Posted on 02/08/2009 8:24:51 PM PST by ancientart
I have been teaching introductory economics courses for more than 30 years. The topic of my first lecture is always on the concept of relative scarcity. Scarcity simply means that human wants and desires are unlimited; while resources, the means of production, are limited.
The fact is that each individual, family, business and government entity must grapple with the scarcity problem and calculate the best way to allocate their resources to attain some end. The economic entity must choose how to best allocate its income to attain some level of happiness balancing current consumption and saving for future consumption.
The bottom line is: All economic entities must choose between spending today or waiting until some future time to choose alternative goods and services. Simply, there ain't no such thing as a free lunch. We all must make hard choices. The rejected good is a cost we must bear. Isn't economics truly the dismal science?
There are ways to reduce the number of rejected items and have more today; but not without a price. One can choose not to save, consume more today and consume less in the future. This might mean lower retirement income, giving up that relaxing vacation or less money for your children's education. But, that's the cost we must pay to be happier today. Darn dismal science.
Wait! There might be another way around the scarcity constraint. We can raise our living standard by borrowing in order to attain a better lifestyle today. I can have my fancy car, my fancy house and my vacation. But remember, you will have to pay that loan off by using your hard-earned future income. Of course, that means you will need to spend less in the future. There it is again - there ain't no such thing as a free lunch.
The cost of consuming beyond our income today is less spending in the future. No free lunch again. It is obvious that households, businesses, financial institutions, federal, state and local governments each have been spending beyond their means for years.
The nation as a whole cannot indefinitely spend beyond its means without a reaction. The longer we put off the day of reckoning, the harder the reaction. Well, the chickens have come home to roost. Each of us are feeling the costs of our choices at every level of our society to spend today beyond our means.
At our insistence, government at all levels has continuously pushed the envelope to provide Americans with better housing, better education, better health care, national defense, roads, bridges, energy, snow removal, etc. Americans demand the government provide for some part of our well-being with few questioning how the price will be paid.
The easiest path is obviously to allow governments at all levels to run deficits, borrow today, accumulate debt and push off the costs to future generations. However, the federal government has an additional means of financing. The Federal Reserve can and does bail us out by merely printing money. This economic policy action will only feed the fuels of future inflation and lower future spending through higher prices. Again, the cost shifts to future generations.
No free lunch.
The answer does not lie with continued spending.
The answer is to end the deficit spending mentality.
The gurus in Washington D.C., clearly believe we need to spend our way out of this current economic problem, expanding the deficit to the tune of one trillion dollars. Go figure.
The true solution is not to spend more but less; to save more and to understand the basic economic truth that resources are scarce. No matter what economic policy is concocted, no matter what spending scheme, the economic reality is “there ain't no such thing as a free lunch.”
Until we face this reality, the economic demise of our great nation is certain.
Hillar Neumann, Jr., is a professor of economics at Northern State University in Aberdeen. The views presented are those of the author and do not represent those of Northern State University.
Bump
I agree completely. However, the only economic system both the Democrat and Republican leaders are familiar with is the easy credit, deficit spending economy we have had since WWII, that is in the midst of self-destruction.
The only two tools they had to adjust this economy in past were inflation and economic growth, and so until it is proven to them that these two tools no longer work, they will doggedly try them, in effect, reinforcing defeat.
But the end result will be the same, and that is what we must plan for. To begin with, the era of government largesse is over. There is no conceivable way the government can continue to fully fund Social Security, Medicare, Medicaid and Defense, the big four budget items, at anywhere near their current levels, much less growing them.
To start with, the first three will have to be severely means tested, so that unless you will die without them, you cannot have them. Defense will be cut back from 25% (Barney Frank’s estimate) and 50%, unless America is attacked.
Much of America’s savings will be wiped out as well. There will be a general collapse of pension funds for baby boomers, many more mortgages, called alt-a and ARM mortgages, will fail as well. And finally, the US government may be forced to default on the US National Debt.
At its peak, unemployment may be from 30-50% of the work force.
There is a reason that the very first entry course to the study of economics - “ECON-101”, or the equivalent - is Macro Economics, which is entirely Keynesian. It considers spending by government and in the private sector to be completely equal in effect, and further, because it is based on aggregate measurements, it absolutely fails to consider the motivations and incentives of individuals and firms that make up those aggregates.
MacroEcon might be a reasonable place to start - after all, it does begin the process of analytical modeling using equations and graphs, which leads to an easier grasp of the data. But it is a TERRIBLE place to stop, because it offers only a false confidence in its superficial explanation of the effects of various economic policies.
I taught Managerial Econ - that might be referred to as “Applied microEcon” to MBA candidates for 5 semesters. Almost every student had a Bachelors degree and at least a full year in a supervisory or managerial position. But few were able to actually evaluate a simple quadratic expression, and on the first day, not ONE could actually draw a simple graph, or even conceive of solving a problem graphically.
I required that every homework problem be submitted in the form of an Excel spreadsheet attached to an Email, and that NO constant values be entered in Excel that were not in the original problem - all calculations MUST be performed by Excel, not on a calculator. And I required that they use Excel to draw all of the required graphs, based on tables of functions, not values.
I have seen half a dozen of my former students in the years since. All of them have continued to use these techniques in their jobs - and most have moved on to better jobs since enduring my class.
Best information I ever got in all the math courses I took, including twelve credits of calculus and analytic geometry, was from my eighth grade math teacher: “Always pay cash”.......
It depends on your teacher. If your prof is not a Keynsian he won’t teach it that way.
I can add a column of numbers in Excel, and usually sort my data without screwing everything up - most of the time. But then I work with Cisco routers using the command line interface for the most part...
Mark
Oh, I’m spending. Tobacco, food stores, ammo if I find any.
food gas medicine
market day is saturday wait til then if you still “need” it then, it is still on your list.. ok
pay off your credit card every month
govt workers have a free lunch......they do not obey the laws of supply and demand, not the one about the cream rising to the top.....
Coffee will make a good barter item too.
Be sure to get coffee that is in metal cans, not plastic. It will last a lot longer in metal cans and stay much fresher.
I would add salt to your list.
Thanks.
I have plenty of salt plus, I live on the Gulf Coast...I'll make my own salt if necessary.
Tobacco is urgent with the new tax of $24 per lb. coming April 1st. I'm only paying about $18 p. lb. now. I have several pounds now but I'd like to get as far ahead of that commie 0bammie tax as I can. Tobacco seeds too. More good barter items.
Metal containers are always better for preservation than plastic. Tobacco is a good barter item too but difficult to keep fresh. (Besides, I quit smoking on 8-31-2007)
I have been reading about storing tobacco. They say it will last a long time if dried out and can be easily rehydrated. The drying is not a big problem in CO. We pretty much fight a constant battle to keep anything hydrated.
About a year ago, someone told me that if we all just spent what we made, the world economy would crash. It seems that they were right.
When you read of the old Christian prohibitions on usury.. well they were prophetic.
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