Does Scarcity benifit the economy ?


Some time ago I encountered a fallacy, (and I have put off discussing it here) which stated simply:

The increased scarcity of goods makes a nation richer.

I think it sounds ridiculous, but believe it or not, the principle has found its way into “legitimate” economic thought and even policy making. For instance, one of the focuses of FDR’s New Deal program was to, in an attempt to help farmers make more money, destroy crops to raise the value of the existing crops, thus allowing the farmers to make more money.

Never mind the multitudes that were unable to afford to eat before this policy was implemented. But at least the farmers were able to make more money, right? Nope, because the money they were suddenly making was not going as far as it was before, rendering the policy useless. Simply, it inflated the currency.

Let’s look at fuel for instance, no matter if its gasoline or coal. Its scarcity, according to those who are a part of the fallacy mentioned, would be a good thing, and the abundance of fuel would be fatal to the economy, because it would be CHEAP, and those producing it would make little money. But anyone who has to fill up their car knows that decreased gas prices are a good thing for the personal pocketbook, and it is the same for everyone (and in this case, other industries benefit from the decreased cost of fuel, pulling down costs universally.)

Let’s look at it at another angle. I am a big fan of Peach Ne Hi Soda. If my refrigerator only has a couple of bottles, it would be dearer to me, more valuable. Now let’s say the refrigerator is the food supply of a nation, and if there is less in it, the producers would be able to make more money, but the consumer would have to pay more, and we all know what happens then.

What good is more dollars in your bank account if you have to spend more of it to obtain scarce goods?

Let us take down the fallacy that states Scarcity is beneficial, because the wealth of a nation is not vested in the value of things, but rather, the existence and utility of goods in abundance.


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