No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Two: Fundamentals of Economic Behavior 38 INTRODUCTION In the popular ’60s television show Star Trek, members of the crew were able to go to the Replicator and order anything they wanted to eat, and like magic, it would appear instantly. Most of us enjoy the modern convenience of a microwave oven; but the Replicator…aahhh…now there is an invention worth pursuing! We’re never told exactly how the machine works, but perhaps like the transporter, it rearranges the molecules of something to convert it into something crew members want to eat. Not only is it incredibly convenient, but it never seems to run out. The replicator process is just a future scenario envisioned by creative writers, and it partly overcomes the central economic problem we face: scarcity . Scarcity simply means that we don’t have enough of the goods and services that we want. Scarcity is what gives goods their economic character. If an item isn’t scarce, then it will not be a subject of economics. For instance, in most cases, we say that the air is free. We don’t think about air, we just breathe it. Air is not an economic good. But there are limited cases where air is scarce, and becomes an economic good. During the 1980s, clean air in Mexico City was scarce due to very high pollution. Popular press reported vendors actually selling bottles of compressed clean air for people to breathe. Clean air thus became an economic good. HOW MARKETS ALLOCATE SCARCE RESOURCES There are many ways for a society to deal with scarcity, but ultimately we must deal with its reality in a fallen world. No matter which way we address scarcity, we must ration in some way. (A very important semantic rebuttal to my point is found here . I concede the philosophical point, but will keep my language the same. Rather than using my language of: “scarcity leads to rationing leads to choice,” one could go directly: “scarcity implies choice.” The economic effect is the same. His point is nevertheless well made and good students should keep it in mind—markets don’t ration per se; individual market participants do.) There is simply not enough of every good to give everyone all they want for free; therefore, we ration. If people want more of something than is freely available from nature, how do we decide who gets it? Under the market system, goods are rationed according to price—if you have the money, you can buy the good. You are likely familiar with other ways of rationing as well. Perhaps it’s simply “first come, first served.” Then the cost of scarcity is borne by waiting as the inevitable lines form, rather than paying a market price. Getting there early and waiting in line is the way to get the good. Another way to ration is “might makes right,” and whoever has the biggest muscles (or guns!) gets the good. Perhaps the politically powerful are able to get the scarce goods allocated to themselves, while those with little political power receive less. This method of rationing was prevalent in communist U.S.S.R., where communist party stores had goods available for purchase but regular stores often had barren shelves. scarcity: the central economic problem: we face unlimited wants and limited means to satisfy those wants ration: allocation of scarce goods to competing ends