What Bob Dylan can teach us about economics

The problem with attempts to make everything in life more scientific is that reality hates generalisation. You can try to formulate universal laws, but in any complex system even the smallest contextual difference or hidden asymmetry can be enough to rewrite those laws completely.

Economics refers to something called ‘the market’, the laws of which supposedly govern all economic activity. In reality, anyone exposed to commerce soon realises that different markets follow wildly different rules.

With airline seats, it is widely observed that ‘scarcity bias’ drives sales – hence the message ‘only three seats left at this price’. But this does not work for vegetables. It’s very difficult to sell the last tomato in a tray because customers infer that since no one else wanted it, it must be a bit manky. That’s why supermarkets shrewdly keep vegetable displays permanently full.

In most markets, all other things being equal, people prefer paying less rather than more. But even this seemingly obvious law has exceptions. There are, for instance, luxury goods whose value lies largely in their costliness. Unfortunately, for different reasons, the property market is also one of the exceptions. Most people effectively work out the maximum they can afford to spend and then look for houses at that price. High property prices do not predominantly arise from supply and demand. They are largely driven by easy access to large loans at low interest rates, combined with a mentality of: ‘This is the only chance I’ll get in life to make £200k tax free – I’m all in.’

Generally I agree with the economic principle that people know best how to spend their own money. But even that runs up against what I call Dylanomics.