Raise the Hammer

The use of the term the “law of induced demand” on this site has always bugged me. There is no law of induced demand.

Latent demand is a phenomena of observation that fits with the theory of supply and demand.

There is a significant difference between an observation - a phenomena, a theory and a law. A law generalizes a body of observations. At the time it is made, no exceptions have been found to a law. Scientific laws explain things, but they do not describe them. One way to tell a law and a theory apart is to ask if the description gives you a means to explain 'why'. The word "law" is used less and less in science, as many laws are only true under limited circumstances.

In Economics, latent demand was used to describe the phenomena that after the supply of a certain good increases, in certain circumstances the demand increases. It describes a shift of the curve as opposed to moving along the curve. The word latent was chosen because latency infers that the demand for the good always exists whether it is available or not. It is latent – like lying under the surface.

Salesman grasped on to that term and in some quarters, but not in classical economic theory, the word “induced” evolved because in sales you can tell people to tap into the demand and thereby “induce people” to do something. There is a significant difference between the words induce and latent. Latent just says the demand exists but is below the surface. Induce implies that you are “creating” or forcing the demand.

Because supply and demand is not simple, that there are baskets of factors that affect the supply and demand of any product or groups of products, likewise the issue of latency is complex.

The term induced demand has been co-opted in the realm of transportation economics and has been politicized. Some call it a law, which infers it some great importance, and induced has a much stronger connotation than latency just like victimhood has a different connotation than simply having something happen to you.

There is no “law” of induced demand. That is not to say that latent demand does not exist. Nor does it mean that crafty people cannot take advantage of latent demand by make available the underlying conditions to tap into the demand.