Economics as human ecology

One way of defining the science of ecology is to say it is the study of the flow of energy through a biological community.  There are food sources, environmental conditions, and various species of flora and fauna (plants and animals for those of you in Rio Linda).  They all interact, and they all tend to evolve over time.

Unique to human ecology, there's this substance called money.  Money can easily be considered equivalent to energy, such as when you're paying your utility bill or filling your gas tank.  Money voluntarily changes hands at markets.  Also, tax collectors force people to give them money.  Thieves, too, are always trying to take other people's money.  Governments often try to create money by just putting ink on paper, but then no new energy or wealth is created.

Meanwhile, energy continues to flow through the human world.  It's got to come from somewhere, and that is often found in "fossil" fuels.  Since some nerds at the University of Chicago, long ago, built an experimental device behind the campus squash court, nuclear fission has also created energy.

Surplus energy in the human ecosystem is typically stored, often in banks and various other types of investments.  Banks, in particular, can function as batteries.  They lend out surplus energy to humans and corporations that have plans to create even more energy.  These plans don't always work out, but the banks usually charge enough interest on the borrowed energy so they can, at least, break even.  They also have underwriting standards that are intended to maintain a profitable success rate.  An example of this is what is often erroneously called a "liar loan" (AKA stated income).  A prospective home-buyer can qualify for a purchase loan without providing documented proof of income.  How?  Simply by making his cash down payment 25% or more of the purchase amount.  Why?  Because, should the bank ultimately have to foreclose, it can reliably expect to recover at least 75% of the purchase amount, which is equal to the original amount of the loan.

In non-human ecological systems, surpluses are also set aside for leaner times.  Squirrels stash their nuts — and they also plant acorns, thus forming a symbiotic relationship with the oak trees.  Other mammals accumulate blubber to provide both residual energy and insulation from winter's sparse conditions.

Feedback is also a significant aspect of an ecological system.  It affects reproductive success, dispersion of the various species, and other dynamics.  Adaptation is a significant response to feedback; over time, it contributes to Darwin's "natural selection."  In the world of economics, the same dynamics also apply, as does the "social Darwinist" phrase "survival of the fittest."

Even though recessions are invariably bad news, the businesses that survive them have often become stronger competitors and are thus better able to innovate and create more wealth.  And, since it's still not a perfect world, mistakes are also sometimes made, even by supposedly really smart operators.  People still talk about the "New Coke" fiasco.

The current plague of supply chain problems has multiple causes.  One of these causes, which just happens to not be political in origin, has to do with an inherent problem with the business of retail.  Manufacturing is at the beginning of the value-added chain of events.  Distribution is next.  And then retail is way down at the tail end, where the most value has already been added and the most money is tied up in inventory.  Some years ago, using the new technology of networked computers, "just in time delivery" was adopted in order to reduce the financial burden of having to store retail inventory in warehouses.  We have just recently discovered that, although less money is tied up in inventory, due to a lack of redundancy, its flow through the economy is less durable and thus more vulnerable to interruption.

And, since conditions are never constant, obsolescence is always lurking in the shadows.  The wooly mammoth of modern economics is the brick-and-mortar business location.  Online shopping and telecommuting were already on the upswing before the pandemic appeared, and their development has since been accelerated.  The struggle for survival is a great motivator for improved efficiency, and the schemes emanating from authoritarian bureaucrats and politicians mostly just stifle evolutionary progress.

Image: PublicDomainPictures via Pixabay, Pixabay License.

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