Is it real? (subtitle: Not as boring as that chart looks!)

If you are in a college level Economics course, you will learn that a market has producers and consumers and supply and demand. This will make pretty good sense and it is well worth learning. Economists have created models of markets that help them and us understand what goes on in the real world. As you learn more about the study of economics, though, you will start to notice a tendency to kind of gloss over real world information that doesn't fit into the model.

Ceteris Paribus, or "all other things being equal" is the glossing over that happens at the onset of the model creation. You see, if the world is kind of messy and keeps changing and people don't always act rationally (whatever that means) then its hard to create a good model. That's when you say, "Well -- let's talk about what we want to talk about and pretend everything else stays the same so we can ignore it while we build the prettiest possible model."

Economists take a lot of grief for ceteris paribus, and not all of it is fair. It's the externalities that really get my goat, though.

Once an economist builds a model, they set to watching it work in all its largely imagined glory. If someone taps them on the shoulder and asks about its implications on the real world, the economist will probably wave them away and tell them that real world implications are called externalities, which basically means they can be ignored.

Externalities that tend to be ignored by economists include things like pollution, public health, crime, and loss of species. To be fair to economists, they use terms like ceteris paribus and externalities because they are in the classroom working on a chalk board and the chalk board would get awfully crowded and hard to read if every relevant factor were fully addressed. The problem is, though, that they are teaching future business people who pay all sorts of attention to marginal costs and the price elasticity of demand and get quickly too busy to pay any attention at all to anything else.

If you like your pretty model of the U.S. energy market, you might be tempted to ignore the externality of pollution until your very own Erin Brockovitch steps up and reminds you that its the real world the rest of us are watching while you watch your model.

While we have all been watching the most successful economic model in history churn along and make us all rich and fat while the mother of all externalities -- our planet and its ability to sustain a biosphere -- has occasionally tapped us on the shoulder. When we get that tap -- as we have been re: gasoline prices and as we have in another way re: leveraging (aka mortgaging) our futures -- we shudder and sweat and think maybe we should take a closer look at how we do things until we remember that we aren't supposed to worry about it because its not part of the model we prefer.