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.
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.
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.