Does a growing federal debt threaten the credit rating of the U.S. government? Does the budget deficit cause inflation? Will a federal minimum wage of $10 an hour reduce employment?

Should you think that economics is a “hard science,” I remind you that when I was an economics graduate student at Michigan during the second half of the 1960s you were taught that the answers were (in order) “no,” “rarely” and “definitely not.” But today, the eponymous economics student, obeying the entreaty on the old graduate library to “be still and learn,” would enter on his iPad, “very likely,” “almost always” and “yes.”

In those bygone days of yesteryear, Michigan economics occupied the mainstream of the discipline — even more, was the bedrock of the mainstream — Keynesian for macroeconomics and neoclassical for microeconomics. Michigan’s particular twist on this incompatible heterodox union was to treat macro as the serious part and micro as a hoop through which the neophyte economist must jump.

The difference between neoclassical economics and heterodox economics both then and now is how each defines the subject of the discipline. For the neoclassicals the “economic problem” is how to allocate scarce resources in face of unlimited demands. At Michigan in the 1960s, I learned quite a different definition of economics. Before explaining the alternative, let’s pursue the implications of the scarce resources paradigm for the debate over the federal government’s budget deficit.

Because resources are scarce, a country lives beyond its means when its government runs deficits and goes into debt. The debt must be repaid from the scarce resources of the future. This is the deficit crisis in a nutshell; people and politicians foolishly allowing the government to mislead them into believing that a free lunch can be found in budget deficits. The world would be an easier place if resources were abundant and needs limited, but we must face reality. If we do not, the operations of markets will bring the reality of scarcity home to us. Markets guide the allocation of scarce resources to their best use and going against markets is a fool’s game.

A very large proportion of the adult population of the United States accepts this parable of scarce means and unlimited needs even if innocent of the underlying theory. Isn’t that what population growth and a limited earth add up to policies of austerity, for households or governments? Isn’t it no more than the consumption excesses of humans coming home to roost?

Actually, no. As I learned in the 1960s when an undergraduate at Texas and a graduate student at the University, the scarce-means-unlimited-needs story is not reality. It’s analytical construction that contradicts reality. Resources are not scarce. Economics is about the allocation of scarce resources among unlimited needs to the same extent that astronomy is the study of horoscopes.

The most important resource in any society is the laboring ability of its population. At the end of 2010, one of every 10 members of the U.S. labor force was unemployed, and by the latest statistics unemployment is still well above 6 percent. With this level of unemployment, we should not be surprised that utilization of production capacity is below 80 percent. Idle workers, idle factories and offices, and homes in Detroit and other cities standing empty and abandoned. Resources are scarce?

To put the matter simply, when something is in surplus, it is not scarce. I learned that bit of rocket science studying economics at Michigan. The remote possibility that resources could suffer from a shortage in the future does not make scarcity economics plausible. If society does not use all of its resources, there is no danger of running out. In most countries in most years, labor and the machinery to employ that labor are not scarce.

So what is the central economic problem in a market society? Not how to allocate scarce resources; we can be sure that is wrong. The central problem is how to use productively the resources available to society. Unregulated markets do not provide the solution to that problem. What, then, is the economics problem, in contrast to the alchemy of scarce resources? Economics is the study of how society brings its available resources into production, and distributes that production among its members.

John Weeks is Professor Emeritus of Economics, School of Oriental & African Studies, University of London. His new book, aimed at a general audience, is Economics of the 1%: How mainstream economics serves the rich, obscures reality and distorts policy.

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