I said previously that scarcity is a key fact both of life and economics. We can not achieve, as individuals and societies, all that we want to achieve, or buy all that we want to buy, given our limited means. We want more than we can have – things are scarce. And in economics, things that are scarce are valuable*.
A couple of common observations should illustrate this.
- Oil prices become high during the interminable political problems in the Middle East. This is because a lot of our oil comes from the region, and political turmoil prevents them selling so much of it to us. Oil becomes scarcer and more expensive
- Prices are higher in motorway service stations for basic food and water. This is because there aren’t any other shops for literally miles around – these items are scarce, at least locally for the shoppers.
Is scarcity good or bad? I suppose it depends whether you have the scarce thing or hope to obtain it. High oil prices are good if you are selling the oil, bad if you want to buy it.
Well, so far, so bleedin’ obvious. But I wanted to talk about how we as societies create artificial scarcity, often as a by-product of pursuing other aims.
- Planning permission: Since Clement Attlee‘s post-war Labour government introduced the Town and Country Planning Act 1947, any new development – new houses or shops etc. – needs planning permission, granted ultimately by local politicians**. It is likely that this, with the decline in council house building, has led to housebuilding falling behind the demand for new houses. This has made houses scarcer, and so more valuable. Good if you are a homeowner. Not so good if you’re still with the parents hoping to buy, or a renter.
- Qualifications: It seems these days you need to pass increasing numbers of exams, have more qualifications, work so many years, belong to so many bodies, before you are allowed to work in a profession. The justification is usually to promote higher standards within the profession. But a by-product will be reduced numbers of people entering into the profession – making such careers scarcer and more lucrative for those in them.
- Drugs laws: Many drugs are prohibited because they are damaging to your health or could have bad social consequences. By prohibiting them, they are made very scarce, and so much more expensive than they would be otherwise. This high price, combined with the fact that those who trade in them become criminals, has pushed drug dealing into criminal, violent gangs.
Am I arguing for people being able to build anywhere? Or for any one able to walk in off the street to perform a coronary bypass? Or for people to be able to buy cocaine from a pharmacy? No – the above policies all have their good reasons – although in many cases I think a better balance could be struck, personally in the direction of less restriction.
My point is that these rules, by creating scarcity, are creating value and so making some richer and some poorer. When we create scarcity, we are redistributing money from one person to another just as surely as if we tax one man to pay the wages or benefits of another. As informed citizens, we need to think more carefully about the economic consequences of the rules we lay down.
And finally, what is our scarcest resource? I’d say our time. There will only ever be 24 hours in a day, and so many decades of healthy, active life for us all. Our time is immensely valuable, so stop reading this blog and make the most of it!!!
* Scarcity in economics is relative to our needs and wants. Chocolate tea pots and solar powered torches are scarce – but since no one in their right mind will want them, they are not valuable.
** This is a way of dealing with all the externalities that arise from development. Before, it was just a matter between the landowner and the developer as to what got built. But this ignores all those who benefit or are hurt by the decision – those who would get jobs, or suffer from the increased congestion. Putting planning decisions under democratic control was a way of dealing with these externalities by giving others a say.