Given that I am having Economics tomorrow, I thought it would be interesting to pen something that implicates the fundamental ideas of Economics that I conceived while surfing (and not mugging) the net.
Economics, as we are taught, is the study of how humans deal with the problem of ‘Scarcity’, how we allocate resources to achieve maximal efficiency and make everyone happy. The problem of ‘Scarcity’, in turn, arises from the fact that limited resources that we have cannot satisfy the unlimited wants that we have. In view of that, we have to make choices and decide to work with only a limited number of wants satisfied. Today, we live as though the problem of ‘Scarcity’ has been solved and Economics essay question constantly trick us with lame questions like ‘Discuss if economic growth is able to solve the problem of ‘Scarcity”. It turns out that we may have been wrong all the time – the problem of ‘Scarcity’ that arises naturally have been solved. To explain, the problem we are facing now is one that involves the creation of demands/wants.
The basis of this problem of ‘Scarcity’ has a few dimenstions – time period, the idea of ‘unlimited wants’ and perhaps the problem of want-creation. To begin, time period is extremely important because the statement on scarcity is made based on the ‘long run’ perspective. In short run, scarcity can cease to be a problem, or don’t even arise at all: just imagine the last time when you had a Buffet dinner, where you have finished stuffing yourself and continue to see the endless plates of food being stocked and replenished. For that moment, everyone would have decided that there’s no such thing as scarcity. But as mentioned, it is only for that moment, in long run (or a few hours after you walk out of the restaurant), you will experience the scarcity we seek to study in Economics. So, in long run, scarcity must prevail because the need for certain basic stuff/wants must prevail. Hey, wait a minute, most of the basic wants for survival are replenishable by the Earth’s system – so I guess under primitive conditions, the problem still doesn’t arise even in long run.
At this point, we have already considered part of the idea of ‘unlimited wants’. There’s a great deal of problem with this assumption that we have unlimited wants. We cannot say that we all strive for ever higher standards of living. The reason why people at this point of time strives for that is because it is possible, at least for some people and the results of such luxury are glaringly pleasurable. However, our imagination of a higher standard of living that have yet to exist do not motivate us to strive for that as much as one that already exist but is currently not obtainable at personal level. As such, we can easily say that it is inequality that furthers the problem of want-creation and thus worsens the problem of scarcity with the creation of endless wants. As decided, wants are finite within a time period, and in fact, the wants of a person, within his lifespan, must be finite, at least by default. Unfortunately, this assumption of unlimited, or infinite wants exist because of the fact that there’s a want-creation mechanism driving everything – inequality, advertising and perhaps imperfect information.
Having mentioned that, the want-creation mechanism that stems from production (advertising) is the key player accounting for this ‘unlimited wants’ that we are facing in long run. This is just like when we are really bloated after 5 ‘second-servings’ in a Buffet and decides that we’ll have a final go with that Cheese-baked Salmon that just arrived at the food counter – just to make sure our money is well-spent. As John Locke have argued, we all have a finite capacity for consumption (or ‘real consumption’) but the fact that we can accumulate wealth enables us to ‘purchase without real consumption of the good’. To be able to accumulate wealth is like to be able to accumulate hunger before a buffet and thus the capacity to consume. This allows the want-creation mechanism to work because you can hold far more food than you should be able to when you have ‘accumluated hunger’ (that is, assuming you can) and new dishes will be able to tempt you continually.
Such, undermines the whole idea of the problem of ‘Scarcity’. We, as beings of intellect, have invented means of allowing over[false]consumption and want creation. Even when you don’t need that tiny amount of marginal benefit, the fact that you had all the initial wants satisfied pushes you to take it; similarly, though you are bloated, the thought that you can make your money more worthed it motivates you to take the salmon. Inequality, which I have deemed inevitable, together with the Imperfect Information, operates naturally to further the problem of want-creation – the glaring inequality irrationalizes the people, and limited information makes them think that the higher living standards only does them good, ultimately increasing the demand and furthering the problem of ‘Scarcity’.
We are, far from solving the problem we have created ourselves and not the one that arises naturally, but that’s probably a problem to sustain the congregation of man in bid to prove the improvements can be made with a more unified system. The Undercover Economist had an interesting Introduction, which I read in the bookstore, as predicted by Tim Harford himself. It narrated a basic argument in support of the statement, ‘No Man is an Island’ and it has illustrated, quite nicely, the good that the economic system has brought us that is inconceivable when our ancestors were still foraging for tree roots [and checking if they are edible]. The problem, is that we had to sustain the growth, unfortunately, by keeping the demand alive, making it truly endless and unlimited, to keep up with depletion and thus continuing the problem of ‘Scarcity’ to justify the existence of the economy. Or perhaps, the whole point of this ever increasing demand stems from some hedonistic concept that is probably a product of the notion of unlimited demands and thus a cyclic argument that economic theories often ends up in (just like the kinked demand curve).
I have, in this essay, addressed the evolution of the problem of ‘Scarcity’ at this age and outlined the justification for this problem to prevail. It appears, then that our decendents would eventually have to end up with the dilemma of whether to preserve for the new beings that comes or just simply live like there’s no tomorrow (something we have truly embraced at the turn of the century – besides the escalated environmental concerns that do not exactly translate into actions*). It is perhaps then, time to turn back to mugging and maybe thinking a little more about Economic stuff that goes way beyond our Sloman-Concepts and Parkins-Notions.
*Maybe it would be better for Bjorn Lomborg to address that