The Fallacy Of Infinite Wants
31 Jul 2023According to some neoclassical economists, the central problem of economics is infinite wants and limited resources. This is ridiculous for two reasons. The problem statement ignores that wants cannot be infinite and that economic problems still exist even in the case of finite wants and unbounded resources. Thus the whole concept misrepresents what economics should be about. Economics should not be about robotic or mathematical problems and instead be human centric, but also be inclusive to non-human intelligent life, if we ever stumble upon it.
Infinite wants as a result of indifference to current satisfaction?
The problem with this argument is the rate at which those infinite wants can be generated is not only variable, it is mostly psychological. If any level of satisfaction is insufficient, then every level of satisfaction is sufficient. Sounds paradoxical right? The reason for that is that if you are never satisfied, then your satisfaction becomes irrelevant. The difference between a hypothetical life where you obtain infinite resources to fulfill infinite wants is identical to the one where you don’t. The logical conclusion out of this conundrum would be that there are different levels of satisfaction with varying levels of importance and we control and decide what is important to us.
Limited resources include the human body itself
Humans are biological creatures that are embedded within the laws of physics. They have finite cognitive and computational resources that they have to use to make decisions and evaluate outcomes. Thus, human-like agents will have desire generator function d_r(c) which generates desires at the rate of r given a budget of c computational resources. The human-like agent will also have a utility evaluation function u(d, c) which takes the given desire d as an input and the amount of computational resources c which can be used to evaluate the utility of the desire. If cognitive resources are limited, they can be augmented by computational resources, but this does not get around the fundamental problem. To truly generate infinite wants, we would need infinite computational resources to begin with. So the problem statement contradicts its own conclusion, which is a common theme in neoclassical economics.
If the evaluation of desires is more expensive than creating new desires, then no matter the computational resources, there will always be more desires than can be fulfilled. Of course one objection could be that if we had a proverbial geenie who fulfills our desires the moment we voice them, we don’t have to evaluate them and can just enjoy them immediately. But this ignores the reason why humans evaluate wants and desires in the first place. The net utility of an activity may actually be negative or exceeded by its costs. The genie could fulfill your wish in a way that you did not intend, which ultimately makes you regret the wish. Thus the only wants that matter are those that do not have a negative impact on our lives, which also means that we carefully have to think about what we want from life. We cannot blindly chase every dream and especially not an infinite quantity of them.
The inability to process our desires leads to lazy default behavior
If faced with an income stream that grants you access to an absurd amount of products and activities and it is difficult for you to even find something that you want to buy or it even takes time out of your day to shop around or maybe you are already happy with your current life, what exactly are you going to do with all the money you are going to earn? According to some neoclassicals there are only two answers: consumption or saving. What is meant by consumption isn’t actually that obvious. It is only possible in hindsight to say something wasn’t actually a form of investment in disguise. Education sounds like an investment in human capital right? Except not everything you learn will be put to use. The point of learning at school is to deal with many different situations at school. That includes situations that some people will never have to deal with in their entire life. This means that this form of education could have zero return. It is a form of consumption but that consumption factor only becomes apparent after the fact. Savings and investments can turn out to be consumption after the fact. But consumption should be obvious, right? You don’t necessarily know. If you engage in a leisure activity you might end up meeting your future spouse and marry them. If you eat food today, that food will let you be productive for the rest of the day but that obviously isn’t an investment.
I find it more honest to talk about spending versus keeping money instead. You might argue that holding onto money is the same thing as saving money, but this blog isn’t called Illiquid Economics for no reason. Holding onto money is not the same as saving in the real economy. In fact, they are very different things. When we don’t know what to do, the first thing we do is … nothing, neither save nor consume. That means holding onto money, or phrased differently, to delay our decision making. We can never have enough money, because money can always be spent in a future time period. We can hold onto money just in case, because its versatility grants it an insurance effect. So if we have trouble evaluating what to buy, we can always wait and hope something good pops up. What this means is that there does exist a thing one could call an “infinite want” but only for money, or to be precise, only for things that have no downsides. Money represents the genie in the previous parapgraphs, but with the caveat that this genie has limited power to the extent of the quantity of money that you possess. Thus even if we don’t know what to wish for, simply having wishes left over makes us happy. This is because money gives us the ability to make decisions and that is the core difference between our liquid financial economy based on money and our illiquid real economy based on the laws of physics. Money is a way to manage trade, production and the division of labor but it is not production in itself.
The desire for services and products with no costs attached to them is infinite
In other words, we don’t have infinite wants and needs for absolutely everything, we have infinite wants and needs for so called “freebies”. We don’t have to work for them. We don’t have to sacrifice our time for them. True “freebies” are rare in the real world. An unwanted Christmas gift still takes up space in our basement or takes up our time, because we have to go to the Christmas party in the first place. So a Christmas gift is not a true “freebie” but it is close. There is finite demand for Christmas presents even though a Christmas present could be anything. As already mentioned. Holding money has no downsides. Holding onto income producing assets like stocks and homes has no downsides either. One could say that there is infinite demand for being a capitalist who is living off other people’s work but this is a paradoxical situation. If everyone suddenly wanted to buy stocks because they are able to, this type of “leisure capitalism” would break down quickly because the return on investment shrinks to near zero while the risk of losing your money from bubbles increases dramatically, so people will just hold a certain portion of money instead, because it is risk free. Government bonds only make sense to the extent that their bailout is being subsidized through central banks. Again, there is infinite demand for being the beneficiary of an externality. A positive externality is very similar to a gift but the recipient doesn’t have to do anything to get it. It only has to be monetized.
The desire for services and products that we have to pay for is finite
It doesn’t even deserve mentioning, really. Given a product with a cost c and a benefit b, we will want to keep buying products until the cost and benefits equalize. What this means is that the demand for any given product is bounded. The disagreement with neoclassicals is not founded in the demand for any given product but rather that neoclassicals believe that the diminishing returns on one product will always be offset by the introduction of another product.
Do we actually need to satisfy these needs?
If everyone becomes a capitalist, there are no capitalists left because the return on investment disappears. If everyone benefits from the moral hazard of government bailouts, then the government could instead just pay out a UBI or some other direct payment scheme and avoid this roundabout way of distributing money unfairly. In reality, we should ignore these needs. Most often people don’t even care about them that much. Do we want to eat infinite quantities of food? No, that would make us obese. Do we need to eat food that increases in quality infinitely? No, we can be happy with less than infinity. If we can’t be happy with what we already have and we do have a lot in developed countries, then we will be doomed to misery on the hedonistic treadmill no matter what.
Further Information (14-12-2023)
“Given competitive capitalism … Given the constant recreation of scarcity by human action … Economics is … “ - Robert Skidelsky
“The science which studies behavior as a relationship between unlimited wants and limited resources which have alternative uses” - Lionel Robbins
An interesting video discussion on Youtube: New Economic Thinking “Unlimited Wants, Limited Resources”
Would you still need economics if you had limited desires and unlimited resources? Obviously, you would…
The naive idea is that everyone gets an eight billionth slice of the infinite resources, which is infinite so it doesnt matter if your slice is bigger than the other guys.
Except, what if your slice is finite in an infinite world? What if your slice is zero? Economic equality would become the focus and that is unthinkable.