The essential economic question

Why does the discipline of economics exist? Hear what N.C. State University economist Mike Walden tells beginning students.

“Well, first I say it gives me a job. But after I get some snickers from that, (I tell them that) essentially every discipline has a reason for existing. And with economics it’s pretty straight-forward. If you look at everything that we collectively want, what we call our wants and needs at any point in time, they’re going to exceed our resources. It doesn’t matter if these wants and needs have to do with your own self or they maybe broader interests. The point is that we want to have more or we want to do more than we have resources to do those things with. Therefore we have to choose. And economics essentially is the science of choice.

“It helps us to make those selections in what we would say the most efficient way — that is, getting the most bang for each of our units of resources.

“And the second thing I tell them is there are really two polar opposites … on how to solve that problem, one we call the command approach — where you have some central body in a country that really decides how resources are allocated, so this central body, for example, would decide how much food each person gets, how much square foot of housing each person gets, etc. We are therefore giving that central body control over deciding what is best for us. Also, some people like this system because presumably you would have more equality.

“The opposite extreme is what we would call the market approach, where people are free to buy what they want. Businesses are free to choose what they want. Here prices really are the signal that tell us where to put our resources. And then after that we all make decisions. People like this because there’s obviously more free will. One downside: You may have more inequality.

“So, we have a constant debate of how far to move the dial between these two polar opposites. So, the command approach and the market approach: That’s the essential economic question.”