Material Goods as an Abundant Resource

If you want to un­der­stand the mod­ern econ­omy, as op­posed to the economies of yore, one source I strongly recom­mend 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.

In terms of con­straints & slack­ness: con­straints in­volv­ing ma­te­rial goods are go­ing slack, across the board. We’re ap­proach­ing a post-scarcity world, at least with re­spect to most ma­te­rial goods.

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.

Why? Be­cause ma­te­rial goods are not the only eco­nomic con­straints. If a me­dieval book-maker has an un­limited pile of parch­ment, then he’ll be limited by the con­straint on tran­scrip­tion­ists. As ma­te­rial goods con­straints are re­laxed, other con­straints be­come taut.

So… what gen­eral kinds of con­straints be­come taut, in a world where ma­te­rial goods are cheap?

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 many goods. That’s be­cause, no mat­ter how much pro­duc­tion costs fall, no mat­ter how low ma­te­rial costs drop, we can’t du­pli­cate in­tan­gible value—in par­tic­u­lar, we can’t du­pli­cate so­cial sta­tus. Ma­te­rial goods con­straints go slack, but sta­tus con­straints re­main, so they be­come taut.

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.

In­ter­est­ing claim: 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.

The way out, of course, is to re­lax the con­straint on sup­pos­edly-zero-sum goods. In other words, find a way to pro­duce net sta­tus. Two im­por­tant points:

  • We’re talk­ing about re­lax­ing an eco­nomic con­straint—that’s what tech­nol­ogy does. In this case, it would pre­sum­ably be a so­cial tech­nol­ogy, though pos­si­bly with some me­chan­i­cal/​digi­tal com­po­nents.

  • As­sum­ing we buy the ar­gu­ment that sta­tus con­straints are taut, we’d ex­pect sta­tus-pro­duc­ing tech­nol­ogy to see broad adop­tion.

In par­tic­u­lar, var­i­ous peo­ple have noted that net sta­tus can be pro­duced by cre­at­ing more sub­cul­tures, each with their own sta­tus-mea­sures. The baris­tas at SightGlass coffee have very high sta­tus among hip­sters, but hardly any sta­tus with economists. Janet Yel­len has very high sta­tus among economists, 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. As long as hav­ing high sta­tus in the cul­tures one cares about is more im­por­tant than low sta­tus in other cul­tures, that’s a net gain.

Based on this, we’d pre­dict that sub­cul­tures will pro­lifer­ate, even just us­ing already-available sub­cul­ture-pro­duc­ing tech­nol­ogy. We’d also pre­dict rapid adop­tion of new tech­nol­ogy which helps peo­ple pro­duce new sub­cul­tures and sta­tus mea­sures.

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 fifty years ago.

Conclusion

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

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 (via con­straints, slack­ness, and prices). 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. Sta­tus games be­come more im­por­tant. Poli­ti­cally, less ma­te­rial scarcity means more in­vest­ment in cre­at­ing ar­tifi­cial scarcity, through poli­ti­cal bar­ri­ers to mar­ket en­try.