Sunday, November 25, 2007

Understanding Scarcity

Back in February of 2006, a friend and I were exchanging emails about the run-up in fuel costs and Hugo Chavez blasting the U.S. for one thing or another. He said that it seemed ironic that the media and the government were doing everything possible to promote fear and anxiety. And that got me thinking: in economics, fear amounts to scarcity, and scarcity leads to speculation. That led me to scribble a few lines about the concept. Now, as we look into the face of $100 oil, or as we fight for that popular Christmas toy, I think it is a bit poignant to revisit that email, particularly because scarcity is a genuine part of all of our lives.

Well, yours is a valid point, insofar as markets' prices are based on scarcity. If you heighten fears of Middle Eastern terror, or if you tell the world that crippling storms will debilitate the Gulf, then you can run up oil prices on fears of scarcity. If you build a robot that can do everything, and then say "...while supplies last", then you can create chaos, and drive up prices on this robot 100%. (Even though you have an extra 60,000 sitting in a warehouse in New Mexico. LOL.) That has been the name of the game since the dawn of man.

Scarcity drove the need for greedy Romans to conquer more and more lands and, more importantly, to control their resources for the Glory of Rome. Scarcity led avarice Europeans to kiss off the Ottomans, and to find new sea routes to The East, accidentally discovering a whole new hemisphere. Scarcity led to the justifications for empire building by those same Europeans, and they instituted harsh mercantilist practices to control the resources of colonies. Scarcity led men to overthrow kings and set up democracies, all in the name of the individual. Scarcity led us to push west, and to stomp a host of indigenous peoples in the process. Scarcity led to the need to for innovation---for faster transportation, for better communication, for viable infrastructure, for an Industrial Revolution. Scarcity led men to plunge head on into stocks of early companies, creating (adversely) over-investment in oil, railroads, steam vessels, and telegraphs. Scarcity led this nation to civil chaos, when an industrial North demanded that its Southern brethren modernize for the sake more production ("...and, by the way,” said the Yankees, “get rid of the slaves”). Scarcity led to the first wave of globalization, in the age of Victorians, which led empires to dispute over territories and colonies and spheres of influence, and then led to WWI. Then scarcity led to the Roaring 20's, a good life of over-abundance, financed by one bank after another, willing to build a house of cards. But then real scarcity took the roar out of the bull and killed it with depression, a great one, when we suddenly realized that there was really no money. Scarcity led decent men and women in a battered country to seek salvation in a madman that promise a "fatherland" and the ascension of a master race, all built on the backs of the enslaved, inferior races. That scarcity led to WWII. And then, when that was over, scarcity led to the ascension of America to fill in the void of leadership left in the devastated world. Scarcity propelled the Organization Man into the suburbs and transformed him into the Hydrocarbon Man, according to Daniel Yergin, while also encouraging his black and Hispanic brothers to step to the front of the bus. And then scarcity led disadvantaged Muslims--who knew their land was rich, while they continued to live in dirt--to cry fowl, kick out the oil companies (and some of their own rulers), and set up their own systems of government. Scarcity created the oil shocks, Enron (and, boy, did it!), global terrorists, Patrick Buchanan, and the Bush family...But it also created some good things, too: progressive schools systems, new sciences and medicines, your big screen television, Starbucks, and wonders like the human genome project.

Fear, especially the fear of never having enough, has always driven men forward. It has brought out the best in us, leading some men with a thirst for knowledge to seek education, or others with a thirst for redemption to seek salvation. But it has led to some of our worst aspects---crushing debt, the horrors of war, and the sacrifice of morality...It is important that we do measure what is legitimately a fear and what is hype---lest we fall into situations where we deprive others, due to our own misunderstanding (anti-immigration movements here and in the EU); lest we allow fear to taint us in ways that do not go away (the Rwandan genocide); lest we even allow fear to suspend our rights (the Patrol Act)...

The premise: truly know your enemy, and you will be surprised to learn that it is not whom you think. More often than now, it is fear, residing and stirring deep within us. And it often takes control of us via our immature emotions for fight or flight.

And by the way, I can understand your grievance, insofar as we do give so much charity on the global stage, but we also benefit far more greatly than most from what this global has to offer, as well. I don't want to sound like some leftist, but I would contend that, when compared to most non-Western countries, our import-to-charitable giving ratio is proportionally lower than it should be. Indeed, we do not even do enough for our own communities, much less the world.

This is no justification for anti-American sentiment, but this is to say one thing, if we all truly want the world to respect us, we have to rally behind globalization and trade as mechanism for improving life and moving people out of abject poverty. This means no superficial deals flanked by other trade barriers. We will let down the walls, nearly completely. We will let the Brazilians grow and export their crop; we will let the Africans do whatever they do best (aside from make internal strife); and you let the labor markets integrate. Then we will allow competitive advantage to set in and dictate market prices on everything from sugar to consulting services, from grapes to Perry Ellis knits. Everyone will benefit from an idealist, pure capitalist system. And guess what? No two countries with McDonald’s---or, as Friedman said, an integrated supply chaing---have every attacked each other. The people were too busy trading and growing together.

The problem here is that, with such statements, Americans get scared. We have grown too complacent for any real competition. Thousands among us will be unable to compete with counterparts from cheaper markets. But, in order to ensure the betterment of the whole world, economic prosperity is the only way. (That is something understood by reactionaries in the Middle East who cling to old religions, and blow themselves up in restaurants or hotel or on planes. And it is something that is understood by our own Luddites who toss on white linens and scream “White Power!” This is also driven by fear—the fear of not having enough.)

But, for the USA, this global competitiveness is not bad. The only way we can remain a leader is to remember what made us leader to begin with: scarcity. The irony is that, through scarcity---through a fear of being duked by the world---we will be at our best, be/c we will have to out innovate the rest of the world, or perish.

That sounds like the words of a Social Darwinian, but they are true. And here is the catch: the only thing that I will remind you is, even as we innovate ourselves into tomorrow, we must definitely protect those too weak, too old, or too defenseless to protect themselves today. (If not, expect to see more scenes like those from the streets of New Orleans or Los Angeles or Lagos or Kiev).

And so---embrace change, innovate for our own betterment, and provide charity to all men...and innovate some more.

Matt 5:16

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