Why The Lack Of Scarcity In Economics Is Getting More Important Now

from the thank-you-Mr.-Internet dept

Thu, Dec 14th 2006 1:19pm — Mike Masnick

I've been on the road this week, so we'll have a shorter post continuing the series of posts here on Techdirt about economics in the absence of scarcity. Since some people have asked for a bit of a guideline in terms of where the series is going, or how long it will take, the rough estimate is that we'll finish up the basics in January -- though that could change depending on the conversations we have here, or perhaps things in the news.

One of the points that a few people have brought up in trying to dismiss this whole explanation is that what we're talking about is nothing new. Of course, that's exactly what we noted in that very first post (linked above). It's not new at all. It's not about a different kind of economics at all. It's simply about applying traditional economics into an area where it's not as easily (or intuitively) understood -- in part because traditionally economics has been taught as being about resource allocation in the presence of scarcity. Economics students aren't taught to look at situations where scarcity is absent, and there's an implicit assumption that economics breaks down in those cases or doesn't apply. However, all that really represents is confusion that results from a "zero" being thrown into the basic economics equations. Once you understand the zero, basic economics applies. So, no, we're not really talking about anything new -- but we are explaining why the economics that many think breaks down at a certain point, actually works fine.

But why is this conversation happening now? Why has it become a bigger issue recently? Some have argued against my posts on this topic by saying that the system and business models we've had in place have worked for the past 200 hundred years, so why tinker now? The reason we tinker now is because the market has changed (and continues to change), and it's removed the scarcity in places where it once existed -- and that's going to put tremendous pressure on existing companies. If they don't change, they'll be wiped out.

But, why has the market changed? That's easy: the rise of computers and the internet. The increasing digitization of so many parts of our lives (moving atoms to bits, in the words of Nicholas Negroponte) has wiped out scarcity in a number of markets -- and it's only just begun. Amazon used the web to wipe out scarcity on book store shelves. Netflix did the same for rental shelves. Those are the obvious examples that have direct comparisons, but there are many that are not direct, and even trickier for traditional industries to deal with. Napster and its followers showed how scarcity in music could be wiped away. YouTube has been doing the same thing for video content. TiVo, by introducing the world to easy time-shifting, has shown how scarcity in the TV schedule can be wiped away. There are thousands of other examples, and more and more are happening every day. It's the type of thing that will impact an awful lot of industries that don't see it coming -- which is why it's important to understand the economics of what happens when scarcity disappears and you're forced to shift your business model.

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23 Comments

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dorpus, 14 Dec 2006 @ 1:42pm

Plenty of Scarcity
I just flew into Tokyo from Alabama 10 hours ago. I'm enjoying all the things that are either rare or non-existent in Alabama -- high quality Japanese food, porn, onsen with my girlfriend, you name it. These things cannot be ordered over the internet either.

In another two weeks, I'll miss the fried chicken and wooded scenery, so I'll go back.
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misanthropic humanist, 14 Dec 2006 @ 2:01pm

abundance scarcity and value
Onsen? Is that what they call it eh? Well have fun Dorpus.

I'm really glad Mikes holding this idea up to the light. It's a philosophy close to my own way of thinking - or at least I've mentioned it before.

It's the computers you see. That information has value and that information is infinitely replicatable at no cost is both contradictory and profound.

What rang the bell for me was the obvious connection between the failing music business and the ridiculous legislation needed to support the old model, and the equally absurd notion of creating finite resources (and so keeping value) in a virtual online world.

This discussion is also 2 centuries to early...but once we become a space faring species (if we ever make it) then every economic model and everything we know about economics up to that point will cease to be relevant.

There's also some kind of disturbing irony or clash too, that simultaneously with us having to come to terms with the economics of abundance we are facing an era of real physical scarcity vis oil/energy - and yet (Physics Guy you may correct me) energy is the most abundant thing in the Universe, if only we could get to it.

Kinda weird stage of history to observe.
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Anonymous Coward, 14 Dec 2006 @ 2:39pm

Re: Plenty of Scarcity
your comprehensive abilities continue to astound me. The post says that scarcity has been removed from places where it once existed. That does not imply scarcity has been removed from everywhere.

Beyond that, how can you say you can't get porn in Alabama when you're CONNECTED TO THE INTERNET.
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violarola, 14 Dec 2006 @ 3:01pm

Interesting. How will this effect service oriented products, such as massage, valet parking or security guards?
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violarola, 14 Dec 2006 @ 3:02pm

Re:
affect
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J, 14 Dec 2006 @ 3:16pm

A huge example of the many thousand other examples is EBAY. EBAY made antiques easily attainable making the rare antique at your local store not so rare. Ebay alone completely rewrote the price people paid for many "rare" items which you could now just click and purchase. Instead of spending years searching for and paying whatever was charged for.
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josh, 14 Dec 2006 @ 3:17pm

scarcity as a product of human doubt
misanthropic humanist made a point more correct than we all may realize at this point. In fact, not only is energy the most abundant "thing" in the universe, it is the only "thing" at the basest of levels. All matter is energy, as Einstein so elegantly expressed with e=mc^2

the direct correlation between matter and energy is not abstract or somehow separate from our observable reality, it is inside, outside, all around and comprises the very fabric of that reality. Just because our senses can't readily interpret the pure flow of energy in the universe does not mean it doesn't exist.

To respond to misanthropic humanists' comment "if only we could get it" - we can! It is literally all around us constantly, although the methods for capturing and storing the energy may need to evolve, that bears no weight on the fact that the opportunity to do so is ever-present...
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also, 14 Dec 2006 @ 3:17pm

"Beyond that, how can you say you can't get porn in Alabama when you're CONNECTED TO THE INTERNET."

Also, in Alabama, you also need to decide if it is your sister or your girlfriend. Can't be both.
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Stu, 14 Dec 2006 @ 3:17pm

The absence of scarcity can't apply to everything.

I don't think that Mike meant to say that it did/would.
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Stu, 14 Dec 2006 @ 3:19pm

"sister or your girlfriend. Can't be both."

Gee, I always heard that it could be both in Alabama.

JUST KIDDING!!!!!
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Debora, 14 Dec 2006 @ 4:06pm

Lack of Scarcity
Would the work surrounding natural monopolies equate at all to these new industries?
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William, 14 Dec 2006 @ 4:32pm

Scarcity
One the reasons that DVD took off so fast was that you did not have to watch Previews and now there are some DVD players that force you to watch Previews and will not even let you fast forward through them. When cable TV first come out there were no commercials. And the internet is a giant flashing neon sign for Viagra and "natural male enhancement". All technology has done is allow companies to bring ads to us faster. And while there is a growing nich market for products that block them. The war will never end.

But you are right only the smart and nimble companies that are able to adjust there business plans to employ the latest technology will survive.
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Anonymous Coward, 15 Dec 2006 @ 3:29am

Re: Re: Plenty of Scarcity
The post says that scarcity has been removed from places where it once existed. That does not imply scarcity has been removed from everywhere.

As could be said of any other technology before the internet. In other words, it has only put a small dent in true scarcity. True scarcity continues to overwhelm us, but people deny its existence by claiming it is impossible.

Beyond that, how can you say you can't get porn in Alabama when you're CONNECTED TO THE INTERNET.

Because there are much better options for porn that isn't on the internet. However, the availability of such goods is too scarce for most people to notice, so most people deny its existence.
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DoxAvg, 15 Dec 2006 @ 4:11am

Collected works on Scarcitylessness
Mike - I've been away from the internet on and off, and I think I've missed an installment or two. Could you create a list o' links somehwhere to the posts you've made on the subject? It would be a handy place to point folks when we're discussing this over Ye Olde Watercooler
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Jane Q. Public, 13 Feb 2007 @ 12:37am

Zero does not *really* apply.
While Mike might be exaggerating slightly to make a point, the fact is that "zero" does not actually enter into the picture here. Marginal costs of creation and distribution have become very, very small, but to say they are or will be zero is a distortion of the truth. We are not really talking about zeroes here at all, but rather about very small positive numbers.

The difference might be small, but it is important. One hundred million times 0.01 is not an insignificant amount, and it could be the difference between the success and failure of a given enterprise.
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Jane Q. Public, 13 Feb 2007 @ 12:49am

"J" Is Mistaken
J stated: "... EBAY made antiques easily attainable making the rare antique at your local store not so rare. Ebay alone completely rewrote the price people paid..."

This is simply not true. EBAY did not change the actual scarcity or abundance of goods. The only thing it changed was the knowledge of its users about that scarcity or abundance. Expert antique buyers already had that knowledge, and would not have paid the inflated prices of the local stores anyway.

So all Ebay did was to increase the knowledge that lay people knew about the market. It did not affect scarcity at all. If you paid too much at somebody's garage sale, then you should have done better research.
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ericnelson-thrash, 21 Oct 2007 @ 3:24pm

Why Post Scarcity Has Been Recieving Attention
you asked why post scarcity economics has been recieving attention "lately"?

a. in 1999 Permaculture Activist published an editorial in which its said that 51% (the key number in discussing "infinity" or whatever rather than zero) of the Profits at the largest American Banks come directly or indirectly from currency speculation (at 51% not any longer arbritrage) and that the largest corpoartions spend 97.5% of their daily internation financial transactions on such speculations)

b. so we activists started getting up every single day and night and kicking their ass! Non stop!
the OC beginning. (i.e.,heteroglossia)

C the finally broke down beyond the "tea pot debacle" and the "as if essence programming" of our revolts and printed one of our notebooks on the cover of the New York Times Magazine Year in Ideas (12/12/040

with the equation "T -1= R", here summarized, of time at -1% equals the rate of interest (published of course without the concommitant environemtal criteria, roughly summarized as giving a reversal through funding against 6 dollars of environmental destruction for every dollar of profit, a statistic found in the State of the World 2000, Worldwatch Institute)

you have the only site I have found that would even discuss such forbidden speech so perhaps I will write again communicate some of our concerns, considering commeration, its by and of the peoples nature, and of the decades , centruy or more we feel it will take to fully explicate the potential of a "pure economics." What is -100% interest anyways?

sincerely
eric nelson thrash
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kiki jones, 13 Dec 2007 @ 10:20pm

Opportunities For Abundance
If you flip some of the words around a bit... the absence of scarcity is an economy of abundance though largely this has so far meant practicing with information abundance. One material result is that with seemingly unlimited suppliers, many have begun to open up to new ideas about what and how they consume. I still wonder if all of this information activity will result in material changes for people with few resources. It's just not possible to consider other factors when your source for stuff has no competition-- and it's similarly difficult to 'qualify' as audience if you can't buy a ticket. Meanwhile, the 'haves' are definitely making changes in how they choose. Prosumers, green buyers, conscious buyers, local source advocates, localvores... we're now having to exert some thinking about which category of choosing behavior we'll inhabit. Please let us all agree here and now that we should never agree on a single term for 'new consumption' habits because if we define it and name it... it'll get shoved down our throats like 'hyperlocal' and 'Web 2.0' as unwanted advertising faster than you can say dangedallabibble.
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Karma Denominator, 26 Dec 2007 @ 11:29am

Re: Why Post Scarcity Has Been Recieving Attention
Eric Nelson did verily "thrash" J.'s face, in a drunken rage and unprovoked and unwarranted attack, sending him to the hospital and leaving him to live with a scar under his eye. He's soon to be persona non grata in his hometown. If he values his liberty, he'll leave the state entirely.
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glenn, 3 Apr 2008 @ 11:43pm

Re: what does scarcity imply?
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glenn, 3 Apr 2008 @ 11:43pm

Re: what does scarcity imply?
what does scarcity imply????
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moorote, 31 Jan 2009 @ 4:35am

Scarcity not zero - just in smaller, other terms
IN response to glenn, Scarcity implies the opposite of infinite - i.e. that something will always eventually run out. It doesn't necessarily mean scarce to the degree meant when the word is used like "water is scarce in deserts". The most abundant things can be "scarce" simply because they will run out. Scarcity makes it possible for people to appreciate the value of things, and thus put prices on them depending on demand.

"Wiping out" scarcity is just making it very not as scarce. It doesn't make things infinitely abundant.

But could it just be that the demand is shifting away? Because people know that the cost of "digital media" is hardly worth what the hard stuff used to be worth.

Someone always provides the goods. It's just that more and more of the people they sell it to are more prepared to share the stuff they buy with a wider range of people now than before digital media came along.

Is sharing that bad?

(Yes, say the DRM dealers, we WANT OUR CUSTOMERS BACK!)
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aglynn (profile), 6 Jan 2012 @ 4:41pm

It's not simply a matter of removal of scarcity.
Technology has always revealed things, as Heidegger pointed out, in terms of their resource value. Things can be revealed in plenty of other ways, but by being viewed as resources exchange values can be applied to virtually anything. This mode of showing of course eventually was applied to human beings themselves, and "human resources" came into existence.

This holds fine while "technology" refers to the network of meaningful relations between technical things, something that was true until technology succeeded in containing its own context and being able to replicate that context, as the general purpose computer and even more so the internet can and do. Removing scarcity from the economic landscape in certain areas is only one effect of the "system" of technology becoming easily replicable to any arbitrary number of systems.

At that point it is precisely the view of something as a resource, with a concomitant exchange value, that becomes irrelevant. What can be given an exchange value is what is equivalent between multiple instances of a type of item, but if that item can be replicated at will the exchange value becomes infinitely small. Worth as opposed to value, on the other hand, refers specifically to what is unique to a given instance. A live concert is still *worth* something because the experience is unique for each person at that specific time and place.

As another example, the laptop I'm typing on, as it came from the factory, has a very minimal exchange value, particularly when you compare it to what that value would have been, were an equivalent available, fifteen years ago. However as it came from the factory it had nothing unique about it. Having spent plenty of time setting it up to work the way I want it to work, much the way a carpenter might set up his workshop, it's *worth* to me is far greater than its exchange value.

This type of change will affect more and more industries due to the qualitative change from a technical artifact being a tool, to its being a personal, customized network of tools; a workshop, not a hammer. That's what we've let out of Pandora's box, and the battle to stop factories will look like it should have been easy compared to the difficulty people will face trying to stop this revolution.

Industries that are based on selling things with a predictable exchange value now have to face the difficult challenge of providing worth to their customers. Being unique, worth is inherently less predictable, and inherently more difficult to judge, and the corporate configurations of most current businesses will not prove flexible enough to weather the change. Which means of course that newer, more flexible models of doing business will inevitably wipe out most of today's big business, just as they did during earlier periods of significant change.
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