September 26, 2008

On Tuesday I was part of a conference call with Ed Lazear, Chairman of the President’s Council of Economic Advisors, to discuss “the nation’s economic challenges.”  The call was oriented to economists and over my head.  But you do not need to understand the fine points of securitizing assets, Alt-As, and the LIBOR rate to know that the heart of the problem is bad debts.

“Economics,” said the eminent British economist Lionel Robbins, “is the study of the use of scarce resources which have alternative uses.”

After quoting Robbins, Thomas Sowell in Basic Economics: A Common Sense Guide to the Economy, writes:

What does “scarce” mean?  It means that what everybody wants adds up to more than there is. …There has never been enough to satisfy everyone completely.  That is the real constraint.  That is what scarcity means.

We have unlimited wants.  They range from necessities—basic food, clothing, and shelter—to luxuries—caviar, custom tailored suits, and mansions.  Our limited resources prevent us from having all we want and economics looks at how we operate in that world of scarcity.  How do we use our limited resources to satisfy our unlimited wants?

Because economists study scarcity, it is fair to say that economics had its origin in the Fall.  In the Garden of Eden, there was no scarcity.  The man and the woman worked joyfully to bring order to God’s creation.

After the Fall, God said to Adam:
Cursed is the ground because of you;
       through painful toil you will eat of 
      it all the days of your life.
It will produce thorns and thistles for you, and 
      you will eat the plants of the field.
By the sweat of your brow you will eat your 
      food until you return to the ground, since 
      from it you were taken; for dust you are 
      and to dust you will return.  
      (Genesis 3:17-19)

“Painful toil,” “thorns and thistles,” and “the sweat of your brow” is the language of scarcity.  Economics was born.