An Different Look into Scarcity

Mullainathan, Sendhil, and Eldar Shafir. Scarcity: why having too little means so much. New York, New York: Henry Holt and Company, LLC, 2013. Print.

 

Throughout the majority of my life, my family and I had to deal with very tight financial constraints.  I can’t count the amount of times I have feared that we wouldn’t be able to pay for food, and there have been a multitude of times when we have had to use a food pantry.  I wanted to know how this is possible.  Why are there people flying private jets while there are people unable to eat?  The resources are there!  So  I have tried to get a better understanding of how the economy works, and I have taken time to learn various philosophies when in regards to economic policy as well as general economies as a whole.  The book that I just read, adds a layer of complexity to the study of economies.  As it is stated in the book, various economists make the assumption that people will make the most rational decision.  Yet, as we all know, this is sometimes not the case.  The psychology of scarcity actually can explain this phenomenon.  What is interesting is there are other things that are scarce throughout life.  Time can be scarce at times, followed by calorie intake (diet), the book throws a curve ball and talks about “social scarcity” (loneliness), and quite frankly I think addiction can be applied to the sphere of scarcity as well.  There is probably more, but what this book shows is that what they are finding about scarcity can be applied generally to other cases, not just money.

The premise of their findings was generally stated in the introduction of the book.  Essentially scarcity first forces us to tunnel on the thing we are scarce over.  So if I don’t have a lot of time and I am working hard, I will focus on the most immediate or late deadlines.  This prioritization, or heightened focus on deadlines (tunneling), is a double edged sword.  The efficiency of the person under a strict deadline goes up substantially because he or she is focusing harder to get his or her work done.  However it is through this tunneling, that sometimes other factors that contribute to scarcity in the first place gets overlooked.  So in the time example, while working on a late deadline another deadline has to be completed late.  This is a feedback process, and eventually I would be placed in what is termed the “scarcity trap,” where I am constantly in the state of scarcity, fighting a forever uphill battle to actually complete everything on time.  There is more though.  The authors of this book used the word bandwidth to encapsulate the overall processing power of the brain.  It is found that scarcity actually taxes the bandwidth of the brain, more specifically fluid intelligence and impulse control.

Another example could be used with addiction, or chemical scarcity.  Once the addiction is established, there is a drive to put their drug of choice into their system.  When there are heavy cravings (scarcity) addicts will tunnel to focus on getting chemicals back into their system for their high.  Addicts get very creative when it comes to getting money for their addiction, and that typically means other financial to relationship obligations, fall through the tunnel.  Eventually the added on stress of not meeting those responsibilities is dealt with taking more drugs (not to mention their impulse control is down).  This again brings about another scarcity trap.  Usually addicts have to reach rock bottom in order for them to gain the motivation to stop.  In order to stop any scarcity trap, including that of addiction, impulse control is needed which is extremely difficult considering the bandwidth tax.

Here is a summary of the findings of this book with regards to financial scarcity:

Tying all this together, we see that scarcity traps emerge for several interconnected reasons, stretching back to the core scarcity mindset.  Tunneling leads us to borrow so that we are using the same physical resources less effectively, placing us one step behind.  Because we tunnel, we neglect, and then we find ourselves needing to juggle.  The scarcity trap becomes a complicated affair, a patchwork of delayed commitments and costly short-term solutions, that need to be constantly revisited and revised.  We do not have the bandwidth to plan a way out of this trap.  And when we make a plan, we lack the bandwidth needed to resist temptations and persist.  Moreover, the lack of slack means that we have no capacity to absorb shocks.  And all this is compounded by our failure to use the precious moments of abundance to create future buffers.

Shocks in this context has to do with the financial surprises that life brings us.  They use the term slack to talk about room in the overall budget.  Having slack is a very important component to keeping you out of, and get you out of, the scarcity trap.  Put simply, having a little extra money allows one to save money to keep him or her out of the trap.  When in the scarcity trap, slack allows for somebody to pay for late bills without the need of a loan.  When looking at the scarcity trap, saving is the most important thing one can do to keep yourself from that mindset.  It is extremely risky to spend all of your budget every paycheck if it is avoidable.  It takes just one major “shock” to put yourself into the scarcity trap and mindset.

This book was interesting, but I must say I did not like how they structured the book.  The majority of their theory was revealed in the introduction, which made the rest of the material more bland.  If they were to reveal the theory as they went, the material would have a more interesting factor to it.  I understand they have to be thorough when explaining the evidence for their theory, but in my opinion it was a little excessive.  They spelled it out like someone was a complete moron, being so thorough of their logic.  I suppose this is good, especially considering the kind of people they are selling their book to.  But I found it irritating.  I really think they could of taken 100 to 120 pages off of the book.  Their theory is condensed, not long, not hard to understand, and could be provided evidence through their studies.

This book makes me realize that all people will do things impulsively under scarcity.  So when someone does something irrationally, it has to do with their taxed bandwidth.  I hope that this knowledge can be used by economists to better understand how people behave in the economy.  Maybe it will allow economists to change their assumptions, which would provide a more accurate understanding.  But I hope in the end this will breed more empathy for the poor.  And I hope that one day we will all have the mindset to allow the necessities of life to be provided to everyone.

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