this post was submitted on 04 Nov 2023
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First of all, I'm not saying there is never a correlation between supply & demand, what I am saying, and what that article I linked you was saying, is that the causal mechanism between macroeconomics and actual price fluctuations is not given by supply & demand theory. I am saying that correlation is not causation, and if you want a functioning, usable theory of economics that makes predictions that can be trusted, you need a mechanism. Supply & demand doesn't have one. It finds some correlation and then says it's following a law, without ever doing the work to explain how.
The COVID studies are showing people debating about what the shock was, assuming supply & demand is in operation, but ultimately the only conclusion you can draw is that whatever correlation exists must be co-causal. Both supply & demand shocks were caused by COVID. That's like... obvious. If you wanted to establish more than that you'd need to dig into the causal relationship, but they don't. Unless they do in which case... can you please show me where?
That first article is exactly the problem that I'm talking about. It spends the entire time trying to convince the reader that a correlation exists, and telling stories to explain why it doesn't always fit. It's pure post-hoc justification.
But I want you to look at this graph:
https://files.stlouisfed.org/files/htdocs/publications/images/uploads/2021/POE2103Fig5_20210219101335.jpg
Like JUST LOOK AT IT. Nobody makes that graph if they have the data available to make a real graph. That is a doodle. It is two perfectly straight, perpendicular lines forming a cross, on a graph with no scale. That is there to illustrate the concept of correlation as if it weren't perfectly obvious. That is what I would show a small child if I wanted them to grow up to fundamentally misunderstand statistics. I have seen that diagram, but I didn't mention it earlier because I didn't want to strawman you. Apparently you actually think that's worth showing me.
If you had spent any time in hard sciences you would know two things:
Correlation does not imply causation
People with data will show you the data. They did hard work for it, they are proud of their graphs, and they want you to see the details and insights they are able to wring from it.
Any scientist would be absolutely horrified to present something like that. They would be too afraid of insulting their audience, either by implying this pair of lines they clearly just made up means anything, or by implying the audience were actual children.
And they don't do this:
What the hell is this? What is it? What are they talking about? This is someone trying to coopt the aesthetics of science without doing any.
I can't access the scalping paper, but honestly if supply & demand dictated pricing, why don't ticket prices rise and scalpers get squeezed out? That is what the law of supply & demand would dictate, wouldn't it?
What the scalping situation shows us is companies working hard to fight scalping WITHOUT raising prices, in direct contravention of the law of supply & demand.
I don't actually think economics is a science like physics is a science. I work with world class experimenters in high energy and x-ray physics daily. They have experiments that can be isolated and reproduced, and generate pretty objective data (until you get into the weirder quantum stuff). I don't pretend to understand all of it as Im not a physics PhD but I do get how their lab experiments are obviously different from any attempted economics experiment.
So I kind of doubt you can realistically do a random controlled study on any economics. The best we have is observational studies, which, I'd say are comparably weak. So you're kind of asking for experimental data that doesn't and I'd kind of argue can't exist. We can't have 3 versions of the US economy at the same time and vary one variable and see what happens.
And I think you finally agreed with me, or at least I communicated well enough for you to understand - supply and demand as a concept - an idea - is one part of what's happening in price setting. It's not the only thing, and I don't buy any of the "hydraulic" ideas.
My point of the scalping example was that companies can ignore supply and demand and try and contravene it, but others will step in and make money on the arbitrage. Do you remember what I said in the previous comment about why I think that's worse than the companies capturing that revenue? I was agreeing with you that it's not a "Law" in that companies have to do things that way, it's more that they'll just create secondary markets that bid up the price a la scalpers. The average person doesn't then get access to choose the "company price" or "scalper" supply/demand price - the people making it a business have bought all the tickets / PS5s whatever at the "company price" that's ignoring supply/demand and so the person can either go without or pay the scalper price that did take into account supply/demand.
Right, so you've admitted the data doesn't exist in the way you would want it, so what does that leave? Surveys, perhaps? The thing you denigrated as "anecdote". But like, you know surveys are done all the time in science, right? Have you ever heard the saying "the plural of anecdote is data"? That's why those researchers not only did surveys, but the paper writers looked at many surveys across many parts of the economy. They are doing science to determine the causal mechanisms at the microeconomic level, because those mechanisms add up to macroeconomic phenomena. You can talk about rates of exchange or whatever all day, but in the end it is many exchanges happening at the micro level.
Another place where this happened was the stock market. You'd think if you wanted loads of fluctuating prices responding to supply & demand that would be the place to find it, right? Supply & demand would suggest the market would stabilise and level itself, but doesn't explain the volatility we see. Well, the theory of how the market worked used to be of rational actors working to maximise their self interest, but that model doesn't predict the behaviour of the stock market when you simulate it on a computer. You know what does? Simulating irrational actors making decisions based on entirely randomised and arbitrary internal rulesets. That gives you the boom & bust cycles that we actually see in reality.
And my point about the scalpers is that the behaviour is aberrant. Companies don't do it, even though supply & demand says they could, because they know that it would destroy their good will with customers. That should tell you something about how prices are set elsewhere in the economy, and wouldn't you know it, when people talk to the price setters, they find that they avoid raising prices until their supply chain forces them to. The markets favour stability over price changing, because they don't want to piss off customers.
Companies raising prices wouldn't be better, it would just make ticket prices high across the board. Your scenario of scalpers buying up the entire supply doesn't actually happen. That's probably due to them needing to hedge their bets. They can't sell every ticket every time, they have to guess at how many they can sell, which requires high margins and thus very high prices. Oh look, it's a supply chain explanation for scalping. I don't know if it's true because I have no data, but it's an explanation. Apparently that's all you need. I expect my fake nobel prize any day now.
Also, saying you "work with" people in hard science is pretty telling. So you don't actually do hard science then? You never got any training in it? Because again, if you had been trained in any actual sciences you might have noticed that the data people show you for instructional purposes tends to be real. It tends to be messy. It is not a bunch of doodles.
Anyway, that's besides the point because you've already admitted what I've been saying this whole time: the data isn't there. Supply & demand is an article of faith until someone does the work to look and see if it's there. Well, people have looked, and they haven't found it.