light of day during their brief and near-artificial lives. This reality is hidden behind the Potemkin facade of the packaging in which our chicken breasts or pork link sausages are delivered, showing a kind-faced farmer riding his tractor next to a red barn and silo with the sun rising over green hills. This is of course a gross misrepresentation of what the farm really looks like.

But beyond the unpleasantness of food processing are the consumption of other goods and services which involve abusive systems and practices that would shock most of those who buy them. Labor or environmental abuse which are part of the production of things we buy every day are hidden from our view. The sleek and handsome packaging hides what goes on in the supply chain just as the false houses of a Potemkin village hide the reality that the town is destitute.

One additional example that comes to mind is gold, jewelry and the mining behind it. Some of the most sophisticated among us love to wear jewelry of gold and gems but we are shielded from the brutal reality of how these items are brought out of the ground and eventually sold in the finest stores in our cities.

What is odd is that we all know that products are manufactured and services offered for sale by profit-seeking organizations or individuals and that the sale price is necessarily above the cost* of all the ingredients. But it seems that most consumers lose sight of this, which becomes clear when they express surprise and dismay when they learn the lengths to which corporations will go to seek profits. (They're surprised perhaps because no person would so disregard the welfare of others in pursuit of profits. They forget that corporations are not people and do not have souls.)

*With some exceptions, i.e. loss leaders

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