Economic Fallacies: "No Scarcity"

Look at almost any economics textbook, and you will find a definition of economics similar to this one in Greg Mankiw's Principles of Economics:

“Economics is the study of how society manages its scarce resources.” (Mankiw, 4)

This seems straightforward enough to most economists, but many theologians take exception to this characterization. For instance, Douglas Meeks writes:

Christianity will therefore be subversive in calling into question the deepest assumption of modern economics, namely scarcity. Nothing is deeper in the spirit of capitalism, and of socialism as well, than the belief that there is not enough to go around. (Meeks, 171)

What the market mechanisms actually require is scarcity in the sense of blocked access to what people need for livelihood and work. Scarcity in this sense is the conditions for exclusive private property. (Meeks, 172)

Scarcity may not be made the starting point of a system of economic justice. As a starting point, scarcity is an illusion. In almost all situations of human life scarcity has been caused by human injustice. (Meeks, 174)

Scarcity is portrayed as a fiction perpetrated on the public to foster a sense of need in service of a consumerist society. But is this what economists mean by scarcity?

When you awoke this morning, you likely charted activities you would do today. In choosing to arise at 6:00 a.m., you chose not to rise at 5:00 or 7:00. In eating your Cheerios, you chose not to fix scrambled eggs or make waffles. In choosing to go to work, you chose not to play golf, go shopping, or rob a bank. This highlights a fundamental reality of human existence: We have a limited number of hours each day and a limited number of days in our lives. Time is a scarce resource that forces us to choose between competing options.

It is true that God created and placed us in a world of abundant resources. But very few resources exist in a state usable by human beings. Energy, technology, and intelligence must be applied to resources to transform them from less useful forms into more useful forms. Houses, appliances, clothes, cars, and nearly everything else we use do not exist in such a way we can just go pick them off trees. Most of our food production requires careful management of soil and the application of farming techniques to produce an abundance of food. This is part and parcel of the biblical notion of stewardship, as God placed Adam in the garden to work it so that it might produce abundance.

At the core of the "no scarcity" fallacy is blindness to the issue of production. It views economics purely in terms of distribution of goods and assumes material goods exist. If material goods just hung from trees for our picking, then maybe the case could be made for communal ownership and sharing (but even then, it won't work, as we will see below.) But the reality is that there are a set number of human beings, energy resources, and technological tools to be used on any given day for any given society. How should these scarce resources be employed at this moment?

This is the function of markets. Needs and wants of any given society are shifting by the nano-second. Economies are dynamic living organisms. There is no way any individual or group of experts can plan or manage the production process. No one has a clue how much of anything to produce without price information. Severe shortage for some things and wasteful overproduction of others is the consequence. The price mechanism provides a real-time feedback loop between society and producers that effectively allocates society's resources according to society's demands, much like the nerve network of a human body. It is an imperfect system that is only as just as the purchase decisions of the individual members of society. Government regulation is needed to improve justice regarding externalities (i.e., consequences experienced by individuals, not a party to a given economic transaction), and benevolence practiced by citizens toward each other is critical to a just and prosperous society, but there is no replacement for the feedback loop of markets.

We also need to say more about private ownership in managing scarcity. Earlier in this series, I wrote about "the tragedy of the commons." This concept has been understood at least as far back as the Greeks. Nineteenth Century demographer William Lloyd gave the most famous example of this concept using the idea of multiple herders owning grazing land in common.

From this point, Hardin switches to non-technical or resource management solutions to population and resource problems. As a means of illustrating these, he introduces a hypothetical example of a pasture shared by local herders. The herders are assumed to wish to maximize their yield, and so will increase their herd size whenever possible. The utility of each additional animal has both a positive and negative component:

• Positive: the herder receives all of the proceeds from each additional animal.
• Negative: the pasture is slightly degraded by each additional animal.

Crucially, the division of these costs and benefits are unequal: the individual herder gains all of the advantage, but the disadvantage is shared among all herders using the pasture. Consequently, for an individual herder weighing these, the rational course of action is to add an extra animal. And another, and another. However, since all herders reach the same rational conclusion, overgrazing and degradation of the pasture is its long-term fate. Nonetheless, the rational response for an individual remains the same at every stage, since the gain is always greater to each herder than the individual share of the distributed cost. The overgrazing cost here is an example of an externality. (Wikipedia)

By contrast, when herders own their own herds and land, they are incentivized to preserve and protect the two in relationship to each other. Property rights and private ownership foster sound management of resources.

We also need to appreciate that while private ownership is not absolute, neither is it a privilege granted or withdrawn at the whims of the state. It is prevalent among many today to see society as a collective (like a family or a corporation) where we meet one part of society's needs by simply reallocating "our" resources elsewhere. This seductive and dangerous mindset collapses all human justice into utilitarian issues of the collective good. The state replaces the family as the elemental institution of social cooperation supported by other institutions playing a subsidiary role. Life, liberty, and property are inextricably connected, and they all fall whenever one is subjected to utilitarian government whims. There is biblical warrant for seeing these basic human dignities just this way, although it is framed within the larger context of stewardship before God, not in terms of Enlightenment self-actualization.

Finally, we need to revisit why trade is so essential. In his talk on Economic Myths, Jay Richards uses the example of "The Trading Game." Richards describes his experience playing the game in the sixth grade. Each student was randomly handed an item of approximately the same value. Each student was instructed to rate how much they valued what they had received from 1 to 10, with 10 being the highest value. Richards received Barbie trading cards, which he ranked as a 1. Then the students were placed in groups of five and allowed to trade with each other. Richards found a girl with a paddleball and traded to each other's satisfaction. The students re-recorded their values. Finally, they were allowed to trade with anyone else in the room. When the trading was finished, the students wrote down the value of the item now in their possession.

If you added up the students' ratings at the start of the game and compared them to the sum of the students' ratings at the end of the first trade, you would find that the sum for the class was higher than it was at the beginning. The sum would still be higher after the second round of trade. Furthermore, no one would have an item of lesser value at the end of the game than the one they started with. There were rules to these market exchanges. There was no theft or intimidation, so there was no way to go lower than the value of the starting item. Often in these games, everyone's value goes at least a little higher.

Therefore, scarcity is not an illusion or a cynical fabrication. It is real. We are finite humans with limited time, energy, and technology to deploy in transforming abundant resources from less usable to more usable forms. Property rights, private ownership, the price mechanism of markets, trade, family, subsidiarity, and widely practiced benevolence are the recipe for overcoming scarcity and participating with God as stewards in creating an abundance in which all participate.

Sources:

N. Gregory Mankiw. Principles of Economics, 3rd Edition. Mason, OH: Thomson South-Western, 2004.

M. Douglas Meeks. God the Economist: The Doctrine of God and Political Economy. Minneapolis, MN: Fortress Press, 1989.

[Index]

Comments

[Anon]

Michael:

Reading those quotes from Meeks, who I've never read before, has me flabbergasted. Huh?!? Has he read the Book, especially those first few chapters, the "sweat of your brow" stuff? Certainly scarcity comes from human sin, including human injustice. And in many places in the world, human injustice may be the preponderant cause. But "in almost all situations in human life?"

I've been involved in Christian communities for quite a while and been close to (though never a member of) various common-purse communities, both in the US and overseas. Wonderful people with an amazing love of Jesus. For many of them, I hope they'll invite me to their homes in heaven, because they are going to be living in some REALLY nice mansions, considering the lives they live on this side. I would doubt if any of these folks I know, especially the leaders, would say that the occasional (or common) scarcities that occur are primarily the result of injustice, at least not in a macro sense.

Even closer to home, I guess I do live in a Christian community, i.e. my family. Normally when there are scarcities, it's primarily because of my greed, lack of willingness to live within my means, lack of faith in the Father's provision, and lack of thankfulness for what the Father has given me (which is a lot!). Then there are the other members of the family on top of that. We're all sinners. Funny how much more motivated I am to go to work and not surf the web all day when there are mouths depending on me to be fed.

Yes, I guess could say my actions are primarily because of human injustice. If my father had raised me better and loved me more and disciplined me correctly, I would handle my money better and be more disciplined, right? I probably lived there for my twenties and thirties. Thankfully, my heavenly Father has freed me from that lie. Unfortunately, my earthly father, whom I loved deeply, lived under the curse of that lie his whole life.

Grace and generosity are amazing things, and the Father's provision is infinite. Learning to give to the poor is central to us loving Jesus. We cry out with Amos, “…let justice roll down like a river…” I have not read Meeks, so maybe I am taking what he is saying out of context. But instilling in the poor attitudes or beliefs such as Meeks mentions in the quote you cite is like giving an anchor to a drowning man.

That's not what "anchor of my soul" is supposed to mean.

[Michael W. Kruse]

A wonderful testimony, Anon. Thanks so much.