CONSUMPTION INEFFICIENCY THEORY

By Luis F Igniguez

A brief approach to economics at the speed of light

If we divide the world of economics, we can talk about Two big schools:

CLASSICAL KEYNESIAN

…..NOT

A brief approach to economics at the speed of light

Again!! If we divide the world of economics, we can talk about Two big schools:

SCI FI School! Realistic…

Sounds pretty much economics to me…

…we can find inside these magical worlds :

Sci Fi School:o Classical Model…o Free-marketo Self-balanceo Invisible hando Invisible friendso Flux capacitorso Laser sabers…o Perfect competition

…we can find inside these magical worlds :

Reality Classical Model Again! SCARCITY Recessions Keynesian economics Unemployment AD, Gov. Spending, etc…

The Target

Either Classic or Keynesian we would agree that everybody (every country) is toward its economic growth.

The common mean

Despite the contrasts betwen Classical and Keynesian:

The common mean

The consumption is the factor that must be present always in order to boost any economy.

It is simple: without consumption, production is pointless.

Therefore we tend to consumism (if you get the misspelled meaning)s in a macro perspective.

Consumption INEfficiency Theory

The more we produce, the more we tend to consume.

It is not a coincidence that the economic powers in the world have the biggest consumption ratio.

Developing economies with a high growth ratio increase consumption ratio as well.

Consumption INEfficiency Theory

Production, income, and consumption might have different ratio, but if one’ slope is positive, then another is positive too.

Consumption INEfficiency Theory

So we produce effitiently more and more! Here we go!! we can consume more!

Consumption INEfficiency Theory

But while consumption increases there is one factor we forcefully forego.

• The consumption efficiency

Consumption INEfficiency FACTS

Last year you made $20 a weeko From time to time you used to buy 2 yogurts.o None of your yogurts ever spoiled because:1. It was the exactly amount of yogurt you needed2. You could not afford more yogurt, and so you did

not let it spoil because it was your concern.

Consumption INEfficiency FACTS

o Now you make $70 a week, a lot more ca$ho From time to time you buy 10 yogurth. Maybe

you consume more yogurth, maybe the same amount and do not go to grocery store that often,

but…

Consumption INEfficiency FACTS

NOW ONE YOGURT SPOILED!!!!!!

Consumption INEfficiency Theory

…Well it’s not that bad, because: It was only 1 out of 10 yogurth, not like you

wasted half of the money you expended on them Now you produce more, so you can afford buying

another extra yogurth You did increase your productivity, but now you

consume less efficiently

Consumption INEfficiency Theory

We will see this pattern of loss in most of individuals. Maybe your loss ratio will be smaller, but at some

point when your wage raises, you will waste a yogurth.

Consumption INEfficiency Theory

But the thing gets more interesting when you observe this happening not only on individuals:

Corporations Goverments Evil babies

Consumption INEfficiency FACTS

They all will waste yogurt at some point. Paper Ink Fuel Dolphins etc

How Consumption Efficiency Decreases

High volumes of production focus us on the factors of production, rather than consumption, as long as this inefficient consumption does not decrease our production output significantly

How Consumption Efficiency Decreases

The higher the consumption amount is, the harder to get control of its effectiveness or efficientcy is.

How Consumption Efficiency Decreases

As consumers, producers, individuals: we just have too many reasons to let our consumption efficiecy decrease as we go “bigger”

What!?? I need some help!

Somebody help me!

I was told about some guys that would probably support me…. …Unfortunatelly they’re all dead Oops this last one’s alive!

Somebody help me!

Ronald H. Coase – Transaction costs

He stated how organizing additionaltransactions will raise costs….That would explain a lot of theSignificant reasons why we arenot as efficient as we can while we consume. Once again,Opportunity costs…

Somebody help me!

Семён Абрамович КузнецSimon Smith Kuznets

The Kuznets Curve

He would defenitely believe!...

Somebody help me!

The Kuznets Curve He observed how the enviorement is degradated while an economy

grows. But there is one turning point where the degradation decreases and

after the industrial period, things would get better.

Somebody help me!

The Kuznets Curve But we can tell that this

turning point is not present in all cases.

If we look at the oil market, there was never a turning point for its exploitation….

And Speaking about oil (sorry about this microeconomics intermission) I will get some more help on the next slide….

Somebody help me!

The following dude noticed something very important and I am pretty sure he would totally believe!

William Stanley Jevons

The Jevons Paradox

Somebody help me!

The Jevons Paradox It explains how technology improvement will

raise the demand of fuel instead of decreasing it as we would have expected…

Somebody help me!The Jevons Paradox For example: we get better engines, much more

efficient… but more and more people buy cars using these engines… and speaking about paradox..

Time for Modeling

A very simplistic representation could be modeled by a negative exponential function where:

Where CE is the Consumption efficiency f(x) being x the productivity unit (say income, GDP etc), P is the efficiency peak r is the decreasing ratio where 0<r<1 B is the inefficiency bottom

Time for Modeling

For example (89-75)*(0.8)^x+75 Our peak of efficiency will be 89%, we can’t be

more efficient in this example. The efficiency bottom is 25% we can only afford

less than 25% of inefficiency. A lot of assumptions….

The Looey Paradox

Scarcity is the fundamental economic problem of having humans who have wants and needs in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs.

But the current and real economic behavor leaves out the scarcity problem while we consume.

The Looey Paradox

This paradox will lead us to two possible ends:Again…

RealisticSCI FI!

The Looey Paradox

….Where…..Realistic: eventual wars pursuing control for scarce basic elementsApocalypse!!!

The Looey Paradox

..or SCI FI can come true: Amazing inventions will solve scarce problem, such as:Flux Capacitors!Mr. Fusion If you watched part I( you should have)You would know that The doc needed uranium as fuel…

Happy End