Sunday, January 24, 2010

Basic Economics - Goods & Services; Needs & Wants

I’m not a Bible thumper but point to the following verse as proof of a long held general acceptance that workers deserve to be paid for their work and they should not hesitate to accept the pay they deserve. “And in the same house remain, eating and drinking such things as they give: for the labourer is worthy of his hire. Go not from house to house.” (Luke 10: 7)

When you visit a doctor or dentist, they are paid for their service. Likewise school teachers are paid for their service as are clerks in the stores you go into. People are paid for the service they provide.

Recently, my wife and I went grocery shopping. Anne had a shopping list – about eight things written down that we needed. Later we left the store with a full shopping cart – those eight things we needed plus many more items that we just wanted. Mr. Sobey would go broke if everyone just purchased the items they needed. That is why so many other products are strategically placed on shelves. As shoppers walk around to find needed products, they are exposed to and tempted to buy other items. These other items become their wants.

So people, paid for the services they provide, use that income to purchase the goods they need and want. The more people are paid for the services they provide, the greater demand they can make for goods they need and want. Our economy is based on this formula where services are traded for goods using money as the “medium of exchange” (which means the way that the trading is carried out or achieved).(...continued)

Countries use the Gross Domestic Product as a main measure in determining the health of the economy. The GDP is the measure of the total value of goods and services produced yearly within the country. GDP positively correlates and thus is often used as a measure of our standard of living.

This past week we’ve seen the devastation shown in news items from Haiti. I’m also thinking about the extreme poverty we see in those same reports. Never mind their economic wants, these people are not even having their most basic needs properly met. Can you imagine the extreme effort it must take in service to survive and help your neighbours in Haitian communities? Compare that with the obvious lack of goods we see. There is clearly an economic imbalance. Those providing service are either radically underpaid or not being paid at all for their service. Without a system of proper remuneration these Haitian communities cannot generate the demand for goods needed to bring them to health.

Closer to home, I now worry about the growth in Canada’s volunteer sector. Greater numbers of Canadians are being encouraged to perform unpaid volunteer service at a time when our rich are getting richer, our poor are becoming poorer and our middle class income is flattening.

Canada puts new money which it prints into circulation by selling it to banks at a discount. This adds to bank profits. A better circulation method would be to use these new bills to pay fair value for the essential community work that volunteers provide. This would increase the demand for goods and services in communities across Canada and thus provide a real positive economic stimulus.
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