Economics works when it’s theories mirror activity in the real world and fails when they don’t. If your theory is that prices are based primarily on supply and demand your predictions will often be wildly wrong because in the real world prices are based on bargaining power and supply and demand are only two of many components of bargaining power, and often not the most important ones.
Secondly, today’s economic theories are also unable take transactional costs and benefits to third parties into account when determining price. Relying on them is like trying to use arithmetic to accurately calculate the volume of a lake. Arithmetic can’t do that. For that you need calculus.
E.G. the price of a vaccine as determined only between the manufacturer and consumer cannot take into account the cost of an epidemic or the benefit of not having an epidemic to the country’s humans, gov’t entities and businesses. The economy and the population will actually save money if the price of the vaccine is far lower than the transactional price set under general economic principles.
When you have a consumption-based economy like ours where the bottom 20% of the population can’t earn enough to feed themselves you have a vast, untapped market. A 30% increase in the income of those workers through an increase in the minimum wage would hugely spur the economy and and would certainly increase both employment and tax revenues.
But if you think that only supply and demand instead of bargaining power governs wage rates, you will get that wrong, meaning that your predictions about what effects will result from an increase in the minimum wage will not match what actually happens in the real world.
— David Grace