Post-Scarcity

Background: This is part of a short series on high-level principles relevant to political/social issues. The previous post discussed depersonalization and scalability of interactions. This post can be read standalone. If you want to understand the modern economy, as opposed to the economies of yore, the one source I recommend most strongly is a short story from the July 1958 issue of Astounding Science Fiction, titled “Business As Usual During Alterations”. It’s roughly a 15 minute read. I’m about to throw out major spoilers, so stop reading here if you want to enjoy the story first.

One morning, two devices mysteriously appear in front of city hall, along with directions on how to use them. Each has two pans and a button. Any object can be placed in one pan and, with a press of the button, a perfect duplicate will appear in the other pan. By placing one duplicator device in the pan of the other, the device itself may be duplicated as well.

Within a span of hours, material scarcity is removed as an economic constraint. What happens in such a world?

People tend to imagine the dawn of a new era, in which human beings can finally escape the economic rat-race of capitalism and consumerism. In the world of the duplicator, a pantry can provide all the food one needs to live. A single tank of gas can drive anywhere one wishes to go. Any good can be copied and shared with friends, for free. All material needs can be satisfied with the push of a button. Utopia, in a nutshell.

The main takeaway of the story is that this isn’t really what happens.

Towards the end, a grocer explains the new status quo eloquently:

“... not very many people will buy beans and chuck roast, when they can eat wild rice and smoked pheasant breast. So, you know what I've been thinking? I think what we'll have to have, instead of a supermarket, is a sort of super-delicatessen. Just one item each of every fancy food from all over the world, thousands and thousands, all different”

Sound familiar?

Of course, that’s just the tip of the iceberg. When it comes to digital goods, like music or videos, the world of the duplicator is exactly the world in which we now live. That’s the obvious parallel, but let’s not stop there.

Over time, the value of raw materials and manufacturing have steadily fallen as a fraction of economic output. Even when looking at material goods, efficiency has shifted the bulk of costs from materials and manufacturing to design and engineering. We are converging to the world of the duplicator, where marginal production costs hit zero, and in many areas we’re already most of the way there!

This hasn’t made economic activity disappear. Pulling from the story again:

“This morning, we had an economy of scarcity. Tonight, we have an economy of abundance. And yet, it doesn't seem to make much difference, it is still the same old rat race.”

I won’t spoil all of the remarkably prescient predictions of the story - do read it yourself.

Badge Value

Here’s one good you can’t just throw on a duplicator: a college degree.

A college degree is more than just words on paper. It’s a badge, a mark of achievement. You can duplicate the badge, but that won’t duplicate the achievement.

Rory Sutherland is another great source for understanding the modern economy. The main message of his classic TED talk is that much of the value in today’s economy is not “material” value, i.e. the actual cost of making a good, but “intangible” or “badge” value. A college degree is an extreme example, but the principle applies to varying degrees in many places.

The sticker price on an iphone or a pair of converse isn’t driven by their material cost. A pair of canvas high-top sneakers without a converse logo is worth less than a pair of converse, because converse are a social symbol, a signal of one’s personal identity. Clothes, cars, computers and phones, furniture, music, even food - the things we buy all come with social signals as a large component of their value. That’s intangible value.

In the world of the duplicator, the world to which our economy is converging, badge value is the lion’s share of the value of most goods. That’s because, no matter how much production costs fall, no matter how low material costs drop, intangible value remains.

In the past, we’ve sold material value because that was a scarce commodity. Now, the shoe is on the other foot, we’ll sell intangible value.

Jobs & Employment

One particularly prescient line from the duplicator story:

“You know, when we first got the word about this thing, this duplicator, we immediately started thinking in terms of pretty drastic retrenchment. Then... it turned out we didn't have much fat to spare. Engineers, draftsmen, designers; we need about six times as many as we have. Nut-twirlers and button-pushers on assembly lines will go; but mechanics, craftsmen who can take a blueprint and turn out a piece to specified tolerance...”

Sound familiar?

We’re already well into the post-scarcity economy, and sure enough, nut-twirlers and button-pushers are disappearing rapidly. Yet every other week, news outlets are running stories about the shortage of STEM workers. The economy of the future, we’re told, needs thinking and creativity rather than repetition and basic labor.

The root cause of all this is the economic equivalent of the duplicator: steady growth of economic productivity, and the consequent reduction of materials and manufacturing as a share of cost.

The duplicator story gets one big thing wrong, however: it predicts that the shift in labor demands will be met by retraining. It’s an elusive dream still chased today, most recently by MOOC advocates. But at the end of the day, learning is not the main purpose of most education - after all, most of what people learn is never used on the job. Education is about signalling, through degrees and grades - badge value. That badge isn’t saying “I know Newton’s laws”, it’s saying “I have handled intellectually challenging problems”. Until we learn to create whatever cognitive capabilities a college degree filters for, retraining is unlikely to turn nut-twirlers into engineers.

And that’s the optimistic case. What if colleges don’t filter for a fixed skill level at all, but instead filter for a relative skill level? Oversimplifying a bit, what if colleges just give degrees to the smartest 20% of people they can find?

Keeping Up with the Joneses
The general problem with badge value, and signalling in general, is that a badge isn’t worth anything if everybody has it. In order for a badge to be worth something, there have to be people without the badge. It’s a zero sum game.

Keeping up with the Joneses is a classic example: people buy things to signal their high status, but then all their neighbors buy the same thing. They’re all back to where they started in terms of status, but everyone has less money.

The prevalence of zero-sum signalling today economically stems from the reduction of material scarcity. If you think about it, zero-sum games are inherent to a so-called post-scarcity society. A positive sum game implies that net production of something is possible. That, in turn, implies that something was scarce to begin with. Without scarcity, what is there to produce?

To put it differently: there’s always going to be something scarce. Take away material scarcity, and you’re left with scarcity of status. If there’s no way to produce net status, you’re left with a zero-sum game. More generally, remove scarcity of whatever can be produced, and you’re left with scarcity of things which do not allow net production at all - zero sum goods.

Today’s world has found a way to get around this problem somewhat: heterogenous cultures. The baristas at SightGlass coffee have very high status among hipsters, but hardly any status with bankers. Janet Yellen has very high status among bankers, but hardly any status with hipsters. Each different culture has its own internal status standards, allowing people to have high status within some culture even if they have low status in others.

Cultural heterogeneity allows net status to be produced, by increasing the kinds of status which one can have. When “hipsters” became a thing, they brought along their own kind of status in addition to all the old kinds of status. Cultural granularization makes status signalling positive-sum. But from another perspective, it just kicks the zero-sum game up to the group level: hipsters as a group compete for status with bankers, in a zero-sum manner. Thus tribal conflict between groups.

Rent Seeking

With all this talk of zero-sum games, the last piece of the post-scarcity puzzle should come as no surprise: political rent-seeking.

Once we accept that economics does not disappear in the absence of material scarcity, that there will always be something scarce, we immediately need to worry about people creating artificial scarcity to claim more wealth. This is the domain of political rent-seeking, of trying to limit market entry via political channels.

One simple way to measure such activity is via lobbying expenditures, especially by businesses. Such spending actually seems to have flattened out in the last decade, but it’s still multiple orders of magnitude higher than it was thirty or forty years ago.

Conclusion

Remove material scarcity as an economic constraint, and what do you get? The same old rat race. Material value no longer scarce? Sell intangible value. Sell status signals. There will always be something scarce.

Between steady growth in industrial productivity and the advent of the digital era, today’s world looks much more like the world of the duplicator than like the world of 1958. Yet many people are still stuck in 1950’s-era economic thinking. At the end of the day, economics studies scarcity. Even in the world of the duplicator, where any material good is arbitrarily abundant, scarcity still exists.

This is the world in which we live: as material and manufacturing costs fall, badge value constitutes a greater and greater fraction of overall value. On the employment side, falling marginal production costs mean less need for assembly line workers, and more need for engineers, designers, and high-skill trades. And politically, less material scarcity means more investment in creating artificial scarcity, through political barriers to market entry.

Welcome to the post-scarcity economy.