Sowell on Scarcity

by Russ Roberts on May 10, 2006

in Standard of Living

Here is Thomas Sowell’s deep insight about economic reality from Basic Economics:

A distinguished British economist named Lionel Robbins gave the classic definition of economics:

Economics is the study of the use of scarce resources which have alternative uses.

What does "scarce" mean? It means that people want more than there is. This may seem like a simple thing, but its implications are often grossly misunderstood, even by highly educated people.


For example, a feature article in the New York Times of August 1, 1999 laid out the economic woes and worries of middle-class Americans—one of the most affluent groups of human being ever to inhabit this planet. Although the story includes a picture of a middle-class family in their own swimming pool, the main headline says: "The American Middle: Just Getting By." Other headings in the article include:

Wishes Deferred and Plans Unmet

Goals That Remain Just Out of Sight

Dogged Saving and Some Luxuries

In short, middle-class Americans’ desires exceed what they can comfortably afford, even though what they already have would be considered unbelievable prosperity by people in many other countries around the world—or even by earlier generations of Americans. Yet both they and the reporter regard them as "just getting by" and a Harvard sociologist spoke of "how budget-constrained these people are." However, it is not something as man-made as a budget which constrains them: Reality constrains them. There has never been enough to satisfy everyone completely. That is what scarcity means.

Although per-capita real income increased 50 percent in just one generation, these middle-class families, "have had to work for their modest gains," according to a Fordham professor quoted in the same article. What a shame they could not get manna from heaven! As for the modesty of their gains, this suggests that people not only adjust their expectations upward with growing prosperity, but also adjust their rhetoric as to what it means to be "just getting by." The New York Times reporter wrote of one of these middle-class families:

After getting over their heads in credit card spending years ago, their finances are now in order. "But if we make a wrong move," Geraldine Frazier said, "the pressure we had from the bills will come back, and that is painful."

To all these people—from academia and journalism, as well as the middle-class people themselves—it apparently seems strange somehow that there should be such a thing as scarcity and that this should imply a need for both productive efforts on their part and personal responsibility in spending. Yet nothing has been more pervasive in the history of the human race than scarcity and all the requirements for economizing that go with scarcity.

Comments

36 comments    Share Share    Print    Email

Previous post:

Next post: