Economics: The undisciplined discipline

"The Age of Chivalry is gone, and that of sophists, economists and calculators has succeeded"
While skimming through the television sets, we come across talk shows and live telecasts of conferences and roundtable meetings, where somber, placid-looking politicians, economists and intellectuals discuss myriad problems, ranging from economic, social and political, to more complex issues like an international crisis. They debate, contend and postulate rising employment, inflation, international trade, balance of payment deficits, debt burdens and a never-ending list of perplexing concerns. Some of the words they use like "economic stagnancy", "fiscal policies", "protectionism" may sound like jargons to those with a very superficial knowledge of macroeconomics, ie, a branch of economics concerning the overall performance and affairs of a nation's entire economic system. Although a recent phenomenon demands a greater understanding of such terms and concepts with economies becoming more globalised and interdependent, the pith is more inclined towards the fundamental principles of "microeconomics", which deals with the characteristics of individual entities like households, entrepreneurs and government, and the foundations of which were laid down in the late 17th century by classical economists like Adam Smith, (widely acknowledged as the father of modern microeconomics), Thomas Malthus, John Stuart Mill and David Ricardo to name a few.
So how does one define economics?  Economics is the branch of social science which deals with the study of human behaviour and choices, and tries to ensure efficient management of resources. Since traditional and orthodox economics tends to take a positive rather than normative stance, we tend to make certain ethical assumptions while constructing certain core principles. The fundamental or basic economic problem of scarcity is a theory that governs almost every other existing economic discipline. Scarcity is simply a situation when there is not enough to satisfy everyone's want, a situation which arises when infinite want coincides with limited resources. One of the universally-accepted deduction of human tendencies is that our want is never ending and dynamic, although the resources available to satisfy them is scarce. No human being possesses an abundance of wealth, and no economy is endowed with a profusion of factor inputs, one of the reasons behind the origins of economics itself.
Economics seeks to understand the boundaries, capabilities, entitlements and limitations of human beings and, more dominantly, of economies and tries to answer certain questions as to what, how and for whom goods and services will be produced. How can resources be allocated in a way that helps earn the greatest possible satisfaction of consumer demands? How can scarce resources be managed in an effective way to maximise efficiency? Economics is all about answering such queries. It is not only the study of choices and judgments, but also one that dictates the production and consumption of valuables, and its ultimate distribution among consumers.
Another rudimentary concept which relates to scarcity is that of opportunity costs. The fundamental problem of scarcity compels us to make choices, and every choice, unavoidably and interminably involves a cost. Essentially known as the cost of that which is given up in order to obtain a particular product or service, opportunity cost is the price of the next best alternative forgone. Invariably, not all costs can be defined from a monetary perspective. The opportunity cost for a student studying economics instead of history, will undoubtedly enhance his historical knowledge, but on the other hand may lead to poor marks in the upcoming assessment of economics. Such opportunity costs are impossible to determine numerically, whereas, the decision of the government to divert resources to the education sector rather than infrastructural development, could be calculated precisely, by a cost benefit analysis.
A simple, elemental representation of opportunity costs is demonstrated by the "production possibility frontier" or production possibility curve, which shows the maximum combinations of two goods which can be produced with the existing quantity and quality of resources at the disposal of an economy, along with the current level of technical expertise. Two of the major tradeoffs elucidated by the PPC is between consumer durables and capital goods, or the famous "guns-butter" tradeoff. However, the effectiveness of the PPC can be questioned on a number of grounds, the most explicit of which is the restriction of the model to just two goods. An economy produces a vast variety of different goods and services, a reality ignored by the PPC. To a large extent, the PPC is hypothetical projection, with evident shortcomings.
The basic concept of economic efficiency stems from the fundamental economic problem. Economic efficiency is said to exist, when it can be judged that resources are being utilised in the best possible way which leads to the maximum satisfaction. Economic efficiency is therefore an important basic concept in economics. It is socially desirable and thereby represents the best possible solution to every economic problem. Two things are required in order for economic efficiency to exist, namely productive and allocative efficiency. Productive efficiency occurs when goods are produced by making the least possible use of scarce resources, in simple words, when goods and services are produced using the least cost methods available. Allocative efficiency, on the other hand, is when the goods which are most desired are produced, leading to maximisation of consumer satisfaction. When these two parts of economic efficiency co-exist, the situation constitutes an optimum allocation of resources.
The idea of efficiency can be looked at from a global perspective. Countries making optimum use of their resources can lead to efficiency, although on a global scale we are failing to achieve this. The restrictions on free trade by developed countries like USA and bodies like EU, undermines the benefits of such efficiency. The concept of inefficiency can be understood by a few simple examples.
Global supplies of oil are on the verge of exhaustion, although it is difficult to determine exactly when the supplies will be depleted. Growing populations, higher living standards and rising car ownerships are just three reasons contributing to the increasing demand for oil in industrialised and, more recently, in emerging economies like India. Here and everywhere the use of oil is inefficient, with large quantities being wasted everyday for traffic and manufacturing.
The world demand for timber and timber products like paper and cardboard shows little signs of abating as one-fifth of the world's forests and vegetation has been destroyed over the decade, with the worst repercussions borne by the Amazonian basin, Canada and the Carribean. The powerful conglomerates controlling the world market for timber pay little heed to the externalities (external costs of producing and consuming a product) of such deforestation.
As world population continues to rise and the effect of climate change becomes a reality, water as a resource is becoming increasingly scarce and even can be made of this essential resource.
The above-mentioned scenarios tend to elaborate the enormity of inefficiency in resource allocation and its global impact. Economic activities widely vary, from country to country, and a big determinant of it is the economic system. Currently two types of systems have been recognised - the command and market economy. Where the market economy ensures maximum consumer sovereignty, least government intervention and free, unhindered movement of market forces, the command or central economy is governed by an authoritarian government, which seeks to answer the three economic questions through the ownership of national resources and the power to enforce its decision. Most economies today are a combination of both, since extreme command or market economy is not desirable.
We have seen so far, the fundamentals of economics play a pivotal role in determining the utilities of resources in an economy. Economists are at times accused of "myopia", however the impacts of their carefully derived analytics and judgments on policies cannot be denied. An economist is unarguably a theorist, and even a reformer in certain cases. The pillars of modern economics built by acclaimed economists have undergone major reconstructions over the years, with more pragmatic approaches developed by the preceding generations.  Thus, the principles and concepts studied today are indeed a mixture of the old and the new, and retain influential stronghold, on the economic quandaries of the 21st century.

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