The Universal Paradigm of Limited Resources
The economic paradigm of economizing on limited resources is universal. For example, mental resources are limited and must be economized, that is, allocated to some tasks instead of others. Choices and trade-offs must be made.
Writing in the Wall Street Journal, Anthony Vance, a professor of business information, and C. Brock Kirwan, a professor of psychology and neuroscience, give an interesting example (“Why Do We Fall for Hackers? Blame Our Brains,” Wall Street Journal, February 15, 2023):
Many people believe they are good multitaskers, but the human brain is actually lousy at it—people can only take in and process so much information at one time. The brain must prioritize how best to allocate its limited resources.
So, whatever people say about multitasking, performing two tasks at once leads to worse performance on both, a phenomenon known as dual-task interference.
Saying that the brain is lousy is, however, an unfortunate and misleading formulation. What happens is that brain resources are limited and must therefore be allocated to what appears to be the most important tasks, however lazy or energetic is the individual who owns, or is, the brain. We are speaking of individual choices in allocating limited mental powers. Errors can of course be made, but limited resources make choices unavoidable.
Non-human animals, who have even more limited brain resources than us, must similarly use them for their most urgent tasks, which are to survive and reproduce. (Humans have more options and choices, especially in a prosperous society.) More of the animals’ brain resources are hardwired in the form of instinct. Animals certainly economize on the physical energy they have to expend. I often observe how, when a deer was going from point A to point B in a snowy field, it will often make a detour to follow a snowshoe or snowmobile tract so as to minimize the energy used. Its brain resources being very limited, the deer is guided by instinct only, in the sense that it does not to calculate mathematically, or conceptually guess, the extent to which the energy saved by running on harder snow is more than the additional energy spent on the longer path.
A human doesn’t only depend on instinct. That the hypothenuse of a right triangle, which can be imagined as the deer’s original direction, is always shorter than the sum of the two other sides of the triangle, representing the detour, has been known for some 25 centuries.
A human individual can make conscious, if not necessarily exact, calculations of the costs and benefits of different courses of action for him, and often reprogram his brain’s software. Combine that with humans’ unlimited desires and the different preferences among individuals (and the more different they are as civilization advances up to Friedrich Hayek’s “Great Society”), and it becomes easy to understand that social life in human society is much more complicated than among non-human animals. Every non-comatose human individual has a keen conscience of his self-interest. How can such individuals live peacefully in society? How is it in their interest to do so? Can they be equally free? Or, from a different viewpoint, who makes the trade-offs and choices?
As I noted in another EconLog post, an efficient allocation of the limited resources in human society does not require a central planner or strong political (coercive) authorities. No authoritarian “brain,” no central allocator, is needed. The limited resources we are talking about encompass everything that is useful to produce goods, services, and “utility” (in the economic sense of better situation) for individuals. Resources are limited mainly because human desires are even more unlimited than is human ingenuity in satisfying them. Markets and, more generally, free interactions between individuals guide the allocation of resources in a way to maximize individual opportunities. If I may quote my previous post:
One of the greatest discoveries of the 18th century did not come from physics or astronomy but from the nascent science of economics. It is the theory that if individuals independently and freely pursue their ordinary self-interest, the resulting social order will be efficient, that is, will allow virtually all these individuals—or at least their vast majority, given their starting points in life—to better satisfy their own preferences.
Feb 19 2023 at 5:29pm
Il est difficile de distinguer les parts de ressources mentales et d’instinct utilisées par les individus. Les politiciens, par exemple, aiment bien créer l’illusion qu’ils sont intelligents mais c’est d’abord l’instinct de survie (le vote) qui guide leur comportement… des bêtes politiques! Et les policiers qui tirent à bout portant… des bêtes (sans qualificatif)!
Feb 20 2023 at 10:29am
Pierre: “Political beast” is indeed a revealing expression.
Thomas Lee Hutcheson
Feb 19 2023 at 9:17pm
“In most cases”
Markets cannot allocate scarce resources if there is not market in those resources. At resent we do not have a market mechanism for allocating the CO2 concentration in the atmosphere.
Feb 20 2023 at 9:06am
Assumes facts not in evidence.
Feb 20 2023 at 10:28am
Thomas: I accept your “in most cases.” But it is not because a market (or an open market) for something does not exist that it should, nor that the state should promote or allocate the thing. For example, there is no open market for hitmen services or slaves or nastiness, but it is not always clear that the political market does better.
Knut P. Heen
Feb 21 2023 at 3:10am
That is because the supply of atmosphere is not scarce. It accepts all the CO2 we emit. Some people worry about the consequences of increasing the CO2 concentration in the atmosphere, but how is that different from worrying about the concentration of garbage in the streets or the concentration of tobacco smoke in a room? The point is that there is a huge difference between a real constraint imposed by nature (for example the amount and distribution of gold on Earth) and a normative constraint imposed by politicians (what CO2 concentration is optimal). Suppose I think the optimal concentration is x and you think it is y. What is the supply? Should I be able to start selling emissions rights just because I think x is larger than your y. Someone has to decide the “supply”.
Feb 21 2023 at 3:21pm
Knut, as always, insightful questions in pursuit of answers. I traded options and futures on the CBOE. The CBOE was housed in the same building as the CBOT. That is where I met Richard Sandor. Sandor founded the Chicago Climate Exchange (CCX) in 2003. Thirteen charter members began trading Green House Gas Emissions (GHG) allowances for the six named GHGs. The CCX had roughly 300 multinational members until 2010 when it ceased operating due to inactivity. CCX’s baseline was 680 metric tons of CO2. Was that optimal? It depends on which scientist one asks. The next question; what is the cost per ton to producers and third party individuals?
Richard W Fulmer
Feb 22 2023 at 11:04am
An efficient allocation of the limited resources in human society requires countless dispersed, local planners. Central planning ensures an inefficient allocation of resources.
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