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

Chapter Two: Fundamentals of Economic Behavior 39 However a society ultimately deals with scarcity, collectively we must have rules that allow us to deal with this inescapable fact of the fallen world we live in. Scarcity drives action because it is a reality not only of our frivolous wants, but many of our needs. Since the Fall, the ground is cursed and we have to labor greatly to acquire the things we need to live. It takes time and work to produce the things we need, and time is perhaps the most basic scarce good we have. The concept of scarcity and the fact that it takes time and effort to overcome leads to choice. We must choose which need we’re going to act on and which need will be left unfulfilled. Choosing one thing means that I don’t get to choose another. Scarcity ensures we can’t really have it all, at least in this life. When we choose to go to the gym to play basketball on a Saturday afternoon, we can’t simultaneously be at the movies, or at the park, or taking a nap. Choosing one thing means we exclude many other possibilities. We choose, and then we live with the consequences. The consequences of those choices then help shape our expectations of the future and guide future decisions about how we’ll spend the next Saturday afternoon. We will talk more about expectations later, but for now we only need to know that they help influence our choices as we imagine the outcome of our decisions. Once we understand that scarcity requires rationing, we begin to see the need for someone (whether an individual or a collective) to choose. Scarcity implies rationing, and rationing implies choice. If we ration by price, for example, we must choose between various goods, because almost all of us have a fixed budget or income. If we ration by first come, first served, we must choose whether the time we spend in the line is worth the good . Choice, by definition, is not only picking one option, but it means setting aside all other options. The setting aside of other options is the cost of each choice. In economics, we refer to this cost as the opportunity cost . Notice that the cost is not the monetary cost you paid (say the $1 you paid for a Coke). SUBJECTIVE VS. OBJECTIVE As we discussed in chapter 1, when something is said to be subjective , it simply means that it is assessed by an internal standard. Different people may have different assessments due to personal preferences. For instance, how pretty is a rose? You may have an entirely different assessment than I do, and neither of us is wrong because our assessment is our own. Think of opinions: we all have them and we can’t say they’re right or wrong since they are our own. Many problems occur because people want to assume their subjective standards of what is good or bad are objective, and everyone else ought to agree with them ( just think about the on-going disagreement over worship music styles in church—contemporary vs. traditional, and the strong emotions that issue often raises). If something is objective , however, there is an external standard to assess against, and we ought to be able to reach agreement on our assessments. Physical standards are good examples—weight, length, velocity, etc. In economics, many of the choices we make are subjectively assessed, especially public policy choices. If we are all in agreement that we want to reduce unemployment (a subjectively determined personal preference), but we then raise the minimum wage, economists can objectively show (through both logic and empirical evidence) that our means (raising minimum wage) won’t help us achieve our ends (lowering unemployment). See chapter 6. Scarcity implies rationing, and rationing implies choice. expectations: market participants’ judgments of future economic realities (prices, demand for goods/ services, etc.) opportunity cost: the next best alternative to a given choice; the true sacrifice of any choice