Unit 1 – The Basic Economic Problem

You would hope that defining economics wouldn’t be where things fall over. The Concise Oxford has it as ‘the branch of knowledge concerned with the production, consumption, and transfer of wealth’. This is OK, but Unit 1 has it down better describing economics is concerned with ‘scarce resources and their allocation’. 

Unit 1 then starts with stating a set of ‘facts’. First it says ‘nearly all resources are scarce’ and it goes on to differentiate ‘economic’ and ‘free’ goods. There is no disputing scarcity is at the heart of things.

Then it states ‘human wants are infinite’. This is where it all unravels. There are some people who are never satisfied no matter what they have in material terms, but it simply isn’t true of everyone. I’m not just talking about hippies and Buddhists,  no offense intended. In my experience many people stop having material matters as their primary concern once they have reach a certain level (culturally influenced of course). At a pedantic level if just 1% has infinite desires then desires are infinite as infinity times 0.01 is still infinity. This insatiable tail may wag the dog as those driven to accumulate for accumulations sake have almost all the economic muscle, but let’s not tar everyone with the ‘greed is good’ and ‘everyone is greedy’ brushes. Economics should be about more than justifying insatiable appetites. The good news is this thinking seems to be breaking into the mainstream with the discussions around ‘happiness economics’.

The second problem with ‘human wants are infinite’ is it lets off all those who are not concerned about our increasingly unequal wealth distribution and decreasing social mobility. The bottom billion have suffered relative, and sometimes absolute, declines in their living standards over the last 30 years. The ‘wants are infinite’ school isn’t concerned beyond having to concede that everyone should probably have enough to eat. Their logic is that as wants can never be satisfied income distribution is unimportant as everyone will always want more. This is nothing more than a base construct to explain away questions of equality and justice. We should be much more focused on not letting a significant minority be left in destitution. In global terms this is a billion people currently trapped due to circumstances very much beyond their control.

Most of the world’s really poor are outside the UK, but we should not just think of equality and justice as issues for the ‘third world’. In the UK working class female teens are now less likely in absolute terms to go to university compared to the 60s. Half a century and we have actually gone backwards in the actual percentage of working class females going to university.  Given the massive expansion of higher education this is nothing short of disgraceful.

Real economics says we should not simply expect everyone to be in state of want, but look for a more equitable and just economics, at home and across the globe.