Normative Foundations of Scarcity

In my paper of this name (which has been published in Real-World Economics Review, issue no. 61, 26 September 2012, pp. 22-39), I show that the apparently objective concept of scarcity is built on THREE normative assumptions. This argument destroys one of the basic ideas strongly argued in most conventional texts, that economics is a POSITIVE study of facts of our economic existence, and does not involve value judgement. The three normative pillars on which scarcity stands as the fundamental principle of economics are the following:

ONE: Private Property.
This is a cultural norm. For example, the Cherokee constitution states that the lands of the Cherokee Nations shall remain common property. If there is a cultural norm of sharing public resources, then the issue of scarcity would not arise (or at least, would be much less frequent). Anthropologists have shown that there is no starvation in subsistence societies because of strong norms of sharing. If the society as a whole has enough food, then EVERYBODY will get to eat. Note the violent contrast with the private property norm. In conventional economics, the Pareto principle embodies the normative idea that the right to property takes precedence over the right to life. If a poor man is starving, the rich man is NOT obligated to provide for him.

TWO: Consumer Sovereignty
Economists argue the we SHOULD not question consumer preferences as to where they come from and whether they are legitimate. Also, economists argue that we SHOULD design an economic system which fulfills ALL preferences (to the extent possible). Obviously if we differentiate between legitimate demands, and idle desires, scarcity would be much reduced. As Gandhi said, there is enough for everyone’s need, but not enough for everyone’s greed. The noxious NORMATIVE idea that the right of the super-rich to private jets trumps the right of the poor hungry child to bread is what leads to scarcity becoming the foundation of economics. If we change our norms to advocate and encourage simple lifestyles, and also consider the goal of an economic system to be that of taking care of the NEEDS of ALL, instead of maximizing the wealth of the wealthy. the problem of scarcity would not arise.

THREE: WELFARE Lies in fulfillment of desires
Again this is a normative judgment about the purpose of life, which is taken to be fulfillment of desires. If we really study what makes us happy, we find a lot of surprises. Firstly the Easterlin paradox shows that if try to fulfill all desires, this does not lead to increased happiness. Because the normal level rises, and people judge their welfare relative to the average, this creates a futile rat race. Everybody works hard for increased wealth, but in the end no one is happier. Everybody would be better off if we followed the advice of Sonja Lyubomirsky who has written the “How of Happiness” and The Myths of Happiness — these show that the ancient virtues: kindness to others, gratitude for our blessings, compassion, sympathy, commitment etc. lead to long run happiness. The idea of selfish maximization of personal consumption with complete indifference to others lead to long term misery. The normative preference of the economists for the homo economicus model creates an unhappy and lonely society, for those who buy into these assumptions. See for example Lane: The Loss of Happiness in Market Democracies.

Abandoning these hidden normative commitments of economics, by allowing for more public spaces and common property, creating norms of social responsiblity, and encouraging simple lifestyles would remove scarcity as the central economic problem. I have argued this is much greater detail in the paper cited in the first paragraph.

QUOTE FROM FDR: “But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings. ”
— Societies CHOOSE the economic laws they live by, according to their normative judgments.

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3 comments
  1. Bruce E. Woych said:

    Market economies are distinctively problematic for normative practices since it is based upon differential processes of exploitation, selective allocation and economic dependency substrates which largely establish scarcity as a norm in the mainstream demographic or aggregate society at large. As such, escaping or eluding scarcity becomes a class seeking upward mobility and appears to legitimate aggressive or transgressive economic norms in the form of “lawful” process and structural realism that justifies itself.

    Scarcity that is determined by economics is quite disconnected from actual ecological factors of primary resource scarcity and has a direct impact upon the real economic “value” of those resources as they relate to a rational economic distribution in markets. Competition laws have existed as long as market economies have been prime determinants of these social values and its consequentially relative wealth distribution (see:http://en.wikipedia.org/wiki/Competition_law), but these laws have only gradient histories that are triggered more by monopoly and manipulation than normative fairness to entire societies at all levels of entry.

    It is interesting to note that the divisions in economics between the Chicago School and others (Yale/ Virginia/ Harvard) more normative in their perspective can be seen as a tension between the premise of “lawful rules” for public/private choices that favor monopolizing the political nature of class structured “normative” expectations that were specifically tagged as “rational” but actually monetarized a system of power and privileges (which, not surprisingly, was then modified to a relatively upper-class market based New Keynesian economics. Pricing dominated these concerns of value, and “labor” was not a concern in the post-world / cold war decades of ‘academic” theoretical disputes. In fact, it was more aligned with the dismantling of the New Deal policies from pre-world war contests between laws of labor and laws of monopoly which was now cloaked in the hard drive between communism, socialism and “pure” capitalism.

    Meanwhile the Chicago School (http://en.wikipedia.org/wiki/Chicago_school_of_economics) managed to set off a chain of pseudo-Nobel Prize winning authors that makes the Wizard of Oz look like a primitive amateur. Rational Theories as positive law, served the “normative” expectations of the rich and made the laws of poverty appear to be one of mismanagement and political market failure. Forget about competitive laws that might balance the social norms, these “scholars” were preaching greed and Darwinian Socialism and praising “capture” as the law of ideal power seeking capitalism itself.

    The ruling process of the Divine right of Kings has many normative normative permutations in history, and the “laws” that order these selective norms have a foundation in the subsequent liberal economics that use wealth as their operative motivation for manipulating scarcity as a controlling authority.

  2. Art Saluk said:

    Thatnks for the excellent article. In regards to “WELFARE lies in fulfilling desires”, economists working with such issues should consider familiarizing themselves with advances in the field of Positive Psychology (esp. the work of Martin Seligman) which attempt to characterize human well-being in a broad and rigorous fashion. (The Wikipedia article on “Flourshing” briefly summarizes some of the ideas and research now being done in that area.)

  3. Art Saluk said:

    I should have added that Sonja Lyubomirsky, whom you cited, is Associate Editor of the Journal of Positive Psychology.

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