Let me start by saying that I am not an economist. I’ve always been somewhat put off by the topic and felt that it was largely based on supposition and little science. After observing the antics in this country (the U.S.) over the past few months, I’ve become more convinced of it.

If there are any economists in the reading audience, I would welcome your comments, because I really would like to make sense of what’s going on, although I fear that there is little that makes sense.

The first problem I have is with the definition of economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses."[3] Scarcity means that available resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem. The subject thus defined involves the study of choices as they are affected by incentives and resources. (from Wikipedia). Another definition reads:

Economics studies the allocation of scarce resources among people – examining what good and services wind up in the hands of which people. (Introduction to Economic Analysis, McAfee)

So, it appears that according to the definitions, economics deals with the scarcity of resources and choices. While it may seem like a purely semantic argument, I wonder why the word “scarce” was chosen, since in the vast majority of cases, scarcity isn’t really an accurate description of what takes place. I know scarcity has been used to describe resources, as well as money, so it implies that there is a perpetual shortage of these items which drives the choice.

However, my own preference is to consider these resources as “finite” and not scarce. This may seem like I’m splitting hairs semantically, but the image these two words conjure up represent two entirely different viewpoints in what is taking place. I’m sure when you’re considering your budget, the degree to which it is “finite” is a much more apt description than to consider it “scarce” (although I guess that depends on your salary). Similarly it is hard to reconcile (as a society) that given the vast wealth that flows around the country that we could consider it a “scarce” resource, rather than one that is finite with finite divisions around which it is distributed.

This is another case, where word usage carries with it a connotation (and consequently problem) because it mis-represents what is taking place. Just as when economics (as in biology) describes individuals as “selfish” for modeling purposes, instead of “self-interested”, it conveys the incorrect model behavior and doesn’t reflect reality (1).

So while it may not seem like much, I submit that it makes more sense to talk about individuals behaving in their own self-interest with finite resources and competing for finite resources, than it does to refer to selfish individuals competing for scarce resources with scarce resources.

This becomes even more important when one examines the business decisions and choices that people actually have to face. Many costs are unavoidable, so when we consider that a resource is finite, we can begin a useful examination of all the claims that may be made on that resource. Consider that one of the more brilliant implementations in this country has been the use of penalities and interest to get more money from people that don’t have any money. In other words, when someone doesn’t have enough money to pay a bill on time, we charge them more money to penalize them.

In my view, this clarifies one key element in economic theory. It is a tacit admission that NOTHING in economics is infinite and perhaps it will be easier to understand what’s happening when we consider that the resources being studied are finite.

In subsequent posts I’m going to examine the Laffer curve, supply and demand, and credit. Hopefully this will generate some interesting discussions.


(1) Economics actually does worse because it describes people as “selfish” and then says that the technical term is “self-interested”. Pretty convoluted thinking for concepts that clearly have different meanings.