What IS the Problem?

We have witnessed fabulous increases in our capacity to produce wealth. Millions can enjoy an ease and richness of life that was unimaginable a century ago. Yet, poverty has worsened. A third of the world’s people lack access to a safe, dependable water supply. Even in our richest cities, people are hungry and homeless. Why, in spite of tremendous increases in productive power, does poverty persist and deepen?

We’ve seen a curious phenomenon lately: when good news of low unemployment is released, stock markets get jittery. Why? Isn’t it a good thing for more people to be working? But! Ever since the Great Depression of the 1930s, it has been a truism that some level of unemployment must be endured — so we can keep inflation in check. But: recessions come and go, no matter what. The next downturn is always looming.

When people are free to use their skills, make what they’re good at making, and sell their products to willing buyers, society prospers. So why do governments interfere with free markets so much? Most agree that society works better when the community provides things like roads, police protection and basic education. But: is it the government’s job to rescue insolvent banks? To bail out farmers whose crops fail? To pay wages to people who aren’t working? How can society balance its real need for public services with the tendency for government to become bloated and corrupt?

carzzzGlobally, the environmental picture looks bleak. Desertification is accelerating; forests are being cut down at an unbelievable rate. We wring our hands over global climate change, but we don’t change our behavior fast enough to slow it down. And many in developing countries think they have no choice but to accept the polluting industries that rich nations outlaw at home.

waterMost “Econ 101” courses begin with the “problem of scarcity” — the idea that human desires are unlimited, but we have limited means for satisfying them. There’s no arguing with that basic insight: you can’t make something out of nothing. But! does that mean that we have no choice but to accept the dismal tradeoffs described above?

Henry George didn’t think so. In the conclusion of his classic book Progress and Poverty, he wrote:

Political Economy has been called the dismal science, and as currently taught, is hopeless and despairing. But this… is because she has been degraded and shackled; her truths dislocated; her harmonies ignored… her protest against wrong turned into an endorsement of injustice. Freed, as I have tried to free her — in her own proper symmetry, Political Economy is radiant with hope.

The first step toward understanding this “proper symmetry” is to make sure we clearly define the terms we will use. Great confusion can arise when people use the same word to mean different things. This danger is particularly strong in economics — because its basic terms are words commonly used in everyday speech!

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