Saturday, May 08, 2010

Scarcity (1) - Economic Term

The market’s fear of scarcity must be replaced with the abundance of the loving God. And the first commandment of the Market: “There is never enough,” must be replaced by the dictum of God’s economy: namely, there is enough, if we share it (Jim Wallis, Sojourners).
You cannot wish scarcity away. It is one of the most fundamental realities of economic life, involving everything from raw materials to money to the very time we have on God’s green earth. Still less can you wish away scarcity with shallow sentiment and decree that all of humanity will have enough if we follow the “dictum” of “God’s economy (John Couretas, Acton Institute).
The concept of economic scarcity seems to make theologians and economists grumpy with each other. One reason is that these two groups tend to use the word scarcity in different ways.

Scarcity is a basic concept in economics. It applies to both individuals and the economy as a whole.

At the personal level, scarcity is the corollary of human finiteness. There are limits on what a person can do, even in an entire lifetime. There are only so many hours in a day, and days in a week. If I want to spend more time sleeping, I will have to give up some of my leisure activities. If I want more time for leisure, I will have less time for paid work or work around the home. If I want to spend more time doing art, I may need to spend less time growing food.

Time is limited, so people must make choices about how they spend their time. If I choose to spend more time on one activity, I will to spend less time on some other activity. Life is full of choices about how we will spend our time.

Humans are not omnipotent. One person will not have the strength and energy to build a new house and run a marathon in the same week. Our finiteness places limits on what any person can produce. Everyone must make choices about what they will make and do. The economic term for this is “scarcity”.

Similar limits apply to an economy as a whole. The labour, capital, technology and other resources available in an economy are limited. Air, energy from the sun, and sometimes, water are the only resources that are available in unlimited amounts. The earth contains huge of volumes useful minerals and metals, but much of it is not easily accessible. Labour and capital are needed to extract it.

Human technology is limited. We do not have the technology do everything that we want. We might prefer to use energy from the sun to power our motor vehicles, but we do not have the technology yet and if we put further efforts into developing it, we will have to put less effort into other technologies that might be more useful.

Capital is also limited. Capital can only be obtained by forgoing consumption or leisure, so an increasing use of capital to be more productive, can only be achieved by increased saving. Every economy faces a choice between saving to make the economy more productive and consumption to increase well-being.

In the short-term, every economy has a limited population and therefore a limited labour force. Furthermore, there will be limited supplies of some of the skills that are needed to produce certain types of things. The reason is that when people decide to obtain a certain type of training, they choose not to develop other skills. People can only develop into one or two professions and they can only develop a limited range of skills.

In every economy, limited resources (labour, capital, technology and natural resources) place a limit on what can be produced. The technical name used by economists to describe this state of affairs is scarcity. It is not a perfect word for this purpose. “Finite” might be a better word, but we are stuck with the common practice.

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