understand economics

Another fantastic book.

I am reading a book called ‘The End of Poverty’ by Jeffrey D. Sachs and this is one nice book. Oh boy!

I saw the Seneca and Canuga, two of the Finger Lakes, when driving from Rochester to Ithaca and back. I lost my way twice, both times just in time for lunch. Both times, I ate scrambled eggs, once in Palmyra, once in Geneva. Both towns looked absolutely deserted. The beautiful streets were empty, and most of their stores were closed.

‘The towns from here to Rochester fall in a Rust Belt,’ I was told. ‘What is a rust-belt?’ I asked. ‘Stagnant economies. Take Palmyra for instance. The town looks quite empty. Most of the shops are closed. This is happening because the traditional industries that kept these towns alive and growing are all closing down.’

Why do products sell for so much more than they cost to make? I have seen people pay $20 for flash-lights that I can buy in the East for $1. Why do folks pay $70 for a shirt made at a cost of $3? Why do middlemen take perhaps around three fourths of the sale price of a product? Why do people here have to pay $80 for expensive text-books that are printed on cheaper paper for Eastern countries and sold there for $4? (No wonder most people I meet here haven’t gotten into the habit of reading good books). Why can you only purchase huge quantities of food, drink, tooth-paste or shampoo at grocery stores here instead of the small containers that one is accustomed to purchasing in the East? Why do shaving blades cost ten times as much as they cost out East?

In India (a very price sensitive country), shop-keepers have far lower margins but customers still begrudge them their profits. The attitude there is that if a trader charges more for a product than it cost to make it, barring a small fee for transportation and duties, that trader is being dishonest about the real intrinsic worth of the product. Out West, the middleman is not only NOT accused of unfairness, but a music company that charges ridiculous prices for music (and puts that money to work dressing up mindless puppets as artists) is actually helped to keep up the prices by government anti-piracy regulations.

Who loses? (By asking such a question, I am assuming that trade is a zero-sum game). The only ones who lose are the ones who shell out so much more than the cost price of a product. The incentive to move manufacturing overseas decreases when customers make it a point to let traders only make a fair profit on anything they sell. Buyers should only have to pay what it cost to make the product plus a little more … or am I not understanding something right?