17 July 2012

Day 46: The Economic Problem

Within the field of economics, no matter what issue or subject is being discussed – there is always some sort of trade-off involved. Since economics is defined within the context of unlimited wants with limited means/resources – choices require to be made. Within that, humans are studied in terms of how and what they choose among limited options to maximise their happiness.

Within economics, resources are categorised within three types:

1)    Natural Resources (land, minerals, fuel, animals, etc)
2)    Human Resources (labour)
3)    Man-made Resources (machines)

These are referred to as factors of production, as they are the inputs/means which are used within producing particular goods and services.

Note that money is not considered to be a resource, but a means of exchange with which you can purchase scarce resources.

Time is also considered a limited resource, as everyone only has 24 hours within a day – and so whether one is rich or poor – both will experience ‘scarcity’ from this perspective.

Since we only have so many available resources, to produce only so many goods and services – only so many wants can be satisfied and so we have to make choices.


-        When we use a particular resource towards the production of one thing, those same resources cannot go to the production of another thing (at least not at the same time).
-        When we decide to produce more of one good, there will be less for another good to be produced.
-        If we decide to watch a movie for an hour, we cannot use that same hour to go for a walk outside.

And so on…

This brings us to the concept of opportunity cost and the economic problem.

Let’s look at a few scenarios

You go to a shop with $10 in your pocket – you want some ice cream, chocolate, cigarettes and a drink. But you only have $10 (resources are limited) and so you have to make decisions about what you want to buy and what you won’t buy / “sacrifice”.

It’s the end of the week and you have the evening for yourself. You find yourself wanting to watch TV, go for a movie and go see some friends – but you can’t do this all at the same time, and so you have to choose what to do and what not to do.

The government has X amount of funds available to spend on new development programmes throughout the year. It wants to improve education, health facilities and employment opportunities. But since there is only X amount of money, the government will have to decide what to spend the funds on immediately and what will be postponed.

In all these cases, choices need to be made, where some wants will be satisfied and others will be left unsatisfied. In each one of the scenarios, decisions have to be made about what the person/group will opt for and thus sacrifice as well. From that perspective, there are always ‘costs’ involved, even though these may not always seem ‘obvious’.

There’s a particular phrase which is often used to point this out: “There Ain’t No Such Thing as a Free Lunch” – meaning someone will always have to pay for something even if it is presented as ‘free’ -- the resources had to come from somewhere and those resources are now not able to be used for something else.

Although scarcity is considered to be an essential component of the economic problem (=we have to make choices), it really only becomes a problem when we have competing / conflicting goals. If you have only one goal, and only so many resources – there’s no real decision making involved, as you are not faced with allocating your scarce resources between competing alternatives.  So if you have one goal, you do not have an economic problem – but currently, as humanity we do not have a singular goal – and even within ourselves we are conflicted about the various different things we want all the time. So we only have to make choices / sacrifices when we are divided about what it is we want. Not being divided and having only one goal is considered to be ‘unrealistic’ within current economics, and thus it is assumed that there will always be an economic problem. So this practically implies that within an Equal Money System, there will be no economic problem – as there will be only One Goal as What is Best for All Life – and thus we won’t have to make choices as sacrifices as we only commit ourselves to what is Best for All Life and disregard anything less.

But since we’ve currently valued everyone’s self-interest as equally valuable, no matter how relevant or irrelevant this self-interest is = we have an economic problem. And this has been totally accepted, in fact it’s part of the basis of established economics. So now when economists look a ‘cost’, they do not only look at ‘cost’ in monetary terms (also referred to as ‘accounting costs’) – but also look at ‘implicit costs’, in the sense of what could have been done alternatively if resources would have been used differently.

Within that, opportunity cost specifically, refers to the next best alternative one forgoes for the option which was chosen. So if you have $50 and you want both a jacket and a shirt – and you decide to spend the money towards the jacket – the opportunity cost is the shirt as the next best thing you could have gotten. A cost for economists is what you had to ‘give up’ to ‘get it’. So now this whole new dimension is added where with every choice you make you are burdened with “what if” as “what you could have done” alternatively. But if what you only ever want to do is that which is Best for All, then you are never faced with ‘sacrifice’ or ‘burden’ – as there is only one way as that which is Best for All – and so there is no wondering necessary in terms of how things could have been differently, as any other scenario is simply not relevant as it wouldn’t have been what’s Best for All. We’ve complicated things so badly for ourselves within valuing wants over needs, individual self-interest over What’s Best for All --- and then all the various different choices and sacrifices which need to be made just so we can what we want…

Economics will be a very, very simplistic matter within an Equal Money System – lol.

The ‘Economic Problem’ is not really a problem – we created this problem but it doesn’t have to be a problem in fact. It’s only a problem because we’ve decided that we want to try and live up to something which cannot be lived up to = where we want to satisfy unlimited wants with limited means – and so it’s not really an Economic Problem, but a Human Nature Problem – as we rather want to hold on to something unachievable for all, in the hope that we will be one of the lucky ones that’ll get a piece of the pie – while the majority will have to live a life of sacrifice where not even their basic needs are tended to so that some may attempt to satisfy all their wants and desires.

2 comments:

  1. This seems about as wrong as it gets. Having a singular goal, by definition, means NOT choosing other goals, which means there are competing goals. Your examples (how to spend the money at the beginning of the article) are HOW to achieve a GOAL. A movie, tv or friends are all a HOW to achieve a GOAL (in this case the goals may not overlap exactly). I'm also confused as to dismess happiness as a singular goal within traditional economics. Also, doing that which is best for everyone doesn't eliminate any competing choices of how to achieve that. Doing that which is best for everyone is as fraught with choices as anything else. You can't eliminate choices by waving your hands and trying to apply a perscriptionless sanction. I think you have rationalized yourself into a meaningless distinction. The "Economic Problem" is a feature of the Universe, not an evil human illusion awaiting mass enlightenment.

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  2. “This seems about as wrong as it gets. Having a singular goal, by definition, means NOT choosing other goals, which means there are competing goals.”

    There’s only competition if there’s a value attached to other goals – if there is no value attached to other possibilities, then there is no competition. There could be uncountable other things that I could be doing right now instead of writing this reply, I could for instance try and bounce around on my head – but since I don’t give this possibility any value it is not competing with the decision of writing this reply.

    “ Your examples (how to spend the money at the beginning of the article) are HOW to achieve a GOAL. A movie, tv or friends are all a HOW to achieve a GOAL (in this case the goals may not overlap exactly). I'm also confused as to dismess happiness as a singular goal within traditional economics.”

    In terms of the examples given, here I was merely indicating how current economics sees choices and the process of decision making – that doesn’t mean that I agree with the procedure.

    “Also, doing that which is best for everyone doesn't eliminate any competing choices of how to achieve that. Doing that which is best for everyone is as fraught with choices as anything else. You can't eliminate choices by waving your hands and trying to apply a perscriptionless sanction. I think you have rationalized yourself into a meaningless distinction. “

    There’s really not any choices involved – as you either do what is Best for All or you don’t – the moment something is not Best for All it become valueless and thus gets disregarded – something which one hasn’t given any value cannot compete.


    “The "Economic Problem" is a feature of the Universe, not an evil human illusion awaiting mass enlightenment”
    The economic problem is not a feature of the Universe – we decided on how we want economics to operate, and we decided to work it in terms of satisfying unlimited wants with limited means – we are the ones making it a problem.

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