Scarcity is a fundamental principal in economics. Scarcity means that resources are finite while human wants are essentially infinite. There is only a certain amount of any resource in the world. It could be cars, apples, oil, food, or water; there are limits on everything. Not only are resources scarce, but we have to make choices about what we do with the resources we have. This is called opportunity cost. If I choose to spend $10 on pizza, then that is $10 I don't have to spend on ice cream. Finally, the ultimate scarcity is our time. Everyone has 24 hours in a day. That's it. Time is a finite resource. And time spent on one task can never be taken back and used for something else.
Another way to talk about scarcity is to talk about inputs. Input is my favorite word. It reminds us that any person, system, organization, business, or government requires continuous input. (Even non-profit organizations!) As a child, I used to think there was such a thing as free food. But there's not. Nothing is free and everything requires continuous input. Those inputs are scarce. If the inputs were not scarce, then there really would be free stuff!
So that's the basics of scarcity from an economic perspective. However, from a practical, human perspective I think there are really two types of scarcity. The first is what many humans have faced throughout history: not enough material resources to meet the basic needs of each individual in society. Many generations of humans have faced the possibility or reality of famine. Some still do today. Most people lived off the land and relied directly on the local land for their food. In this situation you could have a pile of gold, but it won't do you any good if the crops have failed or your town was pillaged by an invading army. We call this a shortage. Maybe it's not just food, but other basics, like housing, gasoline, medicine, or diapers that an entire society lacks.
The second type of scarcity is a scarcity of money. The thing you need exists, but you don't have the money to buy it. I've never seen any true food shortages in America. I've never seen a completely empty grocery store. There are certainly some places that are food deserts where it's difficult to get fresh food. We should work to solve those issues. But it's still not a lack of food overall. The fact is that food is not scarce, it's the money to buy the food that is scarce. If every hungry person in America had some money, they could use that money to buy food. The same goes for housing and every other necessity. I've heard that America has more vacant houses than it does homeless people. And if we wanted to, we have the resources to build more houses.
So how did we end up in a society where some people have money to buy food and other necessities while other people don't have that money. Well, let's take a look at the three fundamental economic questions that every society is required to answer.
- What will society produce?
- Who will produce it?
- Who will receive the produce?
From my perspective, America has simply decided that the free market should answer nearly all of these questions. Now the entire idea of a free market is very interesting and I've written about it here. In short, there are some things the market does really well and some things it does very poorly. Of course another term that is used for free market is capitalism. The interesting thing is that you have to have capital to participate in capitalism. There's a saying "You have to spend money to make money." So in America, how does any individual gain some capital in order to start their life and to participate in the free market economy? I'd argue that it's almost entirely based on whatever wealth or lack of wealth that their parents can pass down to them.
Of course people's choices matter. It's possible to start with a lot of money and then waste it. And some people work hard, save up, get a lucky break in the randomness of the free market and end up in a very good place financially. But why are we content with the current system? Why do we want people to start at 0?
There's a great podcast episode by Malcolm Gladwell called "Carlos Doesn't Remember." Gladwell talks about the "[human] capitalization rate," which he defines as the "percentage of people in any group who are able to reach their potential." To me this means giving people an opportunity to succeed. It's like making sure we have fertile soil for humans. At 28 minutes 18 seconds he starts discussing the idea of second chances. Basically, if you are rich -- which in this case means you were born to wealthy parents -- you will get second chances in life. Even if you make some very bad choices, things will probably work out. But if you are poor, one mistake or misfortune can set your entire life back economically.
In America, we live in a world of new scarcity. We live in a world with plenty of stuff, but not enough money for the people who need it. The free market is great at determining prices and we need it to do that. But that doesn't mean that the market can identify what humans need to survive. I think we need a capitalism that is more focused on humans than on profit. I think we should at least try to give everyone a chance. I think we should have a universal basic income that everyone receives, just for being a citizen.
A universal basic income would accomplish a few things. First, it would greatly increase the buying power of the poorest Americans. This would help with the scarcity of money problem. We already have enough resources for everyone to buy. With a basic income, people would have at least a little money with which to engage the free market to buy the things they need. Secondly, it gives people second chances. Plenty of people make bad choices, but regardless of what you did the month before, you still get a fresh start the next month with a new allotment of basic income. Many people face economic difficulty from circumstance outside of their control. It could be a natural disaster, a car accident, or losing their job to a robot. A basic income could help soften the blow and give them a chance to recover. Third, a universal basic income provides consistency and hope. I think it's often true that poor people make poor decisions with their money. I think one reason for this is that their income is so sporadic. They may be working two or three different jobs. They may change jobs often. They get paid a low hourly rate and the amount of hours they get is very inconsistent. This unsteady income is matched with the ups and downs of random expenses like car repairs or medical bills. Being able to plan around a basic income would reduce stress and make saving seem more practical. I think that would provide hope to many people who are struggling to make ends meet.
I think it's time to imagine a new economy. One where everyone benefits from our collective resources. We can replace the new scarcity with a new opportunity. Let's vote ourselves a universal basic income.
Notes:
Gladwell just says "capitalization rate" in the podcast but it seems that term is more closely associated with commercial real estate investing. Gladwell may have included the word 'human' in a speech.
The distinction between a consumable commodity (renewable or not) is significantly different from an ideological exchange value such as money. To say we lack resources because we lack money elevates currency to too great of a position. Many people do not posses the necessary things in life because they do not have the funds to purchase them, but that only highlights their dependence on a socio-economic system instead of a dependence on God's provision or their personal ability to produce.
ReplyDeleteFor example, the Amish may not exchange a lot of money but they are more than sufficient in natural resources and skills to survive and even thrive. Many "primitive" jungle tribes have survived for generations without the need to exchange paper symbols. And probably the most telling example is our American culture, where thousands of young people have enslaved themselves to educational institutions through college debt for the promise of a better life with minimal or zero production skills.
I fear we have elevated the idea of money beyond an exchange of goods to an exchange of power, control and authority. It could be argued that we all enter this world with nothing and we leave it with nothing. So in a sense, we all have the same universal basic income or access to resources. If we would be more generous with the resources we obtain or produce, then the marketplace (who's fundamental idea is an unequal exchange) would completely collapse.
But then, how can we expect governments to regulate us if we cannot regulate ourselves.
Thanks for the feedback, Ben. There are some interesting points here especially when talking about how other societies structure their economies. I'll comment on a few lines below.
ReplyDelete"To say we lack resources because we lack money elevates currency to too great of a position."
Yes, I can see how this could be a problem. To clarify, I'm saying this specifically about the wealthiest countries in the world. I'm saying that in America, we have enough resources to eliminate the vast majority of poverty. I do think that some countries lack the actual resources and infrastructure to eliminate poverty.
"personal ability to produce"
Ah yes, a very important topic. In fact, this is a major point of my upcoming blog post. In short, my point will be that humans, on their own, can produce nothing. We are not God. We cannot create something out of nothing. We require natural resources combined with human labor to get a useful input (such as food) that will keep us alive.
In regards to Amish and tribal cultures. There is a lot we can learn from these more communal economies. However, my main observation about these economies is that they have access to vast amounts of land and the natural resources on that land. The land is either held by families or owned by no one. In our modern society all the land is already owned. The poor, especially the urban poor, have no access to the land or the natural resources.
"It could be argued that we all enter this world with nothing and we leave it with nothing."
It's true that we all enter this world with nothing. But we do enter this world into a family. Often family wealth is greatest determiner of future financial success.
"So in a sense, we all have the same universal basic income or access to resources."
I think this might be the main statement where we disagree. Based on the two points above, I'd argue that people have vastly different access to natural resources. The land and natural resources are already owned. It would be nearly impossible to evenly divide up access to all those resources. Therefore, I propose a basic income as a way to give every person a slice of the natural wealth that God created.
The free market is great at determining prices and we need it to do that. But that doesn’t mean that the market can identify what humans need to survive.
ReplyDeleteThe free market is great at calculating an allocation, but on a dollar-weighted rather than person-weighted basis. I gave a cursory examination to identifying what humans need to survive in my blog post about negative utilitarianism.