Economic Rehab: Scarcity

Karl FitzgeraldCommentaryLeave a Comment

Tohm Curtis continues his slightly sarcastic economics 101 series

Creative Commons License photo credit: technicolorcavalry

The most common constraint on fulfillment of wants is time. I cannot write this post, and go to the beach and swim. I have to do one or the other in that same portion of time. There are only so many days I am alive, I have to decide what to do with my time, all the time. I want to do more with my life than I ever possibly could. I wouldn’t mind studying 16 university degrees whilst working 8 or 9 different careers while actively participating in at least 10 different sports that I would enjoy dedicating myself to. I can only pick a few of these because I don’t have time.

I also don’t have the resources at my disposal, namely money, so again I can only choose to do what I can afford in both time and money. But what is money worth? It is worth what you can buy with it. So taking the statement relative to wants, resources are limited a step further. The only things we can buy exist. We can’t buy things that don’t exist, things that exist are part of nature, and nature can only provide so much. There is only so much oxygen that we have access to, there is only so much water that we have access to.

Economics < Natural Environment

So if there is one thing you take away today, it is exactly what that means, the natural environment places definite, finite limits on what we can consume and how large an economy can grow. It cannot grow indefinitely. Even a resource that replenishes itself has definite finite limitations, like trees, you could increase consumption of trees 100 fold and maybe they will grow back. But you have to wait for them to grow back. In fact in that example, nature would impose limits from a lot of different angles, time, oxygen, our capacity to actually cut down trees, the point is you can do it, up to a point. But eventually the question is going to be answered for you, BECAUSE ECONOMICS MUST CONFORM TO REALITY.

In that sense you might look at economics as a study of decisions. We look at reality, observe its behavior and come up with rules. These rules supposedly guide the decisions we make in regards to consumption and production. Good rules closely reflect reality, and last a long time. Bad rules create distortions because they don’t closely reflect reality and eventually reality exposes the rules.

So if someone is peddling bullshit and calling it economics, they can be as fancy and intellectual and statistical as they like, but they eventually will be proven wrong by reality when the decisions resulting from the bullshit gets out of hand. That is when it gets carried to its logical limit.

If you understand that the Economy is a subset of the Natural Environment, you know enough to figure out the rest. If you are too lazy to figure out the rest, keep watching this blog, and I’ll go through it for you.

Homework exercise 1: The Cake Game

This game is a useful analogy for exploring the long term sustainability of our current Economic system. All you need is 4 friends, and a cake. You can find a recipe for chocolate cake here. Or I guess you can just buy one from the supermarket. Anyway here are the rules of the game.

The Cake: The cake represents the natural environment.

The Players: The players represent national economies; the ranking of the economies is based on their consumption. Whoever consumes the most cake is the best off economy.

Aim: Progress in the game is made by increasing your consumption. This is called your GNP (Gross National Product). GNP is measured per round.

Step 1: Cut a thin slice of cake for all four players. It should be a small wedge about 1-2cm thick. The first four slices are round one. Take the slices away, preferably eat (or consume) them. Proceed to round two.

Step 2: Players take turns to cut their own slice of cake, anyone who takes a piece smaller than that of round 1 is eliminated. If you take a piece the same size you are eliminated. If you take a bigger piece, remark at how much better off you are and proceed to round 3.

Step 3: Repeat step 2.

As you can see, you can play this game potentially forever;). This represents roughly the game being played by most of the worlds governments. If you ran out of cake and couldn’t play any more, rest assured the cake the governments are playing with is very, very big, so it is reasonable to assume that we can play for ever.

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