What is Economics?


Let me ask you a question. How would you like to live in a mansion? I thought so. How would you like to have a staff of 20 people, waiting on you hand and foot? Perhaps a chef to make all of your meals, a masseuse to massage you three times a day, someone to clean your house, and maybe ten Golden Retrievers to run around and play with you all day. Well, when you're not getting your massages. I haven't even mentioned the cars, motorcycles, and private jet yet. I was getting to that.

If I had to guess, I'd say that most of us would love to have all of this. There's only one thing standing in the way. Can you guess what that is? You got it. It's money. Most of us don't have the money to pay for even a fraction of what I mentioned above.

Let me ask you another question or two. Wouldn't it be nice if everyone on earth had what I just described above? So, besides yourself, every single one of the seven billion humans inhabiting the earth would live in their very own mansion with servants and pools. And what if everyone also owned enough land on which to really have a good time? So much land that each person lived on a piece of real estate the size of Texas. Yes, that's right. Every single person would live on a piece of property that's the size of Texas. And have 20 people working for them. And have many, many dogs. And pools, And chefs. Oh yeah, and motorcycles.

Can you guess what the problem with this scenario would be? If you said that there's not enough land in the world (of the size described above) for everyone to own, you'd be correct. Also, if everyone was living in a mansion doing all these things, what about the servants? Wouldn't they have their own mansions? When would they be serving you if they had their own servants. And who would be making the airplanes if we were all partying all day? You see the problem here. Not everyone can have everything because it just wouldn't work. The entire idea is unsustainable.

All of this thinking leads me to a definition I'd like to give you. It's a definition for economics. Here goes:

Economics is the study of how humans make decisions in the face of scarcity.

Now that we know the definition of economics, let's point out what's scarce in the examples I gave you above. The first thing that's scarce, we already discussed. That was money. I don't think either you or I have the money to pay for the employees or dogs. But beyond that, as mentioned above, there's not enough land on the planet to give everyone something the size of Texas. And furthermore, what about people themselves? If each one of us were to have 20 employees so we could goof off all day, when would the employees be goofing off? They'd have their own employees, etc... And then, what about time? And resources to make all the stuff I mentioned? And where would we get 70 billion Golden Retrievers. I think you get the point here. There's scarcity of goods, services, labor, tools, land, and raw materials on earth and economists like to think about how that affects personal, family, group, governmental, and business decisions.

All of this brings me to a new thought. If there's scarcity on earth, what actually causes that. What precisely makes something scarce? Say there was a copper mine that, if mined, would give us 100 billion tons of beautiful copper? Would copper be scarce? What if the mine only gave us an ounce of copper? Would copper be scarce? The answer to these questions depends on how much copper is wanted or needed in comparison to how much is available. If no one wanted or needed copper for anything, then even an ounce wouldn't be scarce. If we had 100 billion tons of copper available to us, but needed twice that, then it would be scarce. Whether or not something is scarce depends entirely on us.

Can you guess which is the most scarce resource on earth? I'll tell you. It's time. Time is the great equalizer because no matter who you are, how much money you have, how good looking your face is, we all have exactly the same amount of time in every single day. No matter what. And that's why so many other areas are mentioned in relation to time. Think about the measure of productivity here. How many widgets can one employee make in an hour? There's that time thing again. More on this later.

If scarcity is an issue because humans are always in want or need and because resources are finite, how would we deal with it? I would venture to say that we simply wouldn't get everything we want. To deal with the money issue, most of us would likely have to forgo the mansion and the related toys. And to deal with the labor issue, we'd probably give up the employees. And to deal with the space issue, we'd most likely have to let go of the property the size of Texas. So because there simply isn't enough of what each of us wants, we'd be forced to make concessions. We might not like those concessions, but that's the way life is.

The terrible thing is, scarcity is a very real thing. There are some folk out there who ask questions such as, "Well, why don't we just give people what they need?" I guess the answer to that would be, "Because we don't have enough to give them." Economics is a deeply complex subject that, even when studied for years, can still surprise the best of us. Consider hunger across the world. Housing. Healthcare. All the other things that can allow someone to live a better life. Why don't these people have all of what they need? It's all because of scarcity.

To truly understand the concept of scarcity, we'll need to discuss this much more deeply. I hope to write about this topic in its entirety very soon. In the meantime, let me ask you what the most scarce thing in your life is. What do you feel that you need more of? What do you think should be more available in society as a whole?
What is Economics? was posted on 08-20-2020 by 15Katey in the Economics Forum.