The Missing Part of Demand
Economists define economic ‘demand’ as a desire to purchase an item in the presence of the ability to do so. In other words, if all of the billions of guys in the world want to buy a Ferrari, but only 1000 can afford to so in any given year, then the demand for Ferraris is only 1000 per year, not billions.
But that definition has never seemed quite right to me on a personal level. If I can afford a Ferrari (Actually, I can’t afford one – so instead, if I can afford a plastic model of a Ferrari…) and desire to buy one, does that mean I should? Should I buy everything I desire simply because I think I can afford the monthly payment on the resulting credit card bill?
Before I started at my present job I interviewed at a software company outside Boston which tried to sell me on all the perks of working there. For their previous year’s annual trip, for example, the entire company took a holiday to the Galapagos Islands.
Now, this company’s work had nothing to do with biology nor the study of the environment, so why in the world would a few dozen (admittedly, talented and hard-working) people who wrote computer software go to the Galapagos Islands, one of the last great unspoiled and fragile ecosystems, for a company trip?
Because (1) they could afford to go and (2) they wanted to go. That’s all.
Now, let’s imagine that on Earth 50 years from now there are 10 times as many well-to-do software engineers as there are now, scattered all over the globe. Should they all fly to the Galapagos just to trample over the Last Great Unspoiled Place? Would it remain the Last Great Unspoiled Place for long if they did?
I’m coming to believe that the economists’ definition of Demand is missing a very important part: Deserve. They’ve already asked if I can Afford something and if I Desire it, but nowhere did they account for Deserve.
I say Deserve and not Need because it is very easy to convince oneself that one Needs something. I Need a bigger car. We Need a place with more storage space. You don’t understand – I Need the new iPhone.
But when you change the question from Need to Deserve, it seems to become much smaller to grasp. Do I Deserve meat each day? at all? Do I Deserve electricity?
This isn’t intended to be a ticket to take yourself on a guilt trip every time you’re looking at a new shirt. All I’m saying is that maybe there would be a lot fewer people up to their eyeballs in debt if only they looked beyond Desire and Afford.