Inferior Good: Diminishing Marginal Stupidity in Action

Friday, July 27, 2007


The Stranger’s Charles Mudede shares his view that Tyler Cowen and other “capitalist economist[s]” fail to understand that the problem of scarcity is manufactured by owners of the means of production.

First, when Economists talk about scarcity, they simply mean that people can’t have everything they want and that therefore, they must make choices. Put another way, resources are limited but desires are potentially unlimited. It’s not clear to me that Mr. Mudede grasps this meaning.

One example of a scarce resource is time, for all of us have a limited time here on earth. While we may want to live forever (unlimited desire), the fact is that we cannot (limited resource).

Another example of scarcity is the fact that people can only physically be in one place at one time. I physically can’t be in London and Kumasi and Seattle at the exact same time. Rather, I must choose one.

Certainly, Mr. Mudede is correct that abundance is important, for it entails more choice. If there were only one good movie in existence, then it probably wouldn’t be too hard to make time to see it. But in fact, there are probably thousands of good movies, not to mention there are many fun things to do besides watching movies. If one could live forever and one could be and do everything at once, then choice would be unnecessary. But of course, due to scarcity, we must make choices about how we spend out limited time, our limited money, our limited attention, etc. I must decide how many and which movies I will watch, and when I want to do so. Every time I watch a movie, I forgo something else that I could have done instead (aka opportunity cost).

Perhaps Mr. Mudede can identify with the phrase: So many movies, so little time. Notice the phrase wouldn’t make much sense if it were So few movies, so little time or So many movies, so much time. This is because abundance and scarcity both play a role in the meaning of this phrase. There are abundant movies one might like to watch, but one only has a limited amount of time that may be spent watching movies.

That being said, Mr. Mudede is correct that scarcity is sometimes manufactured. For example, cartels like OPEC collude in an attempt to create scarcity of oil. Governments attempt to create a scarcity of the legitimate use of force within their own borders. Labor unions create scarcity (by opposing immigration, for example) to protect their wages. Firms attempt to devise innovative products and services that will be hard for their competitors to copy, because they know that scarcity is associated with profit.

In a sense, I think one can plausibly argue that manufactured scarcity is a central problem for Africa. For example, Africa has many natural resources and of course talented, intelligent people. Yet, the lack of institutions and laws sufficiently defining and protecting property rights stifles the domestic accumulation of capital and foreign investment in Africa (see Hernando De Soto’s “The Mystery of Capital”). In this way, I suppose one could argue that African States are essentially manufacturing scarcity of capital. Of course, capital is already scarce to the extent that it is not unlimited, but surely African States have made capital scarcer in Africa than it might otherwise be.

I doubt however, that this is what Mr. Mudede had in mind. Rather, I suspect that he feels an item is scarce only when there’s not a reasonable amount to go around. So for example, he might say that food and energy are not scarce, because clearly the world can produce enough to provide all of earth’s inhabitants with some reasonable allocation of those products. So the problem isn’t that there’s not enough stuff to go around, rather the problem is the way that stuff is allocated.


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