Scarcity: A book review

I just finished reading a book called Scarcity, by two US academics – a Harvard economist and a Princeton psychologist. It’s an economics book, sort of. But mostly it’s completely innovative.

It contains a theory of a new kind. One I had never thought of, but which I have found very useful.

The theory is that scarcity – no matter what its source – affects your brain. People affected by scarcity have their mental capacities focused on the problem at hand. And that diminishes their ability to deal with everything else.

The authors use four main categories of scarcity in the book.

  • material poverty:  a scarcity of money;
  • being too busy: having a scarcity of time;
  • being on a diet: facing a scarcity of permitted calories;
  • being lonely: having a scarcity of social connections.

For each category they find similar effects on mental capacities.

The person facing scarcity focuses on their own immediate problem, which gains them a limited upside in that sphere – perhaps they scrounge and borrow enough to pay this weeks rent, or remain disciplined enough to not eat dessert tonight. But the focus means other things are ignored to their detriment. They may not be focused at work, for example.

Anyone who has tried to play a computer game and hold a conversation at the same time knows performance and distraction are not compatible.

The theory that scarcity is distracting is well-backed by research. For example, simply reminding people of their financial constraints can lead to a drop in IQ of over 10 points in one famous study.

It is an appealling theory in part because it knits well with a socially progressive view of the world.

The poor, data shows, are worse at sending their kids to school, at taking medicines, at getting their forms filled in at Centrelink, at quitting smoking, eating well, etc. This is a puzzle that would appear to lend credence to a conservative viewpoint that says the poor are lazy.

This theory as expounded in the book helps explains these phenomena by reference to the circumstances of poverty, rather than by blaming the individual.

The authors created a study in which Princeton students had to play Family Feud. They were allocated to either a “rich” group with plenty of time to answer the questions, or  a “poor” group with little time to do so. The poor focused hard. They made more correct guesses per second. But the rich outperformed them overall. Then the authors offered the groups the opportunity to “borrow” time from future rounds for use in the current round. The “poor” group’s performance overall tumbled as they borrowed more and more. The scarcity mindset itself led to poor decision-making.

The book not only describes the problem of scarcity. It suggests interventions that could prove helpful.

The effect of scarcity is described in the book as a “bandwidth tax”. Which is to say that focusing on a single problem of scarcity inhibits the amount of mental bandwidth we have to deal with other scenarios.

Recognising that the “bandwidth” of the poor is especially thin permits better-designed social programs. Rather than intensive financial education programs, a few behavioural nudges will be more effective, for example. And where education is necessary, courses that are cumulative and that fail to accommodate students who miss a class will be far less effective than modules learners can take at their own pace.

They suggest  boom and bust scenarios, such as those issuing from monthly welfare payments or variable pay cheques, can create bigger bandwidth problems as people struggle to manage cashflow. The implication is that stable, frequent, predictable payments are better for bandwidth.

Homelessness – an extreme version of scarcity – is another good example. With nowhere to sleep, wash, prepare food, relax, read or store possessions, it is no wonder the homeless are rarely focused on their health, education or financial futures. Fixing the lack of accommodation in one fell swoop may be more effective than complex incentive structures (and evidence shows that is the case).

The book is excellent at describing scarcity traps, where we get behind – in payments or on a schedule – and constantly borrow from the future, all the while sinking deeper and deeper into the morass.

For those of us not stuck in grinding poverty, the book has some great examples of how to avoid being stuck in a scarcity trap. It is eloquent on the need for “slack” in order for systems to function. Much like when the fridge is literally full to bursting you can access nothing in there easily and things tend to fall out onto the floor, any system that has no slack is inefficient.

A great example comes from a hospital which was able to manage its surgery schedule far better by leaving one operating theatre empty for emergencies. The authors are also advocates of agreeing to fewer commitments than you can manage, and of leaving spare space in your diary so meetings can be moved around without creating disastrous cascades.

The seed of the book, in fact, comes when Professor Mullainathan, writing a book chapter about low-income Americans, sees a great deal of his own time management habits in the budgeting of Americans with payday loans and food stamps. The commonality of the scarcity mindset – which makes a top economist likely to snap at his kids because he’s stressed and busy – is reinforced throughout the book, all the while acknowledging poverty is a more severe, more binding problem than being over-committed at work.

The suggestion scarcity can be better managed with explicit provision for slack could have pay-offs in any number of realms – not least at a national level.

What is our national budget if not a circumstance where every last dollar is committed and deficits keep cropping up most unexpectedly? Is our Treasurer stuck in a scarcity mindset? Is his ability to think clearly about the big picture damaged by his burning desire to fix the budget in this time period? Is the Treasurer more like a 28 year old single mum trying desperately to pay the rent this week, or a 28 year old bond trader with a million dollar portfolio trying to optimise returns across their lifetime? I fear it is the former.

This book got me thinking thoughts like that. And that’s reason enough to recommend it whole-heartedly.

The hidden TV lesson from True Detective

I watched True Detective Season 1. 

Rarely do acting, writing and production values come together in such a package. It was gripping. Two detectives, played by Woody Harrelson and Matthew McConaughey, hunt down a serial killer in rural Louisiana, while the scenery drips with evil portent and minor characters utter veiled references to the Robert W. Chambers story the King In Yellow.

When Woody and Matt encounter the bad guy in episode eight, the big revelation was not the identity of the creep in his catacomb. It was that this great run of TV was now done for good.

Harrelson and McConaughey agreed to something odd – a one season run. There will be a second season of True Detective, but characters, locations, etc will all be different.

The absence of more makes what we got so special.

Economics has an explanation for this. Scarcity drives value.

That’s why caviar costs $4000 a kilo even though it is not that nice to eat, but bread costs as little as $1 a loaf even though it is amazing.

TV has for 50 years ignored this fact.

TV networks have tried to wring every last drop out of anything good. There are many examples; 41 years of the Young and the Restless,  30 years of Neighbours, 17 years of South Park.

That has been the measure of success in TV. Being renewed.

To me, The Simpsons is the epitome of the idea. It’s a widely respected show. For 25 years, the family from Springfield have skateboarded, sucked, saxophoned, slacked and supported through an episode a week. The Simpsons has at times been a brilliant show. But once it turns into a permanent fixture, it becomes about as compelling as the wallpaper.

Ubiquity diminishes anything.

Films have been the pre-eminent form of cultural expression in the west for almost a century. The reason? The release of a film is an event that happens only once. (Except for those movies that spawn sequel after sequel until it is time for prequels. George Lucas, I am looking at you.)

The scarcity of film and audience’s awareness of its finite nature is no doubt part of what has given it cachet, driven the best actors into its arms, and allowed payouts that peak at almost $100 million per film.

Despite the cachet of film, it is not without problems. Film is limited to three hours at most. That’s not enough to tell the kind of epic story humans love. TV can be the better medium and recent shows have proven that, with an arc of quality stretching from the Sopranos to House of Cards.

Now actors that graced the silver screen are appearing on the small screen. From Rob Lowe and Martin Sheen in The West Wing, to Harrelson and McConaughey in True Detective.

True Detective got those actors by promising a short run, but attracting top talent is not the only practical reason for a nice short run.

When a network makes the decision to commission a second season, the writers must immediately start hoarding ideas, making the characters do new things, lifting the role of minor characters or introducing long-lost children/siblings/partners.They also write the second season with an eye to the third season. By then viewers are often attached enough to the characters to put up with it all, but it dilutes the quality of the show.

Short runs permit writers to do story arcs that hit satisfying conclusions rather than just situational drama or comedy, or story arcs that linger on ridiculously.

The success of season 1 of True Detective could go two ways.

It could mean lots of shows opt for short sharp seasons, or it could mean HBO commissions 22-episodes for season two, with an option to renew. It should be no surprise by now that I would rather the former.