Tuesday, July 09, 2013

Why Scarcity is a Good Thing

The sworn enemy of economists is not debt, as you may presume. It's scarcity.

The reason why is that if you eliminated "scarcity" you would have unlimited "wealth," solving all of the economic problems of the world.

However, terms like "scarcity" and "wealth" have very specific meanings to economists and when compared to the meanings associated with them by normal people, there is some miscommunication.

"Scarcity" means that there is only a limited amount of the stuff.  Technically, everything is scarce.  There is a limited amount of dirt.  There is a limited amount of rocks.  However, when it gets to things like oil, gold, iron ore, etc. things become a little more scarce.  Because of this people must be efficient, they must be "economic" in their decisions on how to use these scarce resources to get "the most" out of them.

Get the most what?

Get the most "wealth."

"Wealth" though commonly assumed to be money or income, is quite different in economic terms.  "Wealth" is simply "stuff."  Your cars, your food, your house, every item and asset you own. The reason why economists are so focused on "wealth" and not "money" is because it is not so much the MONEY that matters to people as much as it is the physical items and services.  In short you don't get a benefit from a $20 bill.  You can't eat the $20 bill.  That money is technically not wealth.  The $20 in groceries it can buy, however, is.  Because those groceries will help maintain and improve your life. 

Therefore, in an ideal world (say like Star Trek where they have a replicator), resources would not be scarce, but limitless.  If you had unlimited oil or unlimited diamonds or unlimited chocolate, everybody's "wealth" would increase to a maximum level at minimal cost.  Standards of living would be unlimited and the only thing that would limit your life would be your mortality.  Ironically, in such a world, economists would be unemployed because there would be no need for them.

Of course, a scarceless, unlimited wealthy world is not feasible.  There is a limit to everything, not only including physical resources, but human time as well.  But there ARE instances of unlimited wealth and while economists may think that is the ideal situation or "goal" of economics, they  may want to rethink such an infinitely wealthy world. 

Understand there are instances of unlimited wealth.  I've seen it first hand.  And it was when one of the Saudi princes came to the Mayo Clinic.

My buddy ran the security company that was hired to provide the prince protection.  He flew in with an entourage of about 120 people, 90 of which were support staff, servants, cooks and maids.  he flew in his own private airliner and was so wealthy he had rented EVERY 2010 Mercedes S Class in the UNITED STATES that was rentable (it was 2009 and he would ONLY settle for the newest cars) to transport him and his family (chauffeurs were driving from California and NYC).  There were also trucks lined up at the airport that would be used to transport all the items he and his entourage would purchase at the Mall of America and other places.  And he had rented out two entire floors of the Kahler Hotel in downtown Rochester.

He and his family had unlimited wealth.

But what transpired afterwards was something that I couldn't put my finger on, but after reflecting upon figured out what was going on.

He and his family would buy ANYTHING.


One of his three wives bought a large commercial sized crate of hand lotion at Wal-Mart.  Another wife would buy clothes at Nordstroms.  One of his daughters left the convoy and her protection for a slice of pizza at Pizza Hut, only to take one bite and throw it away.  Top of the line German cars were purchased, as was jewelry.  Though one of the princesses insisted on having her hair cut at a cheap salon.

There was no rhyme or reason to their purchases.  They didn't buy "only the best" as evidenced by their trip to Wal-Mart.  They didn't buy stuff they needed as evidenced by the crate of hand sanitizer.  They didn't buy stuff they were going to use (one of the wives bought three truckloads of crap she could never ever wear/consume in her life time).  And they didn't buy stuff for a purpose (tools, medicine, entertainment).

They just bought stuff for the sake of buying.

And then I saw what was going on.

With literally unlimited wealth the Saudi prince and his family were unable to assess VALUE.  Their entire lives they could afford anything they wanted.  There is more than one story of a Saudi prince buying a brand new Mercedes, having NO CLUE it runs on this thing called "gas," runs out of gas in the middle of the desert, and abandons the car there.  He would simply get picked up, returned to the castle and buy another one.  The reason why is that with unlimited wealth that Mercedes might as well cost as much as a piece of chewing gum because to the Saudi prince, it does.  $100,000 vs. $1 is an inconsequential difference to a man with $10 billion.

But while you and many economists may wish to be so wealthy, think again, for there is a consequence.

What would your life be without the ability to judge VALUE?

You take this ability for granted.  You, me and most normal people have to assess, judge, discern and discriminate how we spend our resources.  We have to compare whether or not the outlay in terms of time, money or resources is worth the item or service we purchase.  And not only in our purchasing lives, but our social lives as well.

Do you spend time with that annoying friend or the couple who can't keep their loud obnoxious kids in line?

Do you spend the time getting that Masters in Quadrapalegic Turtle Art History Transgender Studies?

Do you go on a date with Tami the Suburbanite Bimbo Brat or have a scotch and cigar with your buddies?

But if we had unlimited funds and essentially our entire free time to ourselves, how would you be able to discern which is better?  You didn't have to part with a piece of your finite life to get the money or the day off to enjoy a purchase or social time with friends.  And since you didn't have to forfeit anything in exchange for money or free time, you don't value it.  Your time and life is essentially worthless and you will spend it accordingly so. 

This is why the Saudis not only piss away their money in the most random and chaotic fashion, but why they also were never smiling.  They were grumpy, I never saw one smile, they were miserable.  I would even consider them zombie-like when you'd see them going to and fro in the world's most expensive cars to go places their subjects could only DREAM of going and would be ecstatic in doing so.   And also imagine how impaired their ability is to judge human value.  Do you think any one of the score of princesses has a good friend to talk to?  Do you think the princess has ever endured hardship and strife or just a plain challenge that would have developed character and a personality?  Or do they just have legions of servants, maids and yes-men taking advantage of them for their wealth?  Heck, one could make a very good claim the Saudi royalty is inoculated against love because they aren't capable of it and nobody would love such boring, mindless, money-spending automatons. 

In short having unlimited wealth would be nothing less than sustaining an injury that would cause you to lose one of your senses.  You become blind, you become deaf, or you become paralyzed.  You can no longer "sense" value and therefore can no longer make wise decisions on how best to spend your life.  Worse still you lose your ability to determine what is important in life.

Fortunately, however, for you and me and most everybody else, we were brought up poor or certainly not "billionaires."  We've had to discern and judge value.  We've had to work for we got.  We've had to suffer and sacrifice, and thusly attach a value to our time.   Consequently we have richer lives than any Saudi king will ever have.

Enjoy this read?  Then consider buying "The Best of Captain Capitalism" or "Enjoy the Decline." You can also follow Aaron on "the Twitter."


jaericho said...

A fascinating post Cap. It gave me a lot to think about.

Anonymous said...

My husband has maintained a good relationship through the years with his thesis professor (civil engineering). A couple of years ago the professor was practically tearing his hair out dealing with a Saudi undergraduate. She was caught red-handed cheating on her lab work- handing in the material the next day when it would take days to actually complete the work, things like that. When confronted: full denial, her accusers were racist, how dare they call her a liar, etc. She was eventually deported for spitting on "infidels" at Wal Mart, IIRC. Saudi Arabia seems to prove that social dysfunction is independent of GDP.

Anonymous said...

In the star trek universe where everyone works to better himself, there are those who are incapable of getting any better because they have already exceeded their potential. The wealth and values of others have already elevated then beyond what they could achieve for themselves. Even in the Star Trek universe, The Enterprise only needs one captain.


Theo P. said...

I don't think that this is entirely accurate. True, those princesses don't have friends, but that's not because they have immense wealth, but because nobody else does. Wealth exerts a certain "gravity," just as we all fall toward the distinct center of this ball called Earth, all of those Mercedeses mysteriously "fell" thousands of miles in the direction of the Mayo Clinic when an immense wealth mass showed up there.

We throw away clothes because they have holes in them. We throw away glass jars because they're empty. They're simply beneath our notice. Somebody in a poorer society would sew up the holes, and certainly wouldn't throw out a perfectly good container. Thus, if we were all infinitely, "replicator" wealthy, then having any kind of stuff would be meaningless. Our skills and our relationships would be the only thing that separate us, because wealth wouldn't exert that gravity, and it wouldn't be worth it for laborers and yes-men to stick around and put up with that awful behavior for a chance at something they don't need.

CBMTTek said...

And that is exactly what is wrong with the entitlement/welfare state the liberals are pushing for.

Not having earned the "benefits" they receive, the obamanauts are perpetually unhappy. Much like the Princesses and Princes, the entitlement whores look to a wealthy father to fund their wasteful ways. Yet, they still remain unhappy.

Anonymous said...

Very interesting concept, worth exploring more if you feel like writing another book. :)

Fred Burroughs said...

:::clap clap clap:::

One of your best posts.

adiaforon said...

An excellent article, but nothing really new. It just underscores the fact that (extreme) wealth doesn't translate into happiness.

I've heard similar things said about Kuwaitis and other denizens of the oil-rich countries. They can buy anything and seem to want for nothing. Yet, what would happen to them then the oil dries up?

NorthBayTrapper said...

Nice post Cap.

Robert of Ottawa said...

One of your better posts, Cappy-cap. You are talking of VALUE, which has no meaning to the uber-rich.

Mike43 said...

My favorite story is from a Saudi National officer attending courses at Fort Benning.

He was seriously upset with his car that was broken, so he sold it for 1800 dollars. It was a new Pontiac Firebird.

The oil light was on, the car had 8000 miles, and it was never changed. We did try to convince him it was no big deal, but he insisted it was broke.

maxx said...

A very good point but it doesn't just happen with wealth. I remember years ago when Life Magazine published a picture of a drop of water splashing, frozen at the point of impact, it was the first time that anything like that had been captured and I could hardly take my eyes off it. Now with so many incredible images available on the internet I have become desensitised, it takes a truly fantastic photo before I'll notice. Their value has dropped. It must be the same in many areas of life.

C_Miner said...

As with all in nature, and elsewhere, there's a proper range needed for best results. Extreme poverty also stops people from enjoying life, and has large impacts on how much one can plan ahead. Concentrating on survival also deprives things of any value beyond "can I use this today to help me stay alive?"

It's like nutrition. Pick any ingredient in a multi-vitamin. Eat nothing but it, and you die. Eat none of it in any food source, and you die. It's not that it's a poison, it's that the dose isn't in the right proportion.

Breaker Morant said...

I was just on a hunting safari in Zimbabwe and my guide had previously guided a Saudi prince on a 21-day hunt in Botswana.

The prince had 3 new South African girls flown in every 3 days.

He also had forgotten his favorite hunting boots at home. So he sent his private jet on a several thousand mile round trip back to Saudi to pick them up.

No concept of Value.

The Sage said...

Several things glossed over in this -- the influence of the underlying nomad-pastoralist culture from which the oil princes emerged; the presence of massive wealth inequality that would be erased by ubiquitous Trek-style replicators; and the notion of satiability (see David Brin's musings on that topic).

If everyone was as functionally wealthy as the examples cited above, material scarcity abolished, the ability to command others out of your pocket change would evaporate. In a trek-like world, even the notion of waste would vanish -- only take one bite of a pizza? The matter can be recompiled into something else just as good later on, no problem.

The scarcity would move to intangibles, like relationships with other people, and ultimately to ones own finite lifespan.

Anonymous said...

This reminds me of a Tony Dungy speech I once read. Apparently, one of his sons, Jordan, is incapable of feeling pain. As a result, they have to make accomodations for him. Some people think that not feeling pain might be a 'gift'. Dungy assures us it is anything BUT a gift. Without pain, you run the risk of burning your hand or cutting a finger on a knife and not only not realizing it (potentially dying), but also you lack the ability to realize you need to avoid it in the future.
Pain helps us categorize information, and helps us grow and manage our ability to determine what we can and should do.
Value carries the same role in life. We learn value through painful lessons, not lessons which benefit us. If all we did was benefit, then we'd have no idea we were really benefiting! What if you won at the card table every time you played? Sounds great, right? It's a classic Twilight Zone episode, though, when the gangster wins all the time and gets all the girls and eventually realizes he's in Hell, not Heaven.

Anonymous said...

To C Miner:
Extreme poverty doesn't deny people the ability to enjoy life. What they enjoy, they just enjoy differently and cherish more.
I was never in extreme poverty, but I grew up very poor. If I said I had a horrible childhood, I'd be lying. My parents taught me to value important things, and one of them was knowing how to have a good time.
I'd say extreme poverty limits your ability to have a wonderful, fantabulous, outrageous life and travel the world. But it doesn't mean you don't enjoy it. In truth, it means you enjoy the good times all that much more.

When I was younger, my favorite meal was roast beef and I looked forward to my birthday every year because my mother would get it. It was the ONLY time I'd get it. Today, I'm not much of a roast beef fan. It's tougher than I remember, and not as flavorful. But I remember my birthdays still, even if the food isn't as good as I once thought it was.

Poverty isn't a good thing, I don't recommend it. But to say it's impossible to be happy is flat out wrong. Happier times are fewer and far between, but you remember them well and forever.

Bike Bubba said...

Well said. A couple of "lack of sense of value" things I've seen:

A former girlfriend of my brother didn't change the oil on her new car for 30k miles. Five oil changes later punctuated by short drives to mix it up, the new oil was still black. Trust fund baby, Yalie, etc..

A former girlfriend of my cousin would receive checks from her father, who foolishly supported her, and just leave them out and not cash them.

Scarcity is your friend....

Thin-Skinned. said...

For people from more modest means and humbler backgrounds, arrogant fat Yanks look an awful lot like the Saudi princesses.

Recently I asked an immigrant to America (from China) what the Chinese think about us Americans.

He thought for a moment - probably not about what the answer would be - but rather how to put it politely for a round-eye like me.

He said they judge us to be spoiled and lazy, but he hopes that his family can flourish in American prosperity so that his grandchildren can be spoiled as well.

Mr. Clarey,

This was perhaps your best contribution yet. I like reading your work even if the tone at times seems a bit adolescent and more resembles the flip attitude of the snarky commentary all too common to our era.

You're a bright guy and perhaps I'm not alone in wanting to take you more seriously if you didn't lower yourself to that level.

Captain Capitalism said...


Thanks for the compliemnts, but I have to fight on the level my enemies do. I'm no Dennis Prager, I don't have his patience.

black mamba said...

Captain, I hope you don't mind my taking the liberty of linking this post over at Blazing Cat Fur. It's quite fascinating.

Wes Walker said...

Hey Cap.

Great piece. I'm linking to it over at Clashdaily.

Keep up the good work.


Bike Bubba said...

Another example; pro athletes, who usually end up bankrupt within a few years of retiring, if not sooner.