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Question
Hi Warren.
I have a question.
If everyone in the world, had the same amount of money. Which i think would make everyone in the world poor, as there are not enough resources to go around. Would people still in this world of equality be able to afford luxury items such as plasma televisions and playstation's?
My workmate is adamant that even in this world where everyone is poor, luxury items would still be affordable due to market demand and also manufacturers adjusting prices accordingly. I however disagree, as i think people due to lack of resources would buy necessity items.
Sorry if this question is quite vague.
Thanks
Duncan
Dear Duncan--
Thanks for your question. It's hard to know where to start on this one because the world is not static the way your question would have one believe. Ordinarily I wouldn't respond to this type of question because it is so hypothetical and so unrealistic that I really think that no one, including you, benefits from it. I can only infer that you have not had any economics courses or training in your life. If you had, you'd never ask a question like this because you would know how unrealistic it is. I'm going to offer a few brief thoughts, but that is all.
Your workmate is right that manufacturers would adjust prices. But you're missing at least three other crucial factors, besides the fact that the scenario you describe would NEVER HAPPEN. The first is that the currencies in the world are different. That means different exchange rates. Those exchange rates are dynamic, which means that they are in a state of constant change and readjustment. So, as a practical matter, it is utterly impossible for everyone to have "the same amount of money." It cannot happen.
The second and more important issue that you're missing, it seems to me, is human nature. Like exchange rates, people are not going to stand still. They are going to take different actions, make different decisions, and work towards different goals. That throws your little Utopia into a state of, well, REALITY, Duncan.
And that brings up the third gaping hole in your idyllic scenario: Its complete failure to show a shred of evidence that you understand economic reality. That is why I say that you must never have had any courses or training in economics, or you wouldn't be wasting your time on something so trivial. I don't mean that to be insulting or anything, please understand. But it is trivial. And it's not worthy of the time of a guy who seems otherwise intelligent. Maybe you've been spending too much time in the sun. :-)
Good luck.
Warren
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Warren D. Miller, CFA, CPA, ASA
Expertise
My expertise in economics is limited to three sub-disciplines: Austrian economics, industrial organization, and evolutionary economics. Questions dealing with macroeconomics and other sub-disciplines of the subject should be submitted to those who have the appropriate expertise. N.B.: I DO NOT ANSWER QUESTIONS MARKED 'PRIVATE' because I believe that knowledge should not be hoarded. I also believe that such questions are likely to come those trying to cheat. Also, as one who was a full-time academic for half a decade, I can recognize test/homework questions several time zones away. Do not demean yourself by submitting such questions to me. Those who do so are cheating; I WILL call you out publicly. I have a zero-tolerance policy for cheating and dishonesty. In addition, please don't emulate the businessman who posted a request for help in August 2008. He expressly denied that he was seeking "investment advice" and said that his query was for, and I quote, "educational and informational purposes." Later, he allowed as how his questions related to the possible purchase of a $500K piece of equipment. I said I thought he had misrepresented himself. Bottom line: high-end business consulting is how I make my living. I am the sole support for my family. Please respect that fact and don't try to get for free what our clients pay for. If your company is big enough to have a sophisticated problem, it can afford to pay for the expert advice we and others provide. Beckmill Research, LLC, is a 95-octane firm. We're small, but we've been at this for nearly 20 years. We know what we're doing. Segue: Early on, some asked me for career advice; I gave it. I now get many such requests. The demand for a valuable good that is free is unlimited, so I now charge for that advice. Email me: cfa2005@gmail.com. Finally, PLEASE DO NOT ASK FOR INVESTMENT ADVICE. I am not licensed to provide such advice. If you want such counsel, talk to your financial planner or other financial adviser.
Experience
I work with Austrian economics (which differs in major respects from the traditional economics), industrial organization (which is about industry structure, conduct, and performance), and evolutionary economics (almost, but not quite, the economic analog of its biological counterpart) every day in my work. I appraise closely-held businesses, provide exit-planning services, and offer high-level strategic analysis, advice, and solutions to CEOs and owners of mid-sized businesses. Understanding, applying, and writing about these disciplines is an essential part of how I have made my living since 1993.
Organizations
CFA Institute, Strategic Management Society, American Society of Appraisers, Academy of Management, Culver Legion, National Association of Scholars.
Publications
CFA Magazine, Strategic Finance, Valuation Strategies, Journal of Advanced Property Economics, Harvard Business Review, American Fly Fisher, CFA Digest, CPA Expert, Business Valuation Review, among others
Education/Credentials
Chartered Financial Analyst designation (2006);
Accredited Senior Appraiser in Business Valuation (2006);
Certified Public Accountant (1992);
MBA - Oklahoma State University (1991);
Completed all of my Ph.D. coursework in strategic management - Oklahoma State University (1983-87);
BBA in finance and accounting - U. of Oklahoma (1975)
Awards and Honors
Business Valuation Volunteer of the Year (2001) - American Institute of CPAs;
Winner - Oklahoma Humorous-Speaking Contest - Toastmasters International (1971)
Past/Present Clients
Names are confidential. However, the "sweet spot" of our target market is companies that are too big to be small and too small to be big. Usually, those are companies with employees in the 15-to-100 range. At the low end of that range is where companies can first take advantage of the specialization of labor. However, having everyone do everything is a tough habit for many--most, I would argue--small enterprises. That is why they not only remain small, but also fail to survive beyond a second generation. Only 5% (one in twenty) companies make it to the third generation of ownership.
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