Unlearning economics

Perhaps he should retitle his blog unlearning logic:

Economics is the study of how we allocate scarce resources, but the fact that the economy is ultimately constrained by scarce resources does not factor into it.

If the economy were not constrained by scarce resources then we\’d not have to study the allocation of that scarcity that does not exist, would we?

17 thoughts on “Unlearning economics”

  1. That is one of the stupidest sentences I’ve ever read. In context it’s marginally less stupid, but it’s attacking a straw economist in the Wizard of Oz sense.

  2. This is intended to be a caricature of Free Market Economics. It is what the Grauniad and its allies are pretending that you say.

  3. Tim I’m pretty sure you’ve never had a formal economics education (?) but I can assure you that it is never emphasised that resources are ultimately limited.

    Economics studies resource allocation on the premise that they are limited at ANY ONE TIME, but the economy is not constrained in the long run. Growth is assumed to be limitless – certainly in the core theories, anyway.

  4. You may have had a formal economics education, but you apparently have not had any education in formal logic. You simply cannot assure anyone that resource constraints are “never emphasised”. What you may be attempting to say is that to the best of your recollection, during your education, your professors did not emphasise the fact that resources are limited. (I’m sure they convered it at least once; it’s a fundamental axiom behind pretty much all of modern economics – but hey, maybe you were absent that day they spelled out the implications.)

    And a cogent criticism of your professors that no doubt is. But mine did cover it, repeatedly and extensively. By your “logic” I guess that means that it is ALWAYS emphasised that resources are limited? So much for your criticism then!

    Look – if you want to complain about your professors, by all means, don’t let me stop you. But if you want to complain about a social science whose most common definition is that it is the study of the allocation of limited resources among unlimited needs and wants, you need a little more than mere anecdote to claim that nobody every talks about resources being limited!

  5. I think the confusion here is about the difference between “limited” and “constrained”. All resources are limited – there are costs to using them. In fact, one of the great lessons of early economics is the “tragedy of the commons” – what happens when the costs are not borne (directly or indirectly but overtly) by those using them.

    However, as Tim’s Forbes article set out (and the whole concept of substitution of resources aims at) is that there are few fundamental limits and those are largely irrelevant in economics terms.

    As the costs of existing resources rise, more of that resource becomes economical to extract, new resources are discovered (you look in less likely places) and substitutes are found. “Peak oil” would be completely irrelevant if we got one of the tokamaks working. Even plastic feed stocks can be made from CO2 and H2O resource if enough electrickery (and chemical nouse) can be applied.

  6. Tim I’m pretty sure you’ve never had a formal economics education (?) but I can assure you that it is never emphasised that resources are ultimately limited.

    Really? That was the very first thing we were told in high school economics. Wants are unlimited, resources are limited, let’s study how the economy tries to satisfy the former with the latter.

  7. In fact, Wikipedia even has an article on it entitled “Economic problem”. Not an economic problem, but *the* economic problem:

    The economic problem is most simply explained by the question “how do we satisfy unlimited wants with limited resources?”

    Perhaps it wasn’t mentioned in your course because they assumed you’d paid attention in high school. In hindsight, that was a pretty stupid assumption, but at least you were consistent.

  8. Thank you for all denying that resources are ultimately limited in the long run because technology will always keep up (an assertion based on extrapolating from past trends) and therefore illustrating my point spectacularly.

    Tim adds: Lordy be, you’re as bad as Robert Vienneau.

    I’ve specifically pointed out the opposite to your above claim. I’ve specifically said that resources are ultimately limited in the long term.

    However, the long term is a long time and in our current situation the binding limit is not the existence or not of a resource but the technology we have available to extract and make use of the resource.

    They are teaching you to read in this undergraduate course of yours are they? To comprehend?

  9. In the long run, the universe will either decay into a formless sea of heat energy or collapse into a singularity, so you’re right – let’s abandon capitalism to prevent that. You need to define “long run” otherwise your statement is a useless non sequitur.

  10. Matthew L: You are not giving UL the best interpretation of his/her words. This is not productive but just attacking for the sake of venom.

    World output is limited _today_ and the first derivative is going to stay under +10% as well. A reasonable discussion can be had under those terms.

    That said, UL, as I wrote on twitter, micro models regularly add a budget constraint (how else would you solve?)_ and the Keynesian IS-LM that I learned fixed an output Y* that “we will return to” after G has distorted the short-term a bit.

    To add my own 2p: isn’t it a serious point of concern that “long term” doesn’t actually have real years assigned to it, but is instead “whatever makes capital not fixed” or “whatever time period ‘prices’ need to adjust”? This always seemed overly theoretical to me.

  11. Tim, you’ve said resources are limited but added that this isn’t a problem because of technology. So you’ve effectively stated that long run constraints are problems.

    Matt L: at what point did I suggest we abandon capitalism? Way to put words in my mouth

    If I’m as bad as Robert Vienneau I can only take that as a massive compliment, as I have yet to see anybody win an argument with him.

    Tim adds: You’re still not getting what I’ve actually said. I’ve said that there are hard, binding, resource constraints. But that those are so far away that the current binding resource constraint is technology.

    By analogy, could the Earth support 200 billion people? No.

    Is this an interesting or relevant constraint to be considering when we ponder whether the Earth can support 9 billion people in 2050? No.

    So let’s not use the fact that the Earth cannot support 200 billion people as an example of how it cannot support 9 billion in 2050.

    We face a hard constraint of there only being 120 million tonnes of tellurium atoms in the Earth’s crust. Given that we only use 125 tonnes a year to make solar cells this is not a binding constraint upon our ability to make solar cells. The technology of the extraction of Te is, yes, but not the gross availability (for example, Te is currently mostly produced from copper slimes, all manufacturers sending their slimes to a plant in the Philippines run by II-VI Corporation. Various alternatives to expand production come to mind: make sure that all slimes are so treated (they are curently not), look at wastes from other mining processes for Te contents (there will undoubtedly be some in the 80 million tonnes a year of red mud from aluminium production), remine the wastes from earlier production (no extraction technology is 100% perfect) and so on.)

    As to Vienneau: I’ve been tangling with him since the days of sci.econ. If you’re an undergraduate now that would make it somewhere between half and three quarters of your lifetime.

    I’ve often seen him splash about some complex maths, declare victory and insist that anyone who doesn’t get it is an idiot.

    I’ve not as yet seen him win an argument in the sense that he’s convinced anyone else that he’s won it.

    And finally, you’re still entirely missing the big point. Sure, we have a hard constraint upon our use of Te. But this isn’t even a hard constraint on our capability to manufacture solar cells as there are other technologies which do not use it. And it’s certainly not a hard constraint upon economic growth: for, as we all should know by now that is about the value of what is produced, not the tonnage. In what way is value ad constrained by the presence or absence of Te…..or any other physical input for that matter?

  12. There is evidence that the flow of certain resources is, in fact, starting to go asymptotic:


    It seems that some constraints are relevant for the near future.

    Tim adds: Erm, no, really not convinced. N is fixed from the atmosphere for example, using the Haber Bosch (?) process. I am deeply unconvinced that we’re anywhere near to running out of that.

    P is beginning to be recycled from human sewage: it’s actually a free byproduct of reducing scale build up in the plants.

    Etc etc.

  13. isn’t it a serious point of concern that “long term” doesn’t actually have real years assigned to it, but is instead “whatever makes capital not fixed” or “whatever time period ‘prices’ need to adjust”? This always seemed overly theoretical to me.

    Actually it’s driven by empirics. If you look at the real world, the time it takes to change fixed capital varies from industry to industry and from time to time as technology changes. So empirics tells us it’s impossible to make a single statement about how many years it takes to get to the long-term.
    Out of curiousity, why did you put prices in quotes? Is this a reference to things like shadow prices?

  14. Tim as far as P goes, the amount in all the humans on the planet is 2% of the annual agricultural use. Between 2003 and 2008 price increased by 350%.

    I don’t know so much about N. But you see my point: some resources constraints are very real, here, now.

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