Scarcity

By: Michael Anthony Lewis (Associate Professor of Social Work, CUNY)

Jonathan Church is an economist who’s recently taken Alexandria Ocasio-Cortez (AOC) to task here for her misunderstanding of economics. What she apparently misunderstands is the notion of scarcity. Church doesn’t mention basic income in his piece, but he could have. That’s because some have advocated basic income by claiming it’s an essential part of a post-scarcity society. An example is this piece by Inbar Preiss: Scarcity is a state of mind.

Preiss claims that scarcity is, “a culturally cultivated state of mind.” That is, scarcity isn’t really about the availability of resources but, “the way we perceive resources.” She claims that advocacy for basic income is part of a process of reorienting our, “grasp of reality” from scarcity to “abundance and generosity.”

As I said, Church doesn’t mention Preiss’ article in his piece. But I imagine if he were to come across it, he wouldn’t like it very much. As Church sees it, scarcity isn’t a state of mind but an economic reality which all those interested in public policy would do well to understand. The claim that scarcity is a result of how we think about the world, instead of the way the world actually is, would probably make Church wonder about Preiss’ grasp of reality.       

I’m no economist, but while getting a PhD in sociology, I ended up studying (for credit and by auditing several courses) more economics than sociology. I’ve also co-authored a book on economics here, as well as had a paper I’ve written featured in an economics journal here. And I get paid to teach economics to graduate level social work students. So, I’m familiar with economics and believe anyone interested in public policy would be wise to do the same. But one thing I’ve always wondered about is economists’ notion of scarcity.

Economists typically define scarcity in terms of a relationship. That relationship is between resources, on the one hand, and people’s desires for the goods/services which can be produced with them, on the other. As economists see it, to say that resources are scarce is to say that they aren’t plentiful enough to produce all the things people want. Logically speaking, this implies we’d need to do the following to see if resources really are scarce. We’d need to 1) assess people’s wants 2) tally them all up and 3) check the availability of resources to see if there are enough of them to produce all the stuff people want. I’m confident no one has done this. Therefore, the idea that resources are scarce, in the sense above, is an unverified assumption. It may or may not be true.

To be concrete, consider a resource like oil. To say oil is “scarce” is to say there isn’t enough of it to produce all the stuff we humans want which requires oil as an input. But has anyone ever really assessed how much oil there is and compared it to the amount that would be required to produce all the stuff we want which requires oil as an input? I doubt it. I suspect the same is true of resources like labor, steel, etc. Also, since people’s wants change, resource availability changes, and people keep dying and being born (with their wants dying and being born with them), it would be very difficult to do the type of tally required to ultimately determine if resources really are scarce.

Notice that nothing I’ve said so far implies the belief that there’s an infinite supply of resources. Nor does anything I’ve said imply the belief that we don’t incur opportunity costs when we use them. Resources are in finite supply. And because they are, opportunity costs matter. It’s true that resources used to produce good X can’t also be used to produce good Y. So, the production of some amount of good X means we have to forgo some amount of good Y. But scarcity and finite don’t mean the same. To say that something is finite means that the amount of that thing is in limited supply. To say that something is scarce means there isn’t enough of it to produce the stuff people want. It’s logically possible for a resource to be limited in supply but not scarce because it’s logically possible for there to be enough of a limited resource to produce all the stuff people want. It depends on how much people want.

Economists typically assume people’s wants are infinite. Are they? Consider all the adults in the world. The total number of such adults is finite. Currently, each adult wants a certain finite number of cars. That is, I’m sure no adult in the world is saying, “gee I wish I had an infinite number of cars.” If we obtained the finite number of cars each adult wants, we could total these to get another finite number, since finite sums of finite numbers are themselves finite. The production of cars requires certain resources. Are there enough of them to produce the number of cars, as well as the finite numbers of other things people want which require the same types of resources as cars do? I don’t know. Neither do economists.  

In his article, Church refers to some things AOC said at a recent event. When discussing the fact that there’s a limited number of highly sought after specialized public schools in New York City (schools such as Bronx Science and Brooklyn Tech), AOC asked why there are so few such schools? When she was heckled by a member of the audience, she responded (I’m paraphrasing) by raising concerns about how the scarcity mindset results in people in the working class fighting against each other rather than banding together against the economic elite. These are the comments which led Church to believe that AOC misunderstands the economic concept of scarcity.

Church may be right that AOC’s comments violate a bedrock principle of economics, at least of mainstream economics. But they don’t necessarily violate any bedrock principles of logic. She may believe that resources are limited but still plentiful enough to produce all the things people want. I suspect what she really believes is that resources are limited but still plentiful enough to produce all the things people need. If this is what she believes, she may or may not be correct. We’d have to determine what people need and see if resources are plentiful enough to produce all those things. I don’t think anyone has done this either. And this also might be difficult, due to the difficulty of agreeing on what people need. But this assumption isn’t necessarily any worse than economists’ assumption of scarcity. Both are mere assumptions, and we simply don’t know which, if either, is true.

Church, in critiquing AOC, also draws on the assumption of a competitive market. This type of market makes an appearance in many writings of economists. It’s a model which is meant to be applicable to understanding real world markets. The model of a competitive market is based on the following features:

1. There’s a large number of buyers and sellers, so that no single buyer or seller has market power
2. The goods being marketed are homogeneous
3. All market participants are fully informed about the prices, qualities, and other relevant features of the goods being marketed
4. Anyone who wants to buy or sell the good can enter the market at will.

There are few economists who think this model strictly applies to any real-world market. But many economists believe it approximates the real-world closely enough for it to be useful in policy debates about the workings of some real-world markets. For example, the standard view among many economists that minimum wages cause unemployment is based in part on viewing real-world labor markets as approximated by a model of a competitive labor market. I’ll leave the minimum wage discussion for another time.

Presumably, Church believes the competitive market model has something to teach AOC, and, perhaps, the rest of us non-economists, about public education in New York City. That’s because he relies on it in much of his critique of AOC’s comments. However, I find it hard to see how the competitive market model has anything to teach us about education in New York City (NYC).

The NYC school system is made up of a certain number of public and private schools. The private school market may be well approximated by the competitive market, but I’m even skeptical about that. It may be better approximated by the model of oligopoly, one with many buyers, a few sellers, and where sellers may implicitly agree to compete mainly on the basis of factors other than price. But once we bring NYC’s public schools into the picture, it seems to me the better market model, if a market model is useful at all, is monopoly, one with a single seller and many buyers. The public school system doesn’t require people to pay for its services, as do monopolists in economists’ models of monopoly. But for many students in the city, their only real option is to go to a public school. This is where the system’s market power becomes relevant. The public school system can dictate the terms under which kids attend school because many families have no choice but to send their kids to one.

One of the things this system has done is create a few specialized public schools, in addition to the regular ones. There are fewer slots in these schools than there are slots desired by New York’s families. This does look like, and in a sense is, scarcity. But this is scarcity which has resulted from political decisions about how to allocate kids to which types of public schools, as well as how many specialized public schools there will be. I suspect, though, that what New York families want for their kids isn’t necessarily a spot for them in one of these specialized schools. What they want for them is quality education. Narrowing the scarcity question to just New York, I suspect the issue AOC was trying to raise is whether New York’s resources are plentiful enough to produce all the quality education, as well as other things, New Yorkers want. Again, I suspect she’d actually focus more on needs than wants, a distinction that economists tend not to make? I don’t know the answer to this question, but neither does AOC nor economists.

To figure this out we’d need to agree on what’s meant by quality education, on some way to count how much of it New Yorkers want or need, and then see if New York’s resources are plentiful enough to produce all the quality education, as well as other stuff, New Yorkers want or need. Pointing to a political process which has resulted in a system of a few specialized public schools, all of which contain a limited number of seats, isn’t really an answer to this broader question. That political process may have resulted from an assumption that New York’s resources aren’t plentiful enough to produce all the quality education and other stuff New Yorkers want. And, of course, we can’t divorce New York City’s politics from those of the entire state, the entire country, and, perhaps, the entire world. That is, governments all over the world may be making decisions on the basis of economists’ scarcity assumption and, in doing so, creating the type of political scarcity I’ve been talking about in relation to New York specialized schools.

What I’ve been calling political scarcity may be what Preiss’ comments were getting at. That is, in saying that scarcity is a state of mind, she may mean that we assume resources are scarce and, through our politics, design institutions on the basis of that assumption. In doing so, we create the very conditions of scarcity which we assume already exist—an instance of self-fulfilling prophecy, as the psychologists call it. If this is what Preiss means, I don’t think her comments are so strange, although I admit they do sound pretty strange on a first reading.

Putting aside this issue of political scarcity, we just don’t know whether the world’s resources are plentiful enough to produce all the things the world’s inhabitants want or need. Economists, along with others, assume the answer to this question is “no.” AOC (and, perhaps, Preiss) believes the answer is “yes,” especially if we focus on needs instead of wants. Who’s right? I don’t know. Neither do they.