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
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?
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.
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:
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.
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.
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.
Great series! I broadly agree with it and the approach. However, this post has given me a vagueish "no matter how many things are abundant, the economic rat-race is inescapable" vibe which I disagree with.
"... 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"
I see the idea here but I disagree with it. I'm a human for goodness sake! I eat food to stay alive and to stay healthy and for the pure pleasure of eating it! Neither my time nor my money is a worthy trade-off for special unique food if it's not going to do any of those things significantly better. I grant that there might be a niche market for this kind of thing but, the way I see it, being free of the need for material goods will free people from the rat-race: It will let them completely abandon their existing financial strategies insofar as those strategies were previously necessary to keep them alive.
This is what the FIRE community does. They save up enough money so that they only participate in the economy as much as it actually improves their lives.
Broadly speaking, I agree with the description here of economic supply chains as a sequence of steps (ie potential bottle-necks. But, in general, I perceive these sequences of steps as finite. For example, the book-maker has unlimited parchment and is then limited by transcriptionists, so the book-maker automated transcription and is limited by books, so the book-maker automates writing (or it turns out the number of writers wasn't a real bottleneck) so what then? Bookstores are shuttering. I have the internet and the last time I handed money to anyone in the book-making supply chain was because I wanted something to read on the plane.
Again, maybe there's a niche market for more unique books or more elegantly bound collectible books but that's a market I can opt out of. It's superfluous to me having a good life.
I didn't get my college degree to signal social status. I got it because I wanted to get a nice job. I wanted to get a nice job so I could get money. I wanted to get money so that I could use it towards the aim of having a fulfilling life. Give me all the material goods and I would've probably just learned botany instead.
So, to me, college degrees (and other intangible badges of achievement) haven't become the things they are because of abundance, they've become the things they are because social status will be instrumental to gaining important life-enhancing things for as long as those things are not abundant.
Social status might be vaguely zero-sum but, beyond a couple friends, it's not critical for living a good life. Given the tools to live a good life, I imagine many people just opting out of the economy. I'm not going to work for eight hours a day to zero-sum compete for more social status alone.
But given that things have in fact become way more abundant, why haven't we seen more of this opting out happening? Two answers:
We have. Besides the FIRE community, we see it in retirees. I've personally seen it in a number of middle-aged adults who realize that trying to find another job in this tech'd up world just isn't worth the hassle when they have enough to get by on.
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.
Yep. I'd generalize rent-seeking beyond just politics and into the realm of moral maze rent-seeking but yep. I'd actually view the college-corporate complex as a subtrope of this. Colleges as a whole (for reasons of inadequate equilibria) collectively own the keys long-term social stability (excluding people who want to go into trades, and who are confident that those trades won't go away). They do this and charge a heckuva lot of money for it despite not actually providing much intrinsic value beyond fitting well into the existing incentive structure.
Status symbol competition doesn't scare me in a post-material-scarcity world; I can do just fine without it. What terrifies me is the possibility of rent-seekers (or complex incentive structures) systematically inducing artificial scarcity into material that I care about despite it not literally being scarce.
(crossposted from a recent facebook post)
Social orders function on the back of unfakeably costly signals. Proof of Work social orders encourage people to compete to burn more resources, Proof of Stake social orders encourage people to invest more into the common pool. PoS requires reliable reputation tracking and capital formation. They aren't mutually exclusive, as both kinds of orders are operating all the time. People heavily invested in one will tend to view those heavily invested in the other as defectors. There is a market for narratives that help villainize the other strategy.
A duplicator world is much more strongly positive sum than our current one. If I have any kind of nice material good, I can let you benefit from it at no cost to me. I would also expect the shear shock to collapse many bureaucracies. A society where say 50% of people make something, in the sense of someone who likes gardening and makes some fresh veg, or someone who likes making cloths. These people will not work very hard, and everyone else won't work at all. (These people are doing it for much the same reason people have hobbies today. Putting a duplicator, a strawberry and a sign saying "help yourself" on the porch takes next to no effort, and is a friendly thing to do. ) The economy will thrive mostly on a take a copy, pass it on model. Over time, a more complex economy will reappear, and the name of the currency will be customization. If you want a painting of your self, or a coat tailored to your unique taste in fashion, you have to pay serious money for it. Large complex companies could be sustained that made say, motorcars. There would be a team of people who knew how every part went together, and had the tools to do complex custom jobs. If you just want a car that works, it costs you nothing or next to nothing. If you want a black and yellow striped car with extra large wheels, they are going to charge you for that, and they have the advantage in expertise that means they can do a better job with less effort than a garage mechanic. This would support an economy that has some sort of R&D chain. Some sort of copyright law might or might not exist, but there will be enough people prepared to let you copy their stuff for free that this will be a limit on some luxury or specific goods. Like modern software, not all of it is open source, but unless you have some unusual and specific requirement, you can probably do it with open source software.
Fun thing I thought about while reading this post: it applies pretty well for predicting the recent explosion of NFTs, which are basically a huge number of badges attached to things that can be copied or manufactured easily.
On subcultures: This made me think of https://meaningness.com/, specifically the posts/sections on countercultre, subcultures, and atomization. It seems plausible that as a society we've already tried to go that route to counteract the effects of abundant productivity of goods and media, and exhausted it. Cheap communication and low production costs mean it's basically impossible to prevent outsiders from overwhelming a small subculture, so anything more than a few people can care deeply about gets diluted by the mainstream and seems, to the original members, meaningless as a result.
Conversely, members of a subculture who really care about it may want to spread it so others can enjoy it, not realizing this oftenruins the separate-status-ladders benefit
I'm no homo economicus and don't intend to become one; give me a duplicator and I shall drop out of the economy.
I think the usual formulation of homo economicus would agree with you on that one, actually.
I think you are right to point to the underlying shift in incentives as various constraints are relaxed and others become binding. I also think you could probably increase the Public Choice/Political Economy insights here. What would/are the impacts to policy and politics and government structure/services/role under these types of changes.
Still, I don't think it really leads to as bad an outcome as seems implied here. In the duplicator case, a limit/extreme, it is clear even in most expected scenarios of "fabricated" scarcity in the collective sense we will be at a much higher production frontier and everyone having a much greater real income/consumption standard. I think the scenarios where that is not the case (think most of the dystopian ScFi worlds) are unlikely.
I think the rat races does change a bit here, but clearly the constraints will be on intellectual and innovation/design (and possible the coordination margins you've already identified). I do wonder if there is more scope for the old "tune in, turn on and drop out" with the emphasis on dropping out of the race and economy (autarky is possible).