The Problem of Scarcity

Why Should I Care?

Everyone might want or need a private jet. And God knows our needs and wants are unlimited, in both quantity and diversity of goods. Unfortunately, we can’t produce all these things because resources are limited. This is the problem that keeps economists up at night. And now its keeping everyone up at night because our over-consumption is putting the planet on fire.

This Lecture Has 4 Parts

• Finite Resources
• Infinite Wants and Needs
• The Problem of Scarcity is Everywhere
• Scarcity forces choice

How do you pronounce scarcity? Skair-ci-ty   (Insist on first consonant)

What is the Problem of Scarcity?

Some regions of the earth seem to be endowed with plentiful natural resources such as minerals, timber, water, wind, and oil. Other areas seem to have been forgotten by the Gods of production… However, wherever you are on the planet, resources are not unlimited, therefore humans face a problem of resource allocation. Even if resources are abundant, humans face a problem of scarcity. A few definitions are needed.

Abundance
A product, or resource, is available easily and in large quantities. There may or may not be a surplus.

Rarity
A product, or resource, is not available easily, and if it is, only in small quantities. There may or may not be a shortage.

Finite
A limited quantity

Infinite
An unlimited quantity

Problem of Scarcity
A situation where the quantity of production is insufficient to meet people’s unlimited wants and needs. A situation that demands discussion about the most appropriate allocation of resources.

• Finite Resources

Economic resources such as Land, Labour, Capital and Entrepreneurship may be abundant, but they are not infinite. Therefore, they are finite. This means they are limited in stock. They may seem abundant in some areas, and in particular periods of history. But they still are finite.

The idea of false abundance is important. It is very much associated to the over-exploitation of resources, especially in a country such as Canada, where European colonists found a seemingly unending supply of resources such as forest lumber, beaver furs, fish, game, and raw hydro power. However, these resources are always limited.

An example of this is the extinction of the Passenger pigeon, Ectopistes migratorius (Tourte in French), which was well known in the eastern US and Great Lakes to be incredibly abundant. Flocks of pigeons would cloud the sky and hunters would be able to harvest them by the thousands in a single day. In Quebec, the bird's meat was used to make the famous tourtière meat pie, and its feathers were used for making pillows and beds. The population was estimated to be between 3 and 5 billion birds, when colonists arrived in the Americas.

Passenger pigeon (Tourte)

Source: Illustration by Mark Catesby, 1731. https://en.wikipedia.org/wiki/Passenger_pigeon#/media/File:Pigeon-of-passage.jpg

The bird population was thriving prior to colonization, and was important for many Indigenous nations, such as the Wendat (Huron) and the Kanyen'kehà:ka (Mohawk). The pigeon gets it's 'passenger' monicker from its migratory pattern, summering in the Saint-Lawrence valley and wintering south of the Ohio river. The species went extinct in 1901.

• Infinite Wants and Needs

On one hand, resources are finite, but on the other hand, peoples’ wants and needs are seemingly infinite. Some people will immediately agree. If you give the opportunity to have everything, they will want to have everything. Keep in mind that we are talking about our material culture here. We do live in a world of constant advertising and consumerism.

First, we define wants and needs as our wishes, but not necessarily what we are willing to purchase and consume. The scope of wants and needs is much larger than our demand for goods and services (more on this later).

Let's also keep in mind that meeting all of our needs is important. Economists usually agree that the economy should operate in a way that provides people with their necessities, such as shelter, food, security and clothes. These needs are not necessarily infinite.

What is more likely create economic problems is the provision of wants. We could probably agree that many of the things we own and consume are not basic necessities, such as ski trips, fancy clothes, and expensive cars.

One issue is that today's luxuries may become a need tomorrow. There was a time when oranges and eye glasses were considered luxuries. There are lots of things we have access to today, that were outlandish luxuries only a few decades ago. Yesterday's luxuries can become needs, such as the Internet. It would be terribly difficult to manage modern life, and find a job, without access to the Internet today.

Some people could object. ''Once I've eaten, I don't want more food'', they retort. We have an answer for that. Economics calls this the law of diminishing utility. It's true, the more you consume of the same object, the less you need of it. However, your attention will turn to something else. Once you've had pizza, you might be thirsty. Once your thirst is quenched, you might want clothes. Once you have a new wardrobe, you might want to travel. We have infinite wants and needs because the diversity of our wants and needs is endless.

The problem with our wants and needs is that as soon as one of them is met, that we have restored our body, or read a book, our natural curiosity is piqued by any other product out there. Now, we don’t need a private jet. But we certainly can imagine it would be nice to have one around. We can end up wanting for one, only in a day-dream at that!

Let's also keep in mind that buying things does not make people happy. We certainly don't want to encourage our students to fall into traps of over-consumption, or to rationalize each of their expensive habits. Your ancestors lived on the earth, quite successfully most times, without a new pair of shoes every six months, a smart phone, or even exotic fruits like bananas, let alone jet travel in the middle of winter.

• The Problem of Scarcity is Everywhere

What we can produce is determined by the availability of resources. The level of available resources is therefore a subset of our Wants and Needs, which are immense, larger than the available resources, and infinite. Therefore, we will never be able to satisfy all of our wants and needs. This is what economists refer to as The Problem of Scarcity.

Wants are infinite + Resources are finite = Resources are scarce.

We should keep in mind that scarcity of resources, and therefore production, has always been an issue for humans. On a psychological level, the issue of scarcity can be dealt with quite simply, if we simply agree to look at it as a Problem of Satisfaction. If we can feel satisfied with what is available to us, then we won't feel as obsessed to produce more and more.

You might not be convinced yet. Two things:

A) Regular people define scarcity as rarity, or even shortage, which sounds reasonable. Economists disagree. They refer to the Problem of Scarcity, which has to do with both finite resources and infinite wants. Sometimes we use a shortcut, and just say that “everything is scarce”, whether there is surplus, shortage, or neither. If you want to say that there are not many apples produced, you should say that apples are rare, or in shortage. Economists will insist however, that producing apples cannot be unlimited, therefore apple production is subject to the Problem of Scarcity.

B) Very few resources are so abundant that economists will not consider them to be scarce. Among them: sunlight, CO², and brine water. But still, they are not infinite. The sun does set at night. And it will die out one day. Carbon dioxide is being over-produced by humans, but it's a closed system in limited supply. Humans are simply moving carbon from the earth to the atmosphere. Finally, the quantity of brine water is determined by human population, which is growing, and there may be too many of us, but human population is finite nonetheless.

Taxi Market

There could be so many taxis, that people would say they are abundant. So are taxis scarce if there are hundreds of them waiting at taxi stands for clients to appear?

Yes, they are scarce, even if there is abundance or a market surplus.

A surplus is a temporary situation due to many factors such as the price of taxi rides, the availability of other modes of transportation, the time of day, whether or not there is an event in town, patterns in tourism, and the wealth of consumers.

However, scarcity is a permanent characteristic of our earthly condition. The underlying scarcity of any product never disappears. Contrary to market demand, wants are unlimited.

Do people need a taxi? Maybe not, but do they want one?

If taxis were free, people would call taxis to go anywhere, anytime, because their wants are unlimited. The earth could never provide enough resources for us to have a truly unlimited supply of taxis. This is what we call the Problem of Scarcity.

• Scarcity forces choice

The Problem of Scarcity will force people to make choices. For example, Canada and Quebec are very diversified economies but they are known world-wide for their abundant stocks of natural resources such as oil, hydro power, aluminum, gold, copper, iron ore, wheat, potash and corn. We also have a huge quantity of fresh water and abundance of land to expand our cities. Growing world production will generate stronger demand for our resources and Canadians will have to choose how these resources are used.

All the earth’s resources, including land, labour, capital and entrepreneurship, are always scarce. This forces us to choose how we will use our resources to efficiently produce the many goods and services that we need, and want.

Green Policy

With more than eight billion humans on earth, the Problem of Scarcity has become a problem of rivalry for land use on this planet. Many activists, such as Greta Thunberg, are predicting a collapse of natural ecosystems on every continent of the earth. Others, such as industrialist Elon Musk, believe the only way out of this situation of over-population is to invest in technology, and maybe find another planet to live on.

As humans take up more and more land on earth, other creatures are fighting for survival. Human technology has allowed us to daunt the large animals such as bears, tigers, and elephants, to over-fish the oceans, and to grow our own food in such quantities that almost half of it goes to waste.

And then comes the virus. As you have experienced the COVID-19 pandemic, you now understand that over-population on earth is a problem that nature can fix. This solution can be cruel, as nature oft can be. The Green Policy playbook urges us to do many things. Protect more natural spaces, for the sake of conserving nature. Reduce BADS by reducing overall consumption. Fund technologies that are sustainable.

Humans need to understand that the planet does not need to be saved. The planet will survive once humans are gone. Rather, it’s humans, who need the planet to save themselves.

Climate Change Solution

Solutions to climate change involve a tradeoff between the carbon-heavy economy, and a carbon-light economy. The abundance of oil available to humans has enabled us to increase our economic production exponentially over the past 200 years. However, the earth has a limited capacity for absorbing carbon without creating a hot-house effect of global warming. Carbon in the atmosphere forces the earth's temperature to rise. It's not a problem for nature per se, it is a problem for humans and their survival.

Many industries will be affected by our decisions to reduce carbon emissions. As you saw during the 2020-21 pandemic, demand for world travel dropped significantly due to the COVID-19 scare. International trade also decreased, which meant fewer large vessels at sea. One of the most polluting forms of tourism, Cruise Ships, became hot beds of virus transmissions. Many of these ships were refused by ports for weeks, leaving crews and travellers stranded at sea.

The good news is that people are realizing that carbon-based travel is poisoning the oceans and the atmosphere. We saw GHG emissions drop during the pandemic because people traveled less than usual.

The pandemic encouraged many local initiatives, such as city-farming businesses which have sprung across the world, encouraging local produce. Regional tourism boomed, albeit forced by air travel restrictions. Governments and industry are revising their international production lines to ensure more stability in the event of another pandemic. All of these measures are reducing GHG emissions. Now that the pandemic has passed, we must decide which path we wish to embark on.

Democracy Booster

In a democracy, the will of the majority should prevail. A small ruling class of privileged individuals should not be imposing their will on everyone else. In Canada, one could say the country is mostly in favor of the oil industry. So that is democracy speaking, right?

The country is actually quite divided between the richer, oil-producing provinces such as Alberta, and Saskatchewan, and the other, much less wealthier provinces, such as Quebec, Manitoba, and most of the Maritimes. Therefore, support for oil-production projects such as pipelines and foraging is much stronger in the West. To put it simply, the people out West seem to want more oil. So democracy is speaking, n’est-ce pas?

One should keep in mind that the Canadian provinces were designed by British Governors to enable the use of land for economic extraction, no matter the opposition of Indigenous Peoples on that land. There are no provinces who speak on behalf of Indigenous Voices. Their demographic weight in Canada is about 4 percent of the total population. One may only imagine a country such as Canada, where there would be Indigenous Provinces. Given their history and culture, support for oil extraction is not a given. Remember the train blockades of 2020 by hereditary leaders of the Wet’suwet’en First Nation? Support for oil in Canada is a very divisive issue.

Wrap-Up

Economists categorize resources into four groups: land, labour, capital, and entrepreneurship. These resources are used to produce final goods and services.

Resources are scarce because they are finite, while our wants and needs are infinite. The better we manage our resources, the more we produce, the more of our wants and needs are fulfilled. Economists generally argue that more is better.

This is important because scarcity of resources forces us to make choices about production.

Cheat Sheet

Abundance:
The quantity of available stock is large.

Rarity:
The quantity of available stock is small.

Problem of Scarcity:
A situation when the quantity of production is inadequate to meet people’s unlimited wants and needs.

References and Further Reading

Ellsmoor, J. (2019). Cruise Ship Pollution Is Causing Serious Health and Environmental Problems. Forbes. Retrieved from web. https://www.forbes.com/sites/jamesellsmoor/2019/04/26/cruise-ship-pollution-is-causing-serious-health-and-environmental-problems/?sh=36f2e51d37db

Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations.