Principles of Microeconomics Scarcity and Social Provisioning Chapter 3 Defining Economics A Pluralistic Approach

CHAPTER DEFINING ECONOMICS A PLURALISTIC APPROACH Defining Economics A Pluralistic Approach DEFINING ECONOMICS A PLURALISTIC APPROACH CHAPTER OBJECT ES In this chapter , you will learn about Multiple Definitions of Economics Diversity of Paradigms in Economics A Critical Examination of the Orthodox ( Neoclassical ) Definition of Economics The Presentation of an Alternative Definition

THE IMPORTANCE OF DEFINITIONS LEARNING OBJECTIVES By the end of this section , you will be able to Discuss how definitions provide theoretical direction . The presentation of an alternative definition may appear generic , even unimportant . A definition often washes over a reader , leaving the reader , but without any obvious new insight as to the intended meaning or implications of a word . Worse , without proper guidance , a reader may interpret a definition differently than What is intended by the author , or in the case of economics , different from how the discipline is actually employing the definition . Definitions are , however , important , potentially very important . A definition has the potential to provide clarity . At their best , definitions act like a compass , providing a lost reader with several potential directions from which to proceed .

MULTIPLE PERSPECTIVES REQUIRE MULTIPLE DEFINITIONS LEARNING OBJECTIVES By the end of this section , you will be able to Define the term paradigm . he importance of clarity and directionality becomes heightened when a discipline has more than one potential definition . The discipline of economics , similar to the other social sciences , does not ascribe to only one definition . The definition of economics that is utilized by an will often depend on the paradigmatic perspective of the economist . Paradigm A school of thought . It represents the boundary ofa discipline , framing the types of questions and phenomena that will be analyzed , and the approach or method of study a theorist will employ . The discipline of economics has more than one paradigm . Not surprisingly , the discipline of also has more than one definition .

A BRIEF SYNOPSIS OF DIFFERENT ECONOMIC PERSPECTIVES LEARNING By the end of this section , you will be able to Define the term ideology . Describe the relationship between ideology and paradigms Identify some of the differences between competing economic paradigms . theoretical perspectives tend to create multiple ideas as to what economic questions , phenomena , and methods are most appropriate . With paradigmatic differences come logical differences . Ideology The ideas , beliefs , subjective values , and prevailing world views that a person holds . Ones ideology the way in which a person perceives what they believe is correct or incorrect about their social or the larger world in which they live . Broadly speaking , the discipline of economics is occupied by theorists who tend to fall within one of three categories . Conservative economists . Progressive economists . Radical economists In terms of beliefs , while there is some crossover , the differences between each of the ideological tends to be overwhelming . Conservative Economists Believe That markets works well on their own without outside interference . Because markets work well , a ( Hands Off ) View of markets is embraced . Given the belief in markets , it is also believed , overwhelmingly , that markets should be responsible for how societies allocate resources Limited government involvement in markets is best because extensive government involvement is disruptive to market performance .

58 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER Progressive Economists Believe Markets should generally be responsible for the allocation of resources Free markets generate inequality Free markets are often unstable Government intervention is necessary Radical Economists Believe Market economies are classed based economic systems . Class is determined by one position in the economy owner , laborer , etc . Market economies empower the wealthy , typically owners of assets . Market economies exploit labor Free market capitalism is unstable Capitalism needs to be replaced COMPETING PARADIGMATIC VIEWS How might different economists address Different Issues ?

Consider the issue of Negative When a third party suffers a loss from the actions of others . For example , consider the massive social costs associated with carbon missions and climate change . Conservative Economists Argue that the solution to market failure associated with is to assign property rights . If the party causing or impacted by the externality has property rights , then markets and accurate prices emerge . Progressive Economists Argue that the government is needed to assist in correcting for . Taxes or regulations can be instituted that require producers of to account for the social costs they have generated . Radical Economists Argue that are pervasive in market economies . Assigning property rights encourages producers of to produce more negative in an effort to extort payments from those . Also it is impossible to tax regulate all . An alternative to the market , as an institution , is needed . How might different economists address structural issues in economics ?

Consider the issue of Preferred Economic Institutional Structure ( Conservative Economists Argue that the free market is the ideal institution for allocating resources to their best ( socially optimal ) outcomes . Advocate that government should be limited to institutions useful toward the defense of private property and the enforcement of economic contracts .

PRINCIPLES or ECONOMICS 59 Progressive Economists Argue that as a result of market failure such as environmental pollution and significant unemployment , institutions , typically government institutions , are necessary in order to correct market failure and return markets to a more efficient allocation of resources . Radical Economists Argue that government institutions are an incomplete and ineffective mechanism for addressing market failure . Advocate for the creation of alternative institutions , such as Worker cooperatives , that are designed to challenge and potentially supplant institutions favorable to the current operation of the economic system . How might different economists address economic development issues ?

Consider the issue of Income Inequality , Conservative Economists Argue that income inequality arises from productivity differences that emerge between and among individuals . Efforts to reduce inequality should be avoided as they distort incentives and market allocation . Progressive Economists Argue that income inequality results from social circumstances . Children born into higher income ( higher Wealth ) families have more opportunities available to garner both the resources and skills necessary for higher incomes . Hence , these economists favor government programs that promote equality of opportunity . Radical Economists Argue that income inequality is a byproduct of a economic system . Also inequality is exacerbated by social circumstances . Generally , they would support government programs that promote equality of opportunity , however , also argue that those programs can not eliminate inequality in a system built upon inequality . How might different economists address World economic issues ?

Consider the issue of Global Poverty , Conservative Economists Argue that free trade between nations will drive specialization and the expansion of material production , thus gradually reducing global poverty . Progressive Economists Argue for a degree of government intervention in international trade . Suggest trade via such policies as infant industry , fair labor standards , and environmental protections . Trade is an economic development tool . Radical Economists Argue that international trade worsens class tensions . Low wages in developing countries cause wages to decline in developed countries . Poverty is a part of capitalism , free trade managed trade can not end global poverty .

DECONSTRUCTING THE ORTHODOX DEFINITION OF ECONOMICS LEARNING By the end of this section , you will be able to Discuss the orthodox definition of economics . Understand the organization of the orthodox definition of economics . Describe the paradigmatic direction of orthodox economics . in order to better understand how something works it is useful to break apart , or deconstruct ( the object of examination . During periods of war , oppositional armies are known to commandeer their opponents weaponry in order to , or deconstruct , the equipment . The United States Army Air Forces Operation LUSTY ( Secret Technology ) sought to capture German technology both during and after World War Two . By taking apart a piece of equipment piece by piece the examiner gains insight into both how the equipment operates as well as its weaknesses . In times of war , stealing good ideas and developing better ways to destroy an opponent weapons can be invaluable . The object of deconstruction does not have to be physical or mechanical for the process to be useful deconstructing an idea is also a valuable process for enriching understanding . Regarding the orthodox definition of economics , as it is the object of both examination and critique , this same type of deconstruction will also be useful . In the first chapter of this text an example of the orthodox definition of economics was provided to the reader . The definition provided , similar to variations on the orthodox definition of economics in most textbooks , owes its origins to a famous early century economist , Lionel Robbins . bins famously defined economics as , the science which studies human behaviour as a relationship between ends and scarce means which have alternative Contemporary orthodox economic textbooks tend to utilize a generic variation on Robbins definition , often stipulating something akin to Economics is the study of the allocation of limited resources over unlimited In order to examine the appropriateness , or lack thereof , of the orthodox definition of economics , a closer of the definition is necessary . One approach toward deconstructing the orthodox definition of economics is to define , specifically within the context of the orthodox economic meaning of the words , the other terms within the . Given the organization of the orthodox definition , with wants being conditioned by the ability of resources , one possible starting point for deconstruction is the orthodox definition of the term resources .

PRINCIPLES or ECONOMICS 61 As should be noted from chapter two of this text , the orthodox economic definition of resources emphasizes that resources are those things that are needed for production . While other resources may be relevant , orthodox economics nearly exclusively focuses on Land , as the essential resources necessary for production . When more resources are present , more production is possible and when fewer resources are present , less production is possible . Obviously , if resources are unlimited , then production would be unlimited and all wants , and presumably needs , could be met . Of course , as noted by the definition , resources are assumed to be limited , otherwise referred to as scarce . The terms limited or scarce are fairly . By definition , if something is scarce or limited , then there is only so much of the thing in question . In this case , orthodox economists are assuming that Land , Labor , and Capital are in some way constrained . In many ways this is a sensible assumption as the planet we reside upon has only so much available land , human population , albeit significant , is limited to billion people , and capital , consisting of tools and equipment , are limited because only so many machines are available at any one time . Given limited or scarce resources , the ability for wants to be met must be limited . Limits to wants are an important consideration . Given the orthodox definition of economics , the term wants could , presumably , represent any and all things people could want . However , because wants are deemed to be conditioned by resources and what resources are capable of producing , it stands to reason that what orthodox economics means by its use of the term wants are those things that are produced by resources . Since resources are factors of production , land , labor , and capital , then wants must be those things that are produced by land , labor , and products ( goods and services ) But why do people want products ?

According to orthodox economics people want products because people garner satisfaction or utility ( happiness ) from their consumption of products . Given that wants are considered to be unlimited , which is to say endless or infinite , then , by logical continuation , people must have an endless desire for utility or happiness . Importantly , considering that wants must be the byproduct of the products produced by resources , orthodox economics is arguing that people have an endless desire for happiness and that happiness is derived , apparently exclusively , from the products that people acquire . Additionally , consistent with the circular logic of orthodox economics , if human beings have unlimited wants , then resources must be scarce . All wants can never be met , rendering resources on a finite planet scarce , if wants are endless . In summary , given the above set of definitions the following statement provides a summary of the belief of orthodox economists . If wants are unlimited and resources are used to produce the things that people want , those things being products for consumption , then economists assume people have an insatiable desire to acquire products ( aka . inherently greedy ) Additionally , if , presumably , bring happiness and people have an endless desire for products , then it must be that people have an endless desire to be happy .

A CRITICAL EXAMINATION OF THE ORTHODOX DEFINITION OF ECONOMICS AND ITS RESULTANT IMPACTS LEARNING By the end of this section , you will be able to Discuss critiques of the orthodox definition of economics . Understand the differences between facts and beliefs . Describe the differences between needs and wants . Understand the interconnection between facts and values . Compare the differences between scarcity and surplus . Compare the differences between and individual and social approach to economics . Identify the relationship between unlimited wants and environmental degradation . one presented the orthodox case for utilizing the limited resource , unlimited want . For economists outside of the orthodox paradigm , however , the orthodox story troubling elements . While potentially insightful in certain instances , the orthodox definition is also potentially misleading in terms of clarifying what it is that is actually happening in the economy . What follows are , from a heterodox ( alternative ) economic perspective , four critiques of the orthodox definition of economics and its implications . ARE UNLIMITED WANTS ( AND THEREFORE SCARCE RESOURCES ) A FACT OF LIFE ORA BELIEF ?

A fact is something immutable , it just is , whereas a belief is something that a person or people think , whether there is evidence to support their contention or not . An atheist or a theist can not prove their beliefs , God may or may not exist , but there is no way to empirically prove either view . ism and theism are beliefs , not facts . In terms of versus analyses in the realm of economics , noted century political economist Karl criticized the orthodox ( scarcity story as scarcity assumed within the mind of the orthodox economist . In other words , scarcity is a belief of the orthodox economist , not a fact . Outside of orthodox economics , such as within heterodox ( alternative ) economic circles as well as the other social science disciplines , the issue of scarcity as induced by unlimited wants has been extensively evaluated and . For many theorists , the concept of endless want of material items is simply not an immutable fact present in all times and places among all human beings . Among anthropologists , for example , there is a rich history of ethnographic studies

PRINCIPLES or ECONOMICS 63 ways in which , oriented economies appear to behave differently than orthodox economists predict . One such anthropologist , Marshall , explicitly notes that people residing in societies , while viewed as deeply impoverished by the standards of people residing in advanced industrial economies , are actually quite because all the peoples wants are easily For and other anthropologists , the is not one of vast material abundance , but rather a happiness shaped by being contented with having basic needs and wants met . By having little and demanding little , a successful hunt can yield great want tion . Borrowing from psychology , there is also a of economics known as Happiness . Utilizing survey data , theorists pursuing the study of happiness have repeatedly found that people that focus on the goals of monetary gain and material benefits tend to be less happy than ple who are less focused or not focused on those goals . It seems that for every endless maximizer of products , there are many more people that are apt to be content and satisfied with far fewer material items , particularly if fewer material items mean a greater level of interpersonal satisfaction like love , the respect of peers , affection , family fulfillment , and relationship fulfillment . Apparently , these and other equally but important psychological factors are more important to the pursuit of happiness than is monetary wealth . CAN FACTS AND VALUES REALLY BE SEPARATED ?

Utilizing beliefs , ideas , or subjective values is not , however , an unacceptable practice for most social scientists . Orthodox economics insists that facts and values are to remain separate , otherwise known as positive economics . The orthodox dichotomy is , however , misleading . Nearly all apply some sort of value to their analysis . The very use of assumptions implies that some kind of decision making process was utilized by the theorist . The irony in this instance is that orthodox economics insists that it is a science when , in fact , it utilizes value based ( normative ) propositions . Within their very definition , orthodox economists employ subjective values , such as the desire to maximize acquisition ( an assumption , or belief , not a fact ) to frame their vision of the discipline of economics . Once again , the use of subjective values on their own is not the problem or even a lem ( contrary to the orthodox perspective that economics should be a positive science ) but it becomes a problem when a definition states something as is as opposed to Compare the ing phrases , the study of economics is and one belief is that economics The first phrase leads the reader to believe that economists deal in absolute facts while the second phrase implies that some economists may have settled on an accepted set of ideas , but those ideas remain up for debate . An honest presentation of the orthodox definition of economics would note its subjective , normative , nature . SCARCITY OR SURPLUS ?

There is another fundamental question that critique alludes to does scarcity as perceived by the mind actually mean that there is a scarcity of resources ?

For , the orthodox definition of economics is circular , it has neither a beginning nor an end , just continuous scarcity because of want . After all , if human beings have unlimited wants , then resources have to be scarce , there is simply no way for all wants to be met if wants are endless . Close inspection of the orthodox of economics makes it clear that the picture of the homeless man on the bench presented in

64 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER chapter one is not actually a result of scarcity , at least not as scarcity is defined within the orthodox tradition . Again , recall that the orthodox definition of economics describes scarcity as resulting from endless Endless want does not mean that there are not enough resources available to fulfill all of humanities basic needs . Nor does endless want mean that many wants can not be met given able resources . Obviously the man on the park bench may have some very legitimate wants ( certainly needs , like adequate shelter ) but is he on the bench because there are not enough resources available to make sure his basic needs , such as a home , or other wants , are met ?

At least in terms of available housing , the answer to this question is an overwhelming no . According to the Department of Housing and Urban Development on any given night of 2015 , people were less . At the same time , the number of vacant residential properties in the United States numbered approximately million . The homeless man lack of housing is not the byproduct of scarcity , at least not by the definition of scarcity that many people are accustomed . Rather , the homeless man on the bench is the byproduct of either resources or a maldistribution of production . Homelessness ( or ) is not the only instance in which the orthodox economic scarcity story breaks down . There are other well documented instances . One particularly disturbing instance relates to malnourishment and general starvation . According to the World Hunger Education Service ( around the world there is enough food produced on an basis to ensure that every person is adequately nourished . In fact , the sheer amount of calories per person generated by global food production has risen since the early through the , with the amount of per capita calories produced being enough to adequately feed an adult in both developed and developing economies . At the same time , The United Nations Food and Agriculture Organization estimates that about 795 million people of the billion people in the world , or one in nine , were suffering from chronic undernourishment in Again , this instance of basic needs not being met may be perceived as a situation of scarcity . However , as reported by the , poverty is the overwhelming driver of global malnourishment . While poverty implies a scarcity of income , possibly due to a scarcity of employment possibilities , the actual product that resolves malnourishment , food is produced in enough abundance to adequately feed everyone . Once again , basic human needs are going unmet and this has nothing at all to do with the scarcity of resources . An interesting outcome of the definition of economics away from the scarcity story , when evaluated on what is actually available , is not that resources are endless or that all wants can be met , but that it is apparent that there are often more than enough resources to meet all of humanity material needs as well as many , many , many of humanities wants . this way the story of economics becomes a story of surplus and abundance , rather than shortfall and hardship . A much less dismal , and likely more realistic , science indeed ! NEEDS VERSUS WANTS A distinction must be made between needs and wants , as they are decidedly not the same .

PRINCIPLES or ECONOMICS 65 Need something that is necessary for a human being to sustain basic physical and psychological health . One fairly well known measure defining needs is hierarchy of needs . In hierarchy basic physiological needs , like food , water , air , shelter , safety , must be met first , followed by logical needs , such as love and affection , with needs being met last . Importantly , while hierarchy provides a framework , it must also be understood that the concept of need evolves depending on the social circumstances and technological make up of a given economy . In the absence of basic physiological needs being met , a persons life will suffer to the degree that in many instances their life may be shortened . For example , homeless people have shorter life spans , 42 to 52 years , than people , 78 years . A want is different from a need . Want is something that is desired , but also not necessary for an individual to live in a society . For example , while basic shelter with appropriate utilities such as gas , electric , water , sanitation , and basic cooking , cleaning , and food storage appliances will generally fulfill basic needs , additional such as dishwashers , large screen televisions , hot tubs , and many , many other products are wants . To further distinguish between needs and wants , consider the following example . In some ties the existing transportation infrastructure is nearly completely and exclusively automobile dent . In order for a person to have a reasonable expectation of functioning , physically , socially , and economically in this socioeconomic environment , a person will need access to an automobile . In this case , a functional automobile is , in fact , a need , but a high end SUV is not a need , it is a want . Based on the orthodox definition of economics it is clear that the orthodoxy is interested in wants rather than needs . The absence of needs from the orthodox definition is a curiosity . There are several possible reasons why needs are not explicitly referenced in the orthodox definition . Two possible sons will be addressed here . First , it is possible that orthodox economists do not differentiate between needs and wants , thus all needs really are just wants . Second , orthodox economists may be assuming that needs are already being met . If basic needs are met , then it is not only possible but reasonable to study what people want . In critique , the orthodox merger of needs and wants seems to produce potentially misleading insights . While one can certainly make the argument that all people want their needs to be met , such that a need is nothing more than a type of want , basic needs must be met or the study of additional wants becomes useless as there can be no other wants . Additionally , even if it is assumed that needs are being met , this does not actually mean that needs are being met in the world where people really live . If needs are not being met , can orthodox economics be trusted to study the situation and then prescribe a solution that might ease human suffering ?

The answer to this question is unclear as the orthodox definition of economics does not provide direction toward the study of needs . INDIVIDUAL PERSPECTIVE OR SOCIAL PERSPECTIVE ?

As a discipline , economics is categorized as a social science . The social sciences , in general , seek to develop understandings about human interactions on a social level . For example , an anthropologist 66 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER may be interested in understanding the role of culture as it human behavior . Culture can be represented as social norms , rituals , or customs that different groups of people , mostly , participate in performing . Another example of a social science is political science . A political scientist may be interested in examining political institutions and legal structures . In order to ter understand why individuals or larger social groups of people exhibit certain behaviors , an standing of how a society structures its laws , the rewards or penalties people encounter as a result of socially derived rules , is essential . For the orthodox economist , however , the social element of economics is secondary to that of the individual . Again , the orthodox definition of economics gives the orthodox economist direction . Recall , the focus of the orthodox economist is on want fulfillment with wants being satisfied by goods and services produced by resources . The reason products are wanted is because products , ably , provide the recipient with happiness , or utility . Since people are presumed to have endless wants , people are also presumed to have an endless desire for utility . In many ways orthodox is really just the study of the maximization of utility . But how is utility measured ?

Well , its not . Utility is subjective , it is in the eye of the beholder . As such , the study of utility maximization is the study of individual choices . After all , the only way to know what makes a person happy , or ing the most utility is to evaluate the consumption choices that people make . As such , the focus of orthodox economics is that of individual choice making . For some in the orthodox economic community , the focus on the individual is a conscious choice , purposeful and known , and often times affectionately referred to as methodological A methodology is an approach for addressing concerns that a discipline believes are essential . Methodological individualism is a method anchored to examining the individual , placing front and center the issue most essential to that of the orthodox economist individual . But if the individual is of utmost importance , then the role of social is much less clear within orthodox . This is not to say that the larger society is ignored by orthodox economists . For orthodox economics the social does emerge but , consistent with their dedication to studying individual choice , it is as a byproduct of individual maximizing behavior . Once individuals pursue their own est , the orthodox economist is tasked with simply summing or the individual behavior and the result is the larger social outcome . For those outside of the orthodox economic tradition , many important considerations are seemingly lost by the direction of orthodox economic analysis . Take for example the question of how broader societal norms as a function of social institutions may have influenced the behavior of individuals . By assuming away the social and focusing exclusively on the individual , the orthodox economist will be apt to ignore such issues as how social institutions may have individual behavior such that it is now not prone to maximizing individual acquisition . In other words , lets say people really don just look out for themselves all of the time , seeking to acquire as many products for themselves as they can , but instead , people behave such that they are concerned for the of others , maybe because the norms of their society encourage a less than set of behaviors . tive , individual behavior tends to be outside of the scope of orthodox economics , but it is not outside the scope of actual human economic interactions . For many , the absence of a clear social perspective limits the understandings available to the practitioner of methodological individualism .

PRINCIPLES or ECONOMICS 67 . EVERYTHING , NOTHING Some orthodox economists have objected to the idea that they are assuming that people are greedy , only wanting products or those things that can get products , namely resources or money as money is what is used to perform purchases . One orthodox economic argument that has emerged claims that the orthodox economic model can be extended to include the story of enlightened Enlightened is the idea that it can be in ones to act to benefit others . In some regards enlightened can be interpreted as someone serving society such that through their service society is and , subsequently , as a member of society , the individual then benefits . A common example of enlightened is charitable giving . Charitable giving is the opposite of individual acquisition as the person giving to charity is presumably giving away something of value for themselves so that someone else can benefit . Orthodox economists argue that the reason a person engages in charity , or another type of enlightened , is because they gain utility from knowing that they have done something that is perceived as good for society . There are two problems that become evident when the orthodox enlightened argument is compared to the orthodox definition of economics . First , enlightened is inconsistent with the basic premise described by the orthodox definition of economics . To once again reiterate , the orthodox definition of economics is stipulating that people unlimited wants are fulfilled by resources and resources are utilized to produce products , thus want fulfillment is synonymous with product acquisition . Returning to the charitable giving example , it is clear that charitable giving is not product acquisition but rather product dissipation . Thus orthodox economics can not , without contradicting itself , apply its definition of economics to a story of enlightened . Another definition of economics would be necessary to account for human behavioral actions associated with what is perceived as enlightened , or really any human action that is not associated with the acquisition of products . Some thoughtful orthodox economists have recognized the contradiction between their definition of economics and the idea of enlightened . As a result , some orthodox economists have cast their position arguing that utility can be derived from anything , not just material products . In other words , for the orthodox economist all human actions and behaviors are driven around utility maximization and thus the study of economics is really the study of utility maximization . When cast in this light , however , the second problem appears . If all actions provide a person with utility , and all people are utility , then any action can be said to be utility maximizing , otherwise the person would not engage in the action . Based on this construction , the orthodox economist would be reduced to observing what people do and then proclaiming that it must be in their best interest . As a critical thinking exercise an important question now emerges when exactly does orthodox become a social science ?

Saying that people do as they do because otherwise they wouldnt do it does not represent science , it has very little empirical function . It is also not focused on the social as it does not account for any social factors that may or disrupt individual behavior . And it almost no predictive possibilities other than identifying what might happen in the future based on what has happened in the past . Once again , confronted with such limitations many economists suggest that another definition of economics may be more substantive and useful .

68 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER BREAKOUT BOX WHAT ABOUT BEHAVIORAL ECONOMICS ?

Because people frequently engage in behaviors that are not considered rational , that is to say individually acquisitive , orthodox economics has been targeted for criticism that their models do not accurately depict the real world . In response a of orthodox economics , behavioral economics , has developed that seeks to utilize experiments and psychology to better understand actual human behavior . Behavioral economics tends to start from the position that , optimizing people will deviate from standard orthodox economic actions because people can be by nomic factors , such as religious beliefs or cultural norms A common approach to identifying the factors that condition individual is to run experiments that test human response to incentives . A controlled experiment provides researchers with empirical , evidence as to how and why people may not respond to opportunities for individual gain in the ways that orthodox economics predicts . For many outside of orthodox economics , the development of behavioral economics is a step in right direction for the larger science of economics . Having evidence and being able to explain a wider range of phenomena rather than simply stipulating that people do as they do otherwise they would do it , appears to move the discipline of economics toward more realistic insights . At the same time , critiques of orthodox economics are also apt to note that behavioral economics still does not go far enough with its approach . Behavioral economics emphasizes an analysis that begins with the standard orthodox isolated maximizing individual and then searches for deviations from this behavior . By the very nature of their focus , behavioral economics social considerations . As such , data may be derived that draws out the idea that an individual is making choices that are by social institutions , but absent the study of those social , the theorist is possibly still in the dark as to why the social institutions elicit the response that they do on the part of the individual . The result is that behavioral economics broadens the scope of economic inquiry but , for those outside of orthodox economics , it is still too narrow of an approach . LIMITLESS VERSUS LIMITS THE IMPLICATIONS FOR THE HEALTH OF THE PLANETARY The final critique presented here may be the most important in terms of its implications for the future of humanity . The Earth is a finite biosphere . There is simply only so much atmosphere , land , water , minerals , ores , and other natural resources within the bounds of the planet . In this way , the Earth really is representative of a circumstance of scarcity . Certainly improved efficiency is capable of extending the productive capability of the available natural resources , but this does not change the fact that there is a limit to how much is actually available . Regardless , for many orthodox economists , the principle of endless growth is unquestionably able and it is downright sacrilegious to doubt the merits of endless economic growth . Consider the orthodox definition of economics and its emphasis on the desirability of endless happiness and that happiness being derived from the endless consumption of products . Given the premise of wants , the need for endless production is obvious and , by continuation , endless production is a synonym for endless , exponential , economic growth . In the simplest sense , more products produced means that the material of society is improved . For orthodox economists , the improved material of society can not be understated . For example , it is not uncommon for orthodox economists to argue that given enough growth , social maladies such as poverty can be alleviated and ,

PRINCIPLES OF ECONOMICS 69 in time , eliminated . Of course , the orthodox economic perspective leaves aside incredibly important considerations such as whether or not new material products are equitably distributed . But , as economists would note , an unequal distribution of products is a separate problem from production and overt want , so the existence of inequality does not undermine the importance of economic growth . The issue of endless growth in a finite biosphere presents orthodox economics with interesting . If resources are finite , how is endless growth possible ?

Again , orthodox economics does provide an answer in form of the advancement of knowledge and technology that allow for improvements in productivity and efficiencies creating opportunities for endless growth . But what if endless growth then yields waste that pollutes the natural environment making human life on the planet ever more difficult to sustain ?

The answer to this question is more difficult and the failure to answer is more perilous . Even if knowledge and technological advancement can improve productive efficiencies , absent the elimination of waste , exponential economic growth will add waste to the land , sea , and air . Just as lily pads can overrun a pond , with exponential economic growth and its waste , the byproducts of industrial production can inundate and overwhelm a finite biosphere . The mass annihilation of the Plains Bison in the century is a grave depiction of the ability of humanity to harm upon the natural environment . Figure . Endless economic growth necessitates endless production . At the expense of rich , rainforest human beings burn and clear cut the forest in order expand agricultural capacity . Credit Jami , Public Domain )

70 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER Figure . A large pile of bison skulls 18705 . Public Domain ) It is clear that human economic activity nearly inevitably leads to the creation of waste byproducts , pollution . Not only is the Earth biosphere limited in terms of what it can provide in the way of ural resources toward productive output , it is also limited in terms of how much waste it is capable of absorbing on land , in the sea , and in the air . For example , the Stockholm Resilience Centre has identified nine planetary boundaries ( environmental thresholds ) that must not be eclipsed if human life is to safely exist . The nine planetary boundaries are stratospheric ozone depletion , biodiversity loss , chemical pollution , climate change , ocean acidification , freshwater consumption , land system change , nitrogen and phosphorous flows to the biosphere and oceans , and atmospheric aerosol ing . Of these nine boundaries , three in particular , climate change , ocean acidification , and ozone depletion , are of such consequence that if the threshold is surpassed , then the planets basic ecology will likely be fundamentally destabilized . In the case of climate change and ocean , the two issues are caused by human economic activity and are inherently interrelated . mate change is caused by carbon dioxide emissions and ocean acidification is triggered when the oceans absorb and process carbon dioxide . Strikingly , at least in the case of climate change , the posed boundary for atmospheric carbon dioxide has been surpassed as 350 parts per million ( is the boundary while actual carbon dioxide levels now exceed 400 . Clearly , human economic

PRINCIPLES or ECONOMICS 71 activity , and the associated environmental destruction of the Earth biosphere as a result of economic growth , does present a powerful challenge to the importance of economic growth . Given the considerations , going forward humanity must consider the possibility of its economic activity within the context of limits . The direction of orthodox economics , as guided by its definition , is not , however , oriented toward accepting limits . In the face of the dance of scientific evidence pointing toward human factors as the cause of a natural environment , the orthodox definition of economics appears to point economic analysis in a direction to health and of life on this planet . As a result , it stands to reason that another definition of economics , one less rigid and , may be of use . ENVIRONMENTAL RESOURCE ECONOMICS Orthodox economics is not entirely oblivious to environmental concerns . Nearly a century ago orthodox economic thinkers such as recognized the potential for a concept known as . Discussed in chapter 18 Environmental Protection and Negative , tive represent the idea that sometimes economic activities create unaccounted for costs that impact third parties , or those people who are not directly involved in the economic activity . Any failure to properly account for a negative externality means that the market system has failed to allocate resources . For and orthodox economics , the solution to negative is the development of institutional mechanisms that assign penalties to those that create negative . A common orthodox example of an institutional mechanism designed to address negative is the government being granted the regulatory task of environmental protection . From the standpoint of orthodox economics , pollution and environmental degradation represent a negative externality , an unaccounted for cost on the larger society . As a regulator , the government can utilize any number of regulatory tools to try and mitigate pollution . For example , one choice preferred by many , but not all , orthodox economists , is the use of taxation as a way to increase costs to polluters . Overall , orthodox environmental resource economics places the environment as to the economy , and argues that marginal analysis should be utilized to measure the economic costs and benefits of environmental changes . As will be later illustrated in chapter 18 Environmental Protection and Negative , by invoking a tax on polluters in a market economy , costs to producers rise . As costs rise the producer will produce less of the product the production of which is creating pollution . Additionally , with less production of the product , the supply of the product will decline generating an increase in price of the product . The outcome is . First , with less production comes less pollution . Second , with less production the product now sells at a higher price , with the price capturing more of the tive externality and reflecting something closer to the true cost of the product . Third , the tax revenue generated from the tax has the potential to be used to compensate the victims of the negative . On the face of it , it appears as though the taxation solution to an externality is providing a final outcome that is close to ideal . Critics of the orthodox economic externality resolution argument have their doubts about the efficacy of the orthodox approach . The following questions represent a small sample of possible concerns . For starters , it is possible to conceive of an economy with a seemingly endless variety of negative , does this mean that all will be taxed ?

Failure to properly tax negative 72 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER means that the economy is rife with . Additionally , how large of a government bureaucratic structure would be needed to adequately address all ?

Might the solution be worse than the cure ?

Also , even if all products to be taxed could be identified , how can a regulator be certain to precisely calculate the size of the tax in order to correct for the costs of the negative . Of course , even if all of the questions above could be sorted out and resolved , there are still basic fundamental issues and contradictions , associated with the orthodox definition of economics , which the orthodox argument fails to address . For example , all efforts to address negative environmental call for the reduction of waste and some kind of constraint on economic activity and growth . Any check on growth clearly and obviously runs afoul of the basic tenet of orthodox , as is clear in their definition , of endless want of products and the associated desirability to try and meet those wants . Also , any reduction in production will also act to reduce consumption , presumably limiting consumers abilities to increase their utility by acquiring products . The primary conclusion being that orthodox economics own solution for runs counter to the of their definition of economics . Some critics of the standard orthodox environmental resource economics arguments , through their application and advocacy for ecological economics , have sought to the relationship between the economy and the environment . Whereas orthodox economics views the natural as an external factor that may be impacted by economic activity , ecological economists place the economy in a role to the natural environment . Ecological economics generally tends to support the notion that the natural environment must be nurtured and protected , as , without it , an economy and human life can not function . As such ecological economics has a more cautious tive regarding economic activity and how it impacts the natural environment . As a result , standard orthodox economic concepts such as endless economic growth and want fulfillment are of secondary importance to long term sustained living made possible through the protection of the natural . As such , ecological economics operates outside of the orthodox definition of economics . GLOSSARY need something that is necessary for a human being to sustain basic physical and psychological health want something that is desired , but also not necessary for an individual to live and function in a society negative situations in which economic activities create unaccounted for costs that impact third parties , or those people who are not directly involved in the economic activity ecological economics a heterodox school of economic thought that the economy as a subordinate structure within the natural environment

AN ALTERNATIVE APPROACH TO DEFINING ECONOMICS LEARNING OBJECTIVES By the end of this section , you will be able to Describe an alternative definition of economics . Understand the basis for framing an alternative definition of economics . he preceding presentation centered on deconstructing and then challenging the orthodox of economics . Of central concern throughout is the way in which the orthodox tion of economics potentially handcuffs the economist into viewing economic activity through a very narrow and specific lens . Given the problems associated with the orthodox definition of , a concerned student may be apt to ask , what does an alternative definition of economics look like ?

The answer to this question is that there are many possible alternative definitional variations . The structure of an alternative definition of economics can take many forms , although the overall essence of alternative definitions is frequently similar . With regard to structure , some alternative are apt to simplify economic activity to its most basic form . For example , economics can be the study of how human beings must work together , and with nature , to produce those things that fulfill the material needs and wants of society . In other instances alternative definitions of economics seek to reduce the definition to the essential characteristics of an economy . For example , economics can be defined as the study of how human beings organize production , distribution , and tion . Still in other instances alternative definitions of economics focus on facets of the structure of economic decision making . For instance , economics can be defined as the study of how cultural norms , social institutions , political structures , and general decision making processes human behavior toward economic ends . Importantly , each of the possible definitional structures stipulated above appear to avoid the pitfalls that plague the orthodox definition of economics . First , none of the above alternative definitional possibilities assumes scarcity . Rather , each definition is open to the possibility of differing forms of economic organization and a diversity of ways to meet societal needs and wants . Second , none of the above alternative definitional structures make unprovable assumptions about individual human behavior and motivation . Rather , the social elements of the organization of economic activity are emphasized , opening the door to analyzing how individuals respond to social conditions . Third , none of the above alternative definitional structures endless want and the need and desirability for endless economic growth . Rather , each is open to the possibility of alternative economic that can be coordinated to operate within the limits of the natural biosphere .

74 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER Going forward , within the context of the alternative perspectives developed within this textbook , and in addition to the above definitional structures , the following definition of economics is suggested . Economics Is the study of social provisioning , in which an understanding of the development of political economies is rooted in social , political , natural , and cultural processes .