Economics 101

Making Choices of Significance

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We have talked in previous posts about humanity’s fallen nature, the implications of the Fall for our lives on earth, and our utter dependance on Christ. God will bring his kingdom in full when Christ returns, but until then, economics can help us think through and even overcome some of the brokenness we encounter in the world.

One of the results of the Fall is that abundance no longer exists to the extent it did before the Fall. In its place is scarcity. Our work becomes frustrating at times, and our labor unproductive, often yielding only “thorns and thistles,” metaphorically speaking.

What is “scarcity,” exactly? The Library of Economics and Liberty offers the following definition:

In economics, scarcity refers to limitations—insufficient resources, goods, or abilities to achieve the desired ends. Figuring out ways to make the best use of scarce resources or find alternatives is fundamental to economics.

We are in the middle of exploring what it means to live lives of significance through faithful stewardship. The second half of the definition above gets at why it is helpful for all of us to sometimes think like an economist. Economics helps us figure out “ways to make the best use of scarce resources.”

In other words, economics helps us make choices of significance regarding how we can best use our time, talent, and resources as we seek to carry out God’s plan for our lives.

One of the first lessons you learn in economics is “There is no such thing as a free lunch.” One of my graduate school professors, Peter Boettke, was fond of telling me that “our scarce resources have multiple and competing ends.” There is no free lunch because every resource we use, and every decision we make, comes at the cost of some other use, end, or outcome.

This applies to even your most basic resources. Consider your time: you must make daily and hourly tradeoffs about how to best spend your time.

What if someone offers to take you out to lunch? Isn’t that free? No, because you gave your time and energy to be there. You chose that lunch over a variety of other things you could have done. The lunch had a cost, even if the cost was lessened by your friend paying the tab.

That cost is the foregone opportunity of what you could have done had you not gone to lunch. Cost implies sacrificing something you could have had for what you actually chose. Economists refer to this as an opportunity cost.

James Gwartney describes opportunity cost in his book Common Sense Economics:

The opportunity cost…is the value you place on the items that must now be given up because you spent the money on the initial purchase.

Say I have 5 dollars in my wallet, and I am deliberating between getting a slice of pizza for lunch or going to Starbucks. If I choose Starbucks, my opportunity cost is the slice of pizza. It is what I gave up for my coffee.

But opportunity cost is relative to the person making the choice. All of us would have different preferences over how to use that same five dollars. We each value things differently because we are created uniquely by God.

Awareness of these types of costs is critical to an economic way of thinking. Recognizing scarcity and opportunity cost helps us navigate a world where choices are hurled at us constantly. There are so many ways to spend and utilize our time, talent, and resources.

Using economics to help us think about our choices helps us understand that our choices are significant and need to be made with intentionality. It is wise to be aware of the potential for foregone opportunities.

This awareness takes on special meaning for Christians. If we truly are to do everything to the glory of God, then we must let go of the notion that there is a free lunch.

If something is truly free, there is no need to count costs. In a fallen world, though, there is no free lunch. All of our choices bear costs. Awareness of these costs can help us be intentional about how we donate our time, money and energy.

This new cost accounting makes our choices more fruitful. It is one way we can become better stewards as we make choices of significance.

How can you better count the costs of your choices, even those that seem free? Leave your comments here.

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