19.1.07

CONTEMPLATING SCARCITY. Michael Mandel suggests the concept unnecessarily restricts economics.
My justification for a different definition is that there are big chunks of the economy where scarcity is not important, in any but a formal sense. If anything we seem to have an abundance of food and manufactured goods, and the cost of moving and manipulating information has fallen very very sharply. I'd also like to get in the sense that economics has a purpose.
Ralph Nader sees some of the same facts, with a completely different interpretation.
With tens of millions of Americans lacking the adequate necessities of food, fuel, shelter, health care and a sustaining job, this project is part of a 25 year trend by the economy, moving away from necessities and over to wants and whims. Among the fastest growing businesses for three decades in America are theme parks, gambling casinos and prisons.
Arnold Kling proposes that economists think more about the sources of prosperity.

I am two-handed on this issue. On the one hand, just because food, say, has become more abundant does not mean that we can ignore scarcity. At any moment in time, for a given state of know-how, the conventional definition of economics as dealing with the allocation of scarce resources among competing ends applies.

On the other hand, some of the most interesting economic observations concern relative abundance. Look at our standard of living compared to 100 years ago. Look at South Korea compared with North Korea. Robert Lucas famously said that "The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them it is hard to think of anything else."

William Polley argues that there's still a lot of life in standard-issue economics.

My definition has three parts. Individual choice is the heart of all economics--even parts of economics that don't fit neatly into areas related to markets or government (e.g. game theory and bargaining). One could, I suppose, put a full stop right here and call it a day. It is beneficial, however, to single out the role of markets and the role of government as two identifiable arenas in which those choices play out. They are not the only such arenas, but they are the ones about which the body of knowledge in economics has the most to say. When I deliver this lecture in class, this is the context that I try to give my definition.

Let those of us who teach economics never forget that individual choices are the building blocks and that the manner in which an economy aggregates those decisions matters.

In a subsequent post, he notes that the problem of scarcity manifests itself in a different way.

But it's not the Malthusian, diminishing returns sort of scarcity that most people associate with the word (and with economics in general). So, in that sense, I understand why he would want to downplay it. Indeed, as I said in the previous post, I do not include the word "scarcity" in my one sentence definition even though I thoroughly address it in my classes.

And since the story can be told quite well by applying the old tools in new ways, I don't see any reason to radically change the definition of economics. However, I do hope that textbooks can catch up and tell the story of innovation and pricing with high fixed costs and low marginal costs. (There are some specialized texts that are starting to, but it hasn't filtered down all the way.) That would be an improvement.

I'll not be lacking for work: learning curves, network externalities, natural monopolies, and scarcity on the buyer's side. What's that argument about people having more trouble choosing from a surfeit of choices (28 varieties of jam rather than six?)

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