The Illusion of Scarcity

(continuation of previous post on ET1%: Blindfolds Created by Economic Theory); see also, related post: The Logic of Artificial Scarcity – by Jason Hickel

Economists have performed an amazing piece of magic, successfully creating a mass deception which has taken in the vast majority of the population of the world. Seeing through this complex and sophisticated trick requires separating, studying and understanding many different elements which all combine to create this illusion. One of the elements is a binary theory of knowledge, according to which theories are either true or false, and this is the only characteristic of theories that we should study. This prevents us from looking at the historical context in which the theories originate, and the functions that these theories serve, in terms of advancing the interests of powerful groups in the social struggles then going on. Social theories cannot be understood without this context, and hiding this context, and the relationships between knowledge and power, is an essential component of the WMD — weapon of mass deception — deployed by the economists to create a mass hallucination. In this post we analyze briefly the concept of Scarcity, which is at the heart of modern Economic Theory.

According to this concept, which was made central to Economics by Lionel Robbins in 1932 (Nature and Significance of Economic Science), there are not enough resources to satisfy the unlimited needs and wants of all people. Accordingly, solutions require increasing resources, or economic growth.  On the surface, this seems like a straightforward statement of the factual position: we need more resources in order to take care of the needs of the poor. Hidden beneath this simplicity is a strategy which is massively favorable to the interests of the top 1%. We bring out some of these hidden implications below.

1.     Failure to Distinguish Needs and Wants

Food supplies per capita have been steadily increasing over the past century, contradicting the Malthusian idea that population grows faster than food supply. In fact, as Gandhi said, “There is enough for everyone’s need, but not enough for everyone’s greed.” Today, there are sufficient resources on the planet to amply take care of the basic needs in terms of food, clothing, housing, health and education.  In particular, the money being spent on treatments for obesity is more than sufficient to provide for all the hungry on the planet. This illustrates the general principle that scarcity for some is caused by excess spending by others, and NOT BY LACK OF RESOURCES.  Concentration of wealth in a few hands is the cause of scarcity, and re-distribution, not growth, is the solution.

My paper on “The Normative Foundations of Scarcity” explains how three separate normative principles are built into the hidden foundations of scarcity. One of these three principles is treating needs and wants as being on par; for example, Samuelson and Nordhaus state the economists must strive to satisfy all needs and wants, whether they are genuine or artificial. This means that the desire of the millionaire for an alligator skin briefcase worth $10,000 dollars takes precedence over the demand of poor hungry children for milk and bread, since there is no money backing the latter demand. Furthermore, while genuine needs are satiable, and there is no shortage of resources to provide for all needs, wants are unlimited, and expand as they are fulfilled.

Islam prohibits, rather than encourages, fulfillment of artificial wants (idle desires, or Hawa). This is in direct opposition to Economists views, which tell us to not question or investigate the origin of wants, and treat them all equally.

ET90%: Genuine needs must be distinguished from, and given priority over, artificial wants. The fundamental problem of economics should be: how can we fulfill the (finite, satiable) basic needs of the entire population, rather than attempting the impossible task of trying to fulfill the insatiable wants of those with wealth, especially since these wants keep increasing as they are met.

Islamic principles are aligned with finding from happiness research that additional consumption over the level of basic needs has no correlation with happiness. Conventional economics embodies the ridiculous view that the purpose of our lives is to maximize the pleasure we obtain from consumption. In fact, consumption is just a necessaity for maintaining our lives, and lasting pleasure and fulfilment comes from pursuit of higher purposes. This is recognized by the Mahbubul-Haq and Amartya Sen theories about Human Development as being the goal of development.  For elaboration, see short post on “the Coca-Cola Theory of Happiness,” or the longer explanation in “Prosperity as Human Development, not Wealth“

2.     Emphasis on Growth rather than Redistribution

By pointing to shortage rather than excess wealth in the hands of the top 1%, scarcity points us in the WRONG direction regarding how to solve the economic problem. It suggests that we need to have additional resources, in order to be able to feed the poor. This ignores the fact the we currently already have enough resources to feed the poor, so the solution must lie elsewhere. It also ignores the fact that amazing growth has taken place over the past century, but the number of the poor has only increased, rather than decreasing. This is because the majority of the fruits of growth are captured by the rich and powerful, rather than going to the poor. For instance, recent research shows that 85% of the gains in growth have been captured by the top 1% over the past decade, while the bottom 50% have not gained anything.

Amartya Sen’s analysis reveals that famines are caused by lack of “entitlement” of the poor to food, rather than lack of food. Thus it is not scarcity, but the libertarian social norms of absolute rights to property, which need to be changed, to solve the problem of poverty.  The fundamental normative choice which must be made is the following: which of the two takes precedence, the right to property or the right to food and basic needs? Economists have sanctified the right to property over the right to food in the form of the Pareto Principle, and assert that we cannot say whether welfare would be improved if we take wealth away from the ultra-rich in order to feed the hungry. However, there are many ways to argue that the right of the poor takes precedence. For example, Cooter, R. and Rappoport, P (1984) ‘Were the Ordinalists Wrong About Welfare Economics?’ Journal of  Economic Literature, 22 (2) June, 1984, pp. 507-530 argue that we can use objective measures of well-being to show that transfers of superflous wealth of the super-rich to those who need it would lead to increased social welfare. Cardinal utility allowed for this type of reasoning, but ordinal measurement led to the idea that we could not compare welfare across persons, which violates both intuition and social consensus to the contrary. We can base a counter to ET1% on this idea.

ET90%: The responsibility of society to take care of basic needs of all members takes precedence over the right to property of the wealthy.

This principle is firmly endorsed by Islamic Economics. The Quran states that the poor have a right in the wealth of the rich, creating the “entitlement” that is identified as the key to prevention of famines by Amartya Sen. The cause of scarcity is the “stoppage” of the circulation of wealth, as commanded in the Quran. When the wealthy concentrate wealth in their banks, instead of allowing its free circulation, they prevent it from reaching the hands and mouths which need it. Islam offers a two pronged carrot and stick approach to the root problem which creates scarcity:

1. The compulsory payment of zakah at the rate of 2.5% ensures that a small part of the wealth concentrated in hands of the rich should reach the poor.
2. In addition, generosity is recognized and praised as a virtue, and the rich are encouraged to spend excess wealth on others who are needy.

It is well known that human behavior is strongly motivated by social recognition, and so recognition and praise for generosity create such behavior, which is an essential component of the solution to our economic problem. In fact, as explicitly recognized by Karl Polanyi in the Great Transformation (see also Gertrude Himmelfarb’s The Idea of Poverty), the market society creates poverty as a social problem by removing the entitlement of the poor to social support, so as to  create a labor market. This requires changing social norms so that selfishness and greed become praiseworthy, while generosity become irrational sentimentality. Solutions to problems of poverty require recognition of the subtle inculcation of pro-property and anti-poverty norms, without explicit mention, in ET1%. This conforms exactly to the necessity of deception to fool the poor into supporting ideas which favor the wealthy, which is the hallmark of ET1%.

3.  Scarcity Versus Abundance Thinking

A diverse literature has emerged from different sources which identifies scarcity as a way of thinking, rather than an objective condition. This is the familiar issue of whether the glass is half full or half empty. The insights from this literature conform to the Islamic view that “True richness is the contentment of the heart”. A rigorous analysis of how the psychology of scarcity affects our behavior and decisions, is given in Mullainathan, Sendhil, and Eldar Shafir. Scarcity: The new science of having less and how it defines our lives. Picador, 2014.

A conscious decision was made in Western societies to encourage greed, so as to create the accumulation of wealth. For instance, Keynes said that:

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.

Keynes believed that sufficient would remove the problem of economic necessity, and lead to economic bliss. However, both empirical evidence and Islamic teachings show that this is not true. Surveys of millionaires show that they do not feel they have sufficient money for economic security. The Easterlin paradox shows that massive amounts of growth has not led to increased happiness. The reasons are simple. As wants are fulfilled, more are generated, since people seek to improve upon the average level of consumption. As stated in Islamic teachings, if you give a man a valley of gold, he will desire another one. Nothing will fill his stomach except the dust of the grave.

Once the psychological nature of scarcity is understood, the remedies for the problem take a radically different shape from those currently being pursued all over the globe. The following measures to handle scarcity are all in harmony with Islamic teachings and would form the basis of an ET90% designed to oppose ET1%

1. Encourage Abundance thinking. For example, the Quran says that the Lord has provided bountifully for all.
2. Prohibit envy, and prohibit conspicuous consumption — both of these steps are contained in Islamic teachings.
3. Prevent excessive consumption (called israf and tabzeer in Islamic teachings), and encourage simple standards of living. This will prevent the rat-race for ever increasing living standrads, wihch causes harm to all.
4. Encourage gratitude for the blessings we enjoy, and the feeling of contentment. Encourage generosity, which creates the feeling of abundance.
5. Encourage social responsibility for each other, fostering cooperation and community, which creates social networks which are the source of comfort and support, creating psychological security.

For a more detailed discussion of Scarcity from an Islamic perspective see Scarcity: East and West Journal of Islamic Economics, Banking and Finance, Volume 6, Number 1, January-March 2010. p. 87-104. For a secular discussion of how the concept of scarcity appears objective, but conceals within its framework three different questionable normative judgments, see my paper on “The Normative Foundations of Scarcity“

POSTSCRIPT: Very interesting article by Jason Hickel on: De-Growth, A theory of radical abundance. Hickel argues that capitalism must massively overproduce. In order to be able to SELL this excess production, it must CREATE the feelings of scarcity using advertising and other techniques to make people unsatisfied with what they have, so that they are persuaded to buy more goods. Thus SCARCITY is created by capitalism.