Some random ideas on Econs

Humans with the willingness and ability to spend, i.e. 'money votes', decides where human energy is put into with regards to the production of particular objects. Well, a roughly effective system, but what about other ways to make the decision?

Humans devote time, energy and creativity to produce stuff to satisfy themselves. The great ordering to random resources is due to the expenditure of human creativity.

The wealth of a nation, therefore in reality lies with whatever goods and services that we are able to enjoy now. A country that for example is unable to enjoy use of penicillin, is thus considered poorer than another who is able to enjoy such a good. We observe here, that innovations, play a great part in making ourselves wealthier. Money is a go-between, for us when we are trading goods, because it facilitates the exchange of goods and services within the economy. National Income is only a good indicator of national wealth when it is closely correlated to the value of goods and services available in the economy. For example, if there is an inflation, money would lose its value, and hence its correlation to the value of goods and services. Money is a derived quantity, where the demand for money on factors like, demand of goods and services, the expectations whether money is freely exchangeable for goods. The just mentioned expectations is referred to as liquidity of goods. When there is inflation, it means that everyone in the economy prefers to hold on to their goods, none is really willing to hold on to money. Why would this be so? Why would people lose their confidence that money is freely exchangeable for goods? Perhaps, because this system has one kink, that it is reliant on network effects. For the monetary system is a great system, but works only because everyone trusts that everyone else is using it. Maybe somewhere along, someone has stopped trusting this system. Perhaps it was with cause, perhaps without cause, but all it takes is for a few people to stop trusting this system. Because shortly demand of money would fall. Price of money would fall. After a while, other people would see this, and would not want to hold on to that money that other people have labeled as useless pieces of paper. Now the whole system breaks down. It takes a little while, more than alittle while actually to regain people's trust.

In some recessions, demand of good falling is instead seen by demand of money rising. People actually are scared of spending and start hoarding money. Supply of money is restricted. Perhaps the reason started with falling incomes. But people over-react. They contract their consumption and save more. Demand of money is also tied to expectations of the future spending. In any case, the prices of goods are falling, and producers go out of business. People are holding on to paper notes, and not buying anything, in anticipation of better times, except there does not seem to be any better time in sight. Because producers are going out of business, who is going to provide all those goods and services that consumers need?

In other recessions, supply of goods falls, and demand of money also falls. Perhaps several businesses have gone out of businesses for over-extending themselves. In any case, this sets of a chain of unemployment, falling incomes, falling consumption, falling demand of goods, and with less goods in the economy, people decide that the money is good for nothing to buy with. Price of money falls relative to the value of goods, and all the goods are now pricier. We have a case of stagflation here, with supply side issues being the cause.

Now...on the micro side, the really micro side, consider the case of 2 guys trying to trade. Obviously, being selfish and calculative humans that we are, we will try to cheat each other. The problem is how to walk away with the best deal possible. Because both sides really want the deal. During negotiations, the one who is more desperate usually loses more than he should. So each side will pretend to the other that heself doesn't really want the good, or that he could look for another to buy/sell. How do we reduce this kind of needless cheating? Maybe we need to utilise the concept of common knowledge and mutual knowledge. This thing needs thinking over..