Wednesday, September 10, 2008

Economics and Scarce Resources

Readers Question: According to Emerson: “want is a growing giant whom the coat of Have was never large enough to cover.” According to economist, why does “want” exceed “have”?

This strikes at the fundamental problem of economics – a scarcity of resources. Because there is a scarcity of resources, our desires (wants) are greater than available resources. Therefore, economic issues spring from this fundamental problem of deciding:
  • What to produce
  • How to Produce
  • For Whom to produce
When making decisions about what to produce or what to consume, there is inevitably an opportunity cost. If a society spent 50% of its GDP on military spending, the opportunity cost is that it wouldn’t be able to spend very much on health and education.

Public opinion may call for an increase in spending on health care. For example, there is an expectation that expensive (but potentially life saving) drugs should always be available. But, people often forget that resources are limited and an opportunity cost is involved. If we give very expensive drugs to old people, it means we may not be able to spend money on road safety campaigns which actually do more to save lives.

If you have a limited income of say £20,000 a year, you are constantly making choices about the best way to spend your limited income. Even millionaires may like to consume more if they could only become billionaires.

Is it Possible to Have no Scarcity?

If you lived on an island with abundant resources and a small population, then the scarcity of resources would be less obvious.

If through spiritual practise and detachment you had very few desires – for example a monk or sannyasin then you would not see scarcity – as you would be content with just your daily bread. But, in present society, most people desire more than just a loin cloth and a begging bowl. So we keep coming up against this issue of scarcity.

Environment and Scarcity.

Environmental issues have highlighted this issue of scarcity. Previously we considered scarcity in terms of lack of resources, but, increasingly we are aware of how depletion of the environment increases the problem of scarcity.

Does Society Increase Wants?

Another issue is the extent to which society artificially increases the desires of people. For example, advertising may be adept at creating additional demand for goods that they don’t really need. Sometimes ‘primitive tribal’ societies appear quite content with a simple lifestyle. But, here in the West, the more we have, the less satisfied we seem to be.

BTW: There is an excellent film – The Gods must be Crazy. An African tribal society leave in peace and contentment until the arrival of a coke bottle from the sky causes friction and anger. Very funny.

This all sounds very much like my first economics lesson to a new student. I hope it doesn’t sound too patronising.

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