The Problem With The Central Problem

by Jerrold Soh | Aug 25, 2013 | 1475 views

Limited resources cannot satisfy unlimited human wants.

Most of modern economics is built upon this central assumption, particularly the economics we learn at the A levels.

But students are never taught this is an assumption. And modern education isn’t very good at encouraging students to question what's presented to them as fact by the marking scheme.

It’s easy to see how scarcity was arrived at. Competition for land, labour, food and water have characterised mankind from its earliest recorded history. From the Great Famines of 1315  to today’s North-South divide.
Sorry dudes. There isn't enough to go around, so you'll just have to make do...

But it's also not difficult to see how it is flawed. Resources are not always limited. Economics calls such resources abundant - like air, which people can take for granted. It is not, though, that the supply of air is infinite. It is merely unlimited relative to human demand for it.

Wants, too, are not always unlimited. A simple way to see how this is possible is to look at the number of wants a dead person has. Which is not to say that death is necessary for economic improvement. For example, a person can only eat so much food in a buffet. Even when faced with relatively unlimited supply, his desire for food is limited by time and, literally, space.

Atlhough if sashimi was on the menu, I might actually be able to finish it all.

Wants are also limited in variety and quantity. A person is unlikely to want something he has never seen before, or has lesser use of than something he already has. And there are only so many objects a person can possess. In fact, you can live with only 100 things in your entire life.

You might think that because the want for money is unlimited, then a person’s want for the means to earn it will be. This argument is based on an invalid premise, because the want for money too can be limited. Don’t believe me? Ask this guy.

In short, you can limit your wants. And according to TED, doing so might actually make you happier.

Ultimately, resources are limited and wants unlimited because we define them to be so. It is not necessary to see them that way. In particular, because we make the excuse that wants are unlimited, we think resources must be limited, relative to the wants they need to fulfil. And we go about thinking it’s ok to have insatiable appetites.
It's only ok when it comes to salmon.

The problem, then, is that a majority of people who have 'learnt' economics at the A levels will not realise this. Thinking that wants are necessarily unlimited gives rise to unnecessarily adversarial attitudes - formed from what is perceived to be a fixed sum game. If someone else gains, I lose. But that is not true, and even if this assumption is challenged at universities, most students will not be taking economics by then. What they will take, however, is the lesson that resources are scarce and that we can’t all be happy together.

But it doesn't have to be this way.

What other false assumptions are there about economics?

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