To dig into the basics of economics, we need to start from the beginning. I kick of the first lecture of each semester with a quote from one of the most famous economists of all time, Scottish philosopher Adam Smith. Here is an excerpt from his book The Wealth of Nations, published in 1776.
“He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By … directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it”
Let’s break this down a bit. Economics is the study of scarcity. In his excerpt, Adam Smith is highlighting the theory of choice, and that every individual behaves in their own self-interest constantly striving to optimize their utility in every decision. The comment of being led by an invisible hand means that often, when every individual behaves in their own self-interest, it leads to outcomes that these individuals did not intend. By maximizing their own utility, they are making decisions that derive the greatest value for themselves, and in exposing this value to the marketplace, actively shape the future.
Let’s take a moment to look at this from an optical perspective. You would have to be living under a rock not to notice the evolution of the industry over the past 50 years. Optometry and Ophthalmology have been directly influenced with the emergence of Vision Care companies to promote health and subsidize care, lens manufacturers are creating designs to improve vision correction, lens option enhancements are continually being developed for added protection, frame companies are diving into multiple niches to promote fashion & lifestyle, and software companies are constantly working to enhance the customer experience and improve Dr. insight.
This evolution goes even deeper though with indirect influences such as technology like the internet allowing for real-time communication and research from a distance, or logistical improvements pushing the envelope on instant gratification. With the ability to compare multiple options at once for any given decision, the need to understand customer needs and expectations has never been greater. All of these market shifts have been created from the demand of consumers, and it’s those that have an intimate knowledge of this demand that are capitalizing on market gaps and creating opportunity.
We will typically break every article into one of two groups: Micro & Macro. Microeconomics focuses on the behaviors of individuals dealing with business. In economic terms, we refer to them as agents and firms. In our Macroeconomic articles, we will be reviewing what each of these individual behaviors looks like in the aggregate econonomy or market. Throughout our discussions we take very complex concepts, and simplify through assumptions so that we can approach our models in a mathematical way. Keep in mind the quote, “All models are wrong, some models are useful.” This refers to the assumptions being made within the model. The model can’t be built without assumptions, but because of the assumptions, the conclusions drawn from the model are not written in stone.
The point of this blog is to answer everything from basic questions, to highly complex problems. Broad topics for these questions are:
What does an optimal dispensary look like?
What should the breakdown of a P&L look like, and can we optimize profitability?
What is driving market change?
Has my practice evolved to accomodate market changes?
What are my patients expectations today? Were they the same as yesterday?
What does disruption look like in optical? Can you prepare for it? Can you drive it?
Future posts will be designed to focus on granularity, and answer specific optical questions from an economist point of view. We will aim to address the questions directly and take a strategic and data driven approach to solving these problems and answering these questions. Looking at the day-to-day of practice management, we will delve into individual transactions from a business perspective to understand the dynamics of the interactions, as well as the overall effect they’re having in the marketplace. By answering the tough questions, and diagnosing the daily problems that optometry professionals face, we hope to derive success for our followers, so they may help guide the future of the industry.
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