Economics of scarcity

Posted: 29 September 2015 in Uncategorized
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Mike the Mad Biologist [ht: sm] casts doubt on the idea of scarcity. And for good reason:

While they seem to have receded somewhat, a couple of years ago, there were quite a few arguments about the fundamentals of economics (especially macroeconomics) and how to teach them. As an outsider, one thing that struck me as odd was the emphasis on scarcity (e.g., economics is called the science of scarcity). It’s odd because, at least in wealthy societies, there are very few scarce items. We’re definitely not slacking in our ability to produce calories, which arguably for most of human, if not hominin, history was the vital concern.

Mainstream economists, as I teach my students, start with the idea of scarcity—the combination of limited means and unlimited desires. And then, after a great deal of math and a wealth of assumptions, they prove that a system of private property and free markets provides a perfect balance between those limited means and unlimited desires.

But, as I also teach them, the mainstream presumption is that scarcity is universal—both transcultural and transhistorical. In other words, they start with the idea that all human beings, in all times and places, have had to confront and solve the problem of scarcity.

An alternative is to see scarcity as an institutional, historical and social, phenomenon. In particular places, at particular times, the existing set of economic and social institutions makes certain goods and services scarce. Thus, for example, oil is scarce because of the particular configuration of the energy industry, the personal car and truck culture, the government-sponsored expansion of the highway system, and so on. That’s what makes oil scarce. Similar stories can be told about the scarcity of water, arable land, good public transportation, high-quality mass education, and so on. Their scarcity is the product of particular sets of institutions in particular societies.

Why is that important? Because, as against the assumption of mainstream economists that scarcity is always with us (and therefore can’t be changed), the idea that scarcity is an institutional phenomenon means that changing economic and social institutions can change or eliminate scarcities.

The same applies, of course, to abundances. Right now, we’re living in a society that has created a surplus of labor (and, as a result, stagnant wages), which is part and parcel of capitalism’s law of population. If we get rid of capitalist institutions, then we can create a new law of population, one in which the labor workers perform and the value they create are not turned against them.

  1. Pavlos says:

    Northern Europeans and their North American descendants could be excused for internalising a Malthusian view of life because pre-industrial life in cold weather and barbarous lands was probably nasty, brutish, and short.

    But it wasn’t so around the Mediterranean. Life in Po valley in northern Italy has been mostly a good life, most of the time, for the past three thousand years. If Adam Smith was from Verona rather than Kirkaldy his legacy might have been to see the good life as a norm and scarcity as an aberration.

  2. mjlovas says:

    When I think about it, I cannot see that I personally in any sense have a need for an infinite amount of anything. I need affection, and support from friends or family, as well as material things. I need intellectual and cultural stimulation as well as food and drink. I’d like some variety. But none of that adds up to infinity. I need these things are more or less regular and reliable intervals. Lack of any one for too long tends to produce the mental version of carpet bubbles, or worse.

    I need to renew myself and things run out, wear out, need to get replaced, but that is not infinity either.

    I have to go back to work in order to renew myself and keep my life going, but boring or unpleasant as that might be, that’s not infinite either. It is just repetitive.

    My desires may change, but that’s not infinity either. A desire for variety is not a variety for infinity.

    When I hear that we have infinite desires—as if it were obvious, it sounds like pure hyperbole. Is it possible that the actual theorizing only requires a weaker notion? Are economists of the classical or neo-classical persuasion simply being sloppy? When they say ‘infinity’ do they real mean ‘novelty’?

  3. mjlovas says:

    Correction of the above: I need these things AT more or less regular intervals….

    I suppose by infinity, they mean that I never have enough. But, if so, again, that’s a confusion. I have enough if I know that life is predictable enough that the love and security and comfort I’ve got today will continue tomorrow. There may be some abstraction in that, but it’s just not infinity.

    There’s a lack of specificity in my words, but that doesn’t make what I’m saying nonsense or infinite.. Sounds to me that those who speak of infinite needs or desires or wants ( I know I’ve myself been cavalier about those words) just don’t know what they are talking about.

    And I would expect them to attack me with a formidable technical apparatus that evaded my point and prevented me from saying it. –Or have I missed something?

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