Thursday, July 24, 2008

What is "the subtle difference between a want and a need"? 

A letter in this morning's StarTribune:

Regarding "Bachmann, back from Alaska, urges more domestic drilling" (July 23): U.S. Rep. Michele Bachmann doesn't seem to understand the subtle difference between need and want (describing the untapped Alaskan energy resources as a locked pantry filled with food while children go hungry). Perhaps a better analogy would be a locked medicine cabinet filled with morphine in a room full of addicts.

Let's tend to the real needs of our children and provide a livable planet for their future that doesn't involve destroying our environment.

The difference between want and need is a source of great confusion in economics. Needs are necessary; wants are optional. In The Economic Way of Thinking, Paul Heyne, Peter Boettke and David Prychitko suggest for statements of "needs":

The authors point out that all decisions are made at the margin, that all the values that matter are those at the margin. When I'm watching a baseball game at home and Mrs. S says "Who do you love more, me or baseball?" I answer "At the margin, baseball. And you're blocking the TV."

Foolish arguments like that advanced in the letter treat a marginal change as if it is an all-or-nothing choice. The choice about ANWR is not this at all. It is a decision to remove from preservation in undeveloped form a piece of land that might be 1.2 million acres (all of Area 10-02) or just 2000 acres (that part of the land designated for oil extraction) in return for an amount of oil about which we have imperfect information. The find might be small; that's the nature of oil exploration and extraction. It is a world of tradeoffs (the tragic vision I discussed earlier this week). Those tradeoffs reveal that what one might call a need is really just a want for a good with highly inelastic demand in the short run. Diabetics need insulin if they don't adjust their eating habits or use alternative health care. Those might not be great substitutes, but they are substitutes. You could list others, I'm sure.

Is a picture of an arctic scene equal to Area 10-02? Certainly not. But suppose I said you could have Area 10-02, another area of ANWR that has a very similar picture and no oil, or another area in ANWR and x billion barrels of oil. Is there no value for x that gets you to make that trade? I doubt it. I highly doubt it. If there are alternatives to oil, there are also alternatives to undeveloped land.

Scarcity is not optional; we do not live in a world where one can "tend to the real needs of our children" without sacrificing other goods for other people. People can provide for the "real needs" of pristine lands in a variety of ways, both public and private.

We call it the law of demand for a reason.

h/t: KAR, whose post is entertaining as well as educational.

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