1. Presentation by Dr. Asad Zaman at LUMS Economics Dept. 8th April 2010
The Norms of Scarcity
Presentation by Dr. Asad Zaman
at LUMS Economics Dept.
8th April 2010

2. Copernican Revolution
“Heavenly Spheres” no longer exist
Changed the way we view the world
Has knowledge progressed so much that revolutions are no longer possible?
Pre-Einstein, famous physicist advised student to not study physics: nearly everything is already known.

3. Logical Positivism Modern Economics invented in 1930’s
Methodology solidly based on Positivism.
Positivism had a “spectacular crash”
Economic Methodology is unchanged.
Nobel laureate Ronald Coase writes that “Existing economics is a theoretical system which floats in the air and which bears little relation to what happens in the real world.”

4. Rise and Fall of Positivism
Deep Ideas are involved: Best Minds worked on it. Refutations are also deep.
Spectacular Story of 20th Century
PSYCHOTHERAPY: Purging ourselves of Positivist Poisons:
Science/Religion ; Facts/Values
Positive/Normative; Subjective/Objective

5. Rise of Positivism
European History: Conflict between Science & Religion: “Remember Galileo”
The “Demarcation Problem”: prove superiority of science.
Positivism did the job perfectly: All religions, morals, values, ethics are just superstitions. Science is the only certain knowledge. Filled need of the time.

6. Knowledge=Facts+Logic
Facts = Observations, Sense Data.
Logic: Frege, Russell-Whitehead, Godel
Meaningful Concepts must be confrontable with data.
“It is wrong to kill” – what observations can prove this or disprove it?
Therefore: it is MEANINGLESS

7. Carnap, Ayer, followers
“All statements belonging to … Ethics .. are unverifiable … and unscientific. … we describe such statements as nonsense.”
Deification of Science,
Dismissal of non-Science.

8. Julie Reuben: Marginalization of Morality
In the late nineteenth century, intellectuals assumed that truth had spiritual, moral and cognitive dimensions. By 1930, however, intellectuals had abandoned this broad conception of truth. They embraced, instead, a view of knowledge that drew a sharp distinction between “facts” and “values”. They associated cognitive truth with empirically verified knowledge and maintained that by this standard, moral values could not be validated as “true.” In the nomenclature of the twentieth century, only “science” constituted true knowledge. Moral or spiritual values could be “true” in an emotional or nonliteral sense, but not in terms of cognitively verifiable knowledge. The term “truth” no longer comfortably encompassed factual knowledge and moral values.

9. KEY IDEAS of Positivism
OBSERVABLES exist
UNOBSERVABLES don’t
Meaningful Sentences MUST refer to OBSERVABLES
Meaning = Observable Implications

10. Implications for Economic Methodology:
Revealed Preference: Choice = Preference
Welfare = Preference=Choice.
Max Weber: Social Science must be value-free.
Economic: Separate Objective/Positive part from Normative Part.

11. Economics is POSTIVE FACTUAL, OBJECTIVE, SCIENTIFIC
Fundamental Concept: Scarcity:
If each of us could get all of the food, clothing and toys we wanted without working, no one would study economics. Unfortunately, most of the good things in life are scarce – we can’t all have as much as we want. Thus scarcity is the mother of economics
Perloff (2001) MICROECONOMICS

12. Three Pillars of Scarcity:
PRIVATE PROPERTY
TASTES are EXOGENOUS
WELFARE = Preference Satisfaction

13. Locke’s Theory of Property
Property rights prior to government
Take precedence over all other rights.
Cromwell, Reformation, and Invention of Private Property.

14. Tastes Cannot be Questioned
Samuelson and Nordhaus (1989, p 26) “[economists] must reckon with consumer wants and needs whether they are genuine or contrived.”
Stigler and Becker (1977) “Tastes are the unchallengeable axioms of a man's behavior:”

15. Welfare = Preference Satisfaction
Lerner (1971) writes that “as an economist I must be concerned with the mechanisms for getting people what they want, no matter how these wants were acquired.”
Efficiency of Markets, Free Trade, Pareto Optimality, Production Possibility Frontier, etc. all depend on welfare concept.

16. Alternatives to Private Property
Communal Natural Resources
England prior to privatization
Ideal Communist Society

17. How Are Tastes Formed? Keeping up with the Joneses
Galbraith: Industrial Advertising
Social Choice about Childrens Upbringing

18. Measuring Welfare Simple Lifestyles Preferred to Consumerism:
Pareto Style Longevity Principle
Material Welfare Approaches
Communitarian Approaches

19. Entanglement of Facts & Values
There are a HUGE number of facts. Values help us focus on significant ones
HUGE numbers of theories compatible with all facts. Values help us to choose significant ones.

20. Are Property Rights Sacred?
Islamic Views
Peter Singer: Utilitarian Views
Radically different theories of economics will result from denying this postulate.

21. How are Tastes Formed?
Islam differentiates between “Needs” and “Idle Desires”
Needs/Wants well-known distinction.
Radically different economic theories result from recognizing such differences.
Free trade and Agrarian Society

22. What is Human Welfare
CANNOT Avoid this question, as economists sought to do.
Many approaches are possible. Economic theory depends critically on the answer to this question. WRONG answers have drastically affected quality of life INDIVIDUAL & SOCIAL