Scarcity and plenty

by John Quiggin on December 23, 2020

[Warning: half-formed thoughts ahead]
One of the most striking characteristics of the 21st century economy (divided into goods, human contact services and information) is that even very poor people have access to information-based services that were almost unimaginable 30 years ago. Given free wifi and a second-hand phone, someone lining up at a food bank can blog about the experience, and possibly attract readers all around the world[1]. Or they can entertain themselves with an endless supply of free books, news media, music and videos. That’s great, but it doesn’t change the fact that people in both rich and poor countries are going hungry.

Economics has traditionally been about scarcity. But now we have one part of the economy where scarcity remains dominant, and another, growing part, where it has just about disappeared. That raises a lot of different issues.

First, while we are accustomed to think of things like economic growth and inflation rates as objective facts, they are actually based on index numbers, which are the products of theoretical models. Those models don’t work well when an increasing part of the economy consists of information services that are becoming radically cheaper all the time. As a result, much of the debate about the desirability or otherwise of growth is misconceived.

A positive implication is that we can anticipate improving standards of living, because of ever-increasing access to information services, without economic growth in the 20th century sense of steadily increasing throughput of materials and energy, and correspondingly increasing environmental damage. T

A negative implication is that real incomes (that is, incomes deflated by a consumer price index) can increase, even as basic needs like food and housing become less affordable, because the price of inforamation related services is falling fast. I can’t find much that’s readily accessible on this – pointers would be appreciated. One notable fact is that the proportion of disposable income spent on food, which fell sharply between 1960 and 1998, has remained almost static since then. The price of food seems to have risen a little faster than the CPI over this period.

I haven’t talked yet about human contact services. Scarcity is just as relevant here as in the goods economy. Governments are heavily involved in funding and providing these services, and the quality of services is hard to measure. As a result, the kinds of services people get aren’t determined simply by their capacity to pay.

A question to which I don’t have an answer. Is there some way to exploit the massively increased productivity of information services to allow more, and more equal, provision of basic goods? This question underlies a lot of discussion about Universal Basic Income and similar ideas, but is rarely posed in a satisfactory way, let alone answered.

As you can tell, I’m struggling with some complicated problems here, so any thoughts welcome.

fn1. In the early days of blogging, thehomelessguy [Kevin Barbieux] did exactly this. His most recent site is here.

{ 30 comments }

1

nastywoman 12.23.20 at 8:39 am

”A question to which I don’t have an answer. Is there some way to exploit the massively increased productivity of information services to allow more, and more equal, provision of basic goods”?

Forget ”the massively increased productivity of information services” and focus on ”a more equal, provision of basic goods” – by learning how to make cheese?

(or anything else which leads to ”a more equal, provision of basic goods”)

2

Mike Huben 12.23.20 at 12:07 pm

As the price of information related services falls, they will become less relevant in a CPI, and perhaps the problem will go away. Except if there is a competition to use the most expensive services to achieve class status above the minimum.

I might base a new CPI more on Sen and Nussman’s Capabilities, changing the basket of goods to reflect what’s needed for those capabilities. We’d have to deal with the issue of state-provided services such as education, which are not direct consumer costs. The other issue is which of those capabilities people really spend their money on. I don’t know if the current CPI basket would fare badly by these standards.

3

Tim Worstall 12.23.20 at 12:08 pm

“A negative implication is that real incomes (that is, incomes deflated by a consumer price index) can increase, even as basic needs like food and housing become less affordable, because the price of inforamation related services is falling fast.”

This might – should perhaps – be linked to the idea that the CPI overstates inflation. For those new techs only get added into the basket once they become generally adopted. Which is some way well through their decline in price.

“One notable fact is that the proportion of disposable income spent on food, which fell sharply between 1960 and 1998, has remained almost static since then. ”

I’d be careful of that stat. They’re conjoining food inside the home and outside it in most of those measures. Food at home still fell (eyeballing, from 6% of income to 5% or so) over that second period while food outside continued to rise. I’d not call a 17% fall in the share of income to be “static”.

And back to a former point:

“One of the most striking characteristics of the 21st century economy (divided into goods, human contact services and information) is that even very poor people have access to information-based services that were almost unimaginable 30 years ago. Given free wifi and a second-hand phone, someone lining up at a food bank can blog about the experience, and possibly attract readers all around the world[1]. Or they can entertain themselves with an endless supply of free books, news media, music and videos. That’s great, but it doesn’t change the fact that people in both rich and poor countries are going hungry.”

All of that is true. It’s also, because it is true, proof that real incomes have risen and that inequality has fallen. We all have access to Google search in the same volume, at the same quality level, the same price, as Jeff Bezos and Warren Buffett. Not Bill Gates though as he has to use Bing. That is a reduction in inequality.

4

Saksan 12.23.20 at 1:30 pm

The answer to this, if you believe the venture capital/hype crowd, is that the information technology revolution is going to come for the food and fossil-fuel-based materials industry. Azeem Azhar did a podcast on it a little while back:

https://hbr.org/podcast/2020/11/how-ai-and-genomics-are-reshaping-farming

IIRC, the vision is of a big tower block full of hydroponics, UV lights and sensors, optimised via machine learning and producing food on-demand for the local area. I have no idea how feasible that is on a large scale but, if it is, it’s something that we really need a politics of. Depending on the outcome of fights around IP, industry standards and confidentiality, you can see it happening along the current tech monopoly lines, or in a Boing Boing Sociaist version, with publicly owned buildings, freely available training data and algorithms, and commodity parts.

5

Hunter K. 12.23.20 at 2:12 pm

The cost- and scarcity-free nature of digital goods mostly exists through a virtual black market, though, these days.

Legitimate digital goods are either pay-for-access–with sharply rising prices (either in the form of paywalls or heaps of invasive advertising) as the free-lunch era is coming to close; I believe this is a result of legitimate purveyors feeling as though they have a handle on piracy and no longer have to compete as much with it anymore–or “free” with the user’s personal information and behavior data as the payment.

Legitimate, impartial news is increasingly paywalled, so to see it for free, it’s either been lifted wholesale (by, e.g. Google, which I think can probably be considered black market, even if it’s shamelessly visible) or paid for up-front by a company that redistributes it gratis, again with the end-consumer’s personal/privacy data as the payment.

As news paywalls become more common, what we think of as freely accessible news is increasingly poor-quality propaganda/disinformation, which is funded by outside sources with ulterior motives.

So, perhaps a modification to your thesis could be that these hidden costs (time spent viewing ads, privacy sacrificed and/or exposure to propaganda or time spent avoiding it) are subsidizing the monetary cost of digital goods and services and should be evaluated and integrated into the CPI. After all, those hidden/obfuscated income streams are definitely included in the financials of the companies that deal in them.

6

RichardM 12.23.20 at 2:36 pm

goods, human contact services and information

I like that expression of the split more than that in the last post, but it still seems a bit of a mixed metaphor. While being digital information is an inherent property of a thing, being a good is a matter subject to legislation. IP laws make information work like it was a good. In contrast, anti-slavery laws generally maintain the distinction between goods and human services.

Academia, which must be a large proprtion of the information enconomy, genrally works on the principle of discovering and publishing information in the hope it will be useful to someone somewhere. Which is very much not how Hollywood works. Presumably, society could be rearranged so that either could adopt the policies of the other; if that happened then you could meaningfully talk about ‘an’ information economy and how it worked.

In the meantime, it seems more useful to treat ‘digitals goods’ and ‘physical goods’ as the two major types of goods. Withe the rest of the economy being ‘human services’ and ‘public services’.

Concretely, the NHS and the BBC seem similar enough that any system that puts them in different top-level sectors is probably misisng something…

7

Ebenezer Scrooge 12.23.20 at 4:36 pm

Two things:
First, the cost of logistics–i.e., the cost of physical distribution–has been going down due to the informatics revolution. This has significantly lowered the cost and price of ordinary goods.
Second, the demand and cost for public goods keeps rising: clean environment, physical infrastructure, education, eldercare, etc. These goods are valuable, and often require large-scale investment and employment. Maybe they’re the new manufacturing?

8

Tm 12.23.20 at 6:40 pm

„First, while we are accustomed to think of things like economic growth and inflation rates as objective facts“

Well economists should have known for a long time how flawed GDP estimates are. If they have gotten used to mistaking these estimates for objective reality, they have no one but themselves to blame.

9

Tm 12.23.20 at 6:49 pm

„The price of food seems to have risen a little faster than the CPI over this period.“

That too is not a new problem. The idea of an economy-wide CPI makes little practical sense because there is no universal basket of goods on which to base it. Poor people buy different goods than the middle class and the rich. Each economic stratum is affected by a different inflation rate. In particular, health care, housing and education costs have increased sharply in the experience of many people while inflation was supposed to be non-existent.

10

Tm 12.23.20 at 6:57 pm

Worstall: „Food at home still fell (eyeballing, from 6% of income to 5% or so) over that second period while food outside continued to rise“

But has the amount of food consumed at home stayed the same or are people eating out more for lack of time?

11

Kiwanda 12.23.20 at 8:08 pm

A question to which I don’t have an answer. Is there some way to exploit the massively increased productivity of information services to allow more, and more equal, provision of basic goods?

I would interpret call centers in for example India or the Philippines as enabling more equal provision of basic goods, but that probably isn’t what you had in mind.

I don’t see how this could be done directly, but maybe indirectly, through reduction in the proportion of income spent on housing and transportation. The pandemic has driven home that maybe half of the working population of the U.S. can work remotely, which implies they don’t need to live in the same region as their office. If they move to less expensive places, so also the people who sell them “human contact services” can move to those less expensive places, and thereby have more to spend on basic goods. (Or if transportation is a basic good, need it less.)

12

John Quiggin 12.23.20 at 8:56 pm

“Well economists should have known for a long time how flawed GDP estimates are. If they have gotten used to mistaking these estimates for objective reality, they have no one but themselves to blame.’

I don’t think this problem is confined to economists, though they have less excuse for making this mistake. And, unlike the problems that are most commonly discussed (pollution and so on), the index number problem can’t be fixed by modifying the way the number is calculated. It’s inherent in the nature of the data.

13

Peter T 12.23.20 at 10:38 pm

When Tim Worstall’s smartphone has its next software upgrade, he can take it to the shops and see if that gets him a ham sandwich. I mean. it’s ‘real income’, right?

Snark aside, it really helps to bear in mind at all times first that money as means of exchange is quite a different thing in operation from money as measure of value, and second that money value is different from use-value. Bradman’s green cap sold for $450,000. In a thrift shop it might go for $1. Marx’s insistence that money is a social relation is always true and always forgotten.

14

Eszter Hargittai 12.24.20 at 2:02 am

Totally not what you are asking about, but I’d like to note that as someone who studies the production and consumption of information services, I am concerned that your characterization of how democratic information services are is rather simplistic. Yes, in theory it’s possible to consume a lot (even for free) and it’s possible to share content (again, for free), but in practice this does not necessarily happen so I would like to suggest a more careful setup here, at least by acknowledging that this is the case in theory, but evidence doesn’t support it.

For both consumption and production of content, I bring in the skills variable, which I’ve worked on for about two decades now. People’s understanding of information services varies considerably from awareness of what is possible to knowing how to find it and use it. If you don’t know that certain things are available for free online then you may not look for them and never benefit from them. Even if you know that they exist, you may not know how to find them. Even if you find them, you may not know how to use them. (The latter is especially the case for production activities.) If you have more skilled networks, you have more chances of hearing about services from them than if your networks also have lower skills.

Even with something like participation in the gig economy (e.g., Amazon Mechanical Turk), we know that participation varies by SES (we are about to send off a paper for review that shows that those from more privileged backgrounds are more likely to do this). In Shaw & Hargittai 2018 we show that contributions to Wikipedia vary by age, education and Internet skills. (You can get copies of my papers here: http://bit.ly/wuppubs.) Importantly, so does having visited WP.

Again, not what you were asking about, but wanted to signal these concerns about the setup.

15

John Quiggin 12.24.20 at 8:01 am

Thanks for this Eszter. I didn’t mean to make any claims about democracy, equality of access and so on. I’d be interested in an update on your work on this. I think I remember, long after I was looking for alternatives to Google (DuckDuckGo is best) you were reporting that lots of people were still using Yahoo as their starting page.

My main point is that even unsophisticated users, who stick to YouTube, Facebook and similar options of which nearly everyone is aware, have access to immense amounts of free or very cheap content.

Thinking about it, I wonder where I stand in this spectrum. I don’t really know anything (beyond news reports) about TikTok, Whatsapp, Fortnite, Tinder or really anything that has come on the scene since Twitter. OTOH, my knowledge of what went before that is pretty good.

16

Tim Worstall 12.24.20 at 10:40 am

“But has the amount of food consumed at home stayed the same or are people eating out more for lack of time?”

Leisure increased – marginally, it’s true – over the period. But then this isn’t proof, because “time not spent cooking” is, in the definitions, defined as “leisure”. So cause and effect is rather blurred.

https://www.bls.gov/tus/home.htm

17

Tim Worstall 12.24.20 at 10:46 am

“When Tim Worstall’s smartphone has its next software upgrade, he can take it to the shops and see if that gets him a ham sandwich. I mean. it’s ‘real income’, right?”

If you move to a larger apartment your real income has risen. You’re richer, right? But can you take the spare bedroom around the corner and gain a ham sandwich from it?

Or even the Woody Allen line. Sure, I’ve got my health again now but I can’t pay with that in a deli…..

18

nastywoman 12.24.20 at 10:57 am

@
”I don’t really know anything (beyond news reports) about TikTok, Whatsapp, Fortnite, Tinder or really anything that has come on the scene since Twitter”.

I know a little bit about it –
and enough to know – that ”even very poor people only theoretically” have access to information-based services that were almost unimaginable 30 years ago.

And that:
”Given free wifi and a second-hand phone, someone lining up at a food bank can blog about the experience, and possibly attract readers all around the world[1]”
is as… rare as very rich people not entertaining themselves with an endless supply of free books, news media, music and videos.

And as you wrote:
That’s great, but it doesn’t change the fact that people in both rich and poor countries are going hungry – which always reminds me about economists – and especially one very famous US Economists – who thought that with ”the massively increased productivity of information services” the ”provision of basic goods” would ”massively” increase too.

And now?
What a… ”bummer”?

As putting most of your cards on ”the massively increased productivity of information services” just doesn’t pay the food –
(or rent – or health care) –
bills –
for enough people…

19

Jonathan Goldberg 12.24.20 at 12:38 pm

Eszter @ 14: the link to your papers does not work.

20

Eszter Hargittai 12.24.20 at 2:28 pm

Jonathan @19, oops, thanks, forgot to add the http://, the site is indeed accessible through bit.ly/wuppubs, but for the link it needed the http://bit.ly/wuppubs, which I have now added.

21

Lee A. Arnold 12.24.20 at 7:41 pm

I think we should clearly separate the definitions of “scarcity” and “nonrivalry”. Basic foodstuffs are not scarce, at least in the developed countries. We can produce enough for everybody to avoid hunger; there is no lack of resources, fertilizers and arable land to feed everybody. The fact is instead that some people don’t have enough money income to buy it.

You appear to me to be constructing the thesis that the rise in nonrivalrous goods (predominantly infotech) is reducing money incomes (while increasing the standard of living) so that fewer people can afford to buy rivalrous products like food.

But, wouldn’t the producers of food (indeed the producers of all rivalrous products) lower their prices, because they enjoy lower costs themselves (whether in lower production costs, or in lower finished goods prices when they are consuming) because they are in a competitive whole economy that is experiencing reduced costs, for a greater standard of living?

In other words it seems to me that your thesis would have to posit that the producers of rivalrous goods do NOT adjust to lower costs. Thus in other words that the economy does not tend toward equilibrium. You would then adduce at least one of the reasons that we know it never really reaches equilibrium, such as: bounded rationality, asymmetrical information, transaction costs, anti-competitive monopoly (or, in the case of industrial agribusiness, oligopoly) — such as these reasons are at work in the RIVALROUS sector.

But I don’t understand how you get from the process of cost-saving/living-standard-increase in the NONRIVALOUS sector, to cause the same effect. What am I missing about your argument?

I think that what is really happening is based on two facts: 1. Individuals have limited cognition, both in terms of limited attention-time and in terms of the effectiveness of the rational tools available to any of us. 2. Our basic physical needs are finite too, and the industrial economy is pretty much providing for them. Consequently, as the needs of consumers are increasingly satiated by technological abvance, especially by enterprises with returns to scale & delaborization (including infotech), not all of the producers & labor who are “left out” will find new goods & services to make, in order to regain livable money incomes, because there aren’t enough new ideas, and because on the demand-side, consumer attention is too depleted to accommodate new ideas.

Economists would insist that history shows this must be wrong, and that there is plenty enough innovative opportunity for everyone to find an advantage in the supply chains, if not the finished goods, and that instead, the problem is that people want too much leisure, or else they are not educated enough, or else — from the left — that greedy capitalists are hoarding the surplus. I think all of these reasons are seriously defective.

Jumping ahead, it seems to me that the “Economic Consequences of the Financial Crash, Globalization and Pandemic” are these: There isn’t going to be enough money-making work for everybody (although there are plenty of social welfare-increasing things to do); we need a bridge strategy of erecting government monopsonies to pay for basic human needs while we search for ways for everyone to effectuate their capabilities to contribute to society in their own eyes; and 3. the idea that we cannot print the money to tide us over in emergencies is criminally stupid, now even up to the level of a crime against humanity.

22

Gorgonzola Petrovna 12.24.20 at 10:07 pm

Hmm. One could argue that ‘information services’ is not part of the economy. Soviet people chatting while queuing up for toilet paper were ‘consuming’ tons of totally free ‘information services’ on a daily basis. Asking for directions is less convenient but not substantially different from using GPS. And it involves human interaction. Same for going to a library or movie theater vs corresponding ‘information services’.

23

Matt 12.25.20 at 7:25 pm

It’s possible to buy or build a house in the prime of your working years and live there for the rest of your life. It’s at least roughly possible to accumulate a stockpile of dried staple foods in the same manner. However, it is impossible to stockpile medical services or any other services for old age. The just-in-time nature of services makes me keenly interested in what will happen as the ratio of retirees to prime age workers continues to rise. Japan should provide an early preview but most other highly developed countries (and many others) are going to face similar issues before this century is even half over.

Maybe it will be an economic equalizing force as the older generations with more wealth have to bid up the services of the increasingly scarce young-and-vigorous. Maybe it will be inequality-exacerbating as poorer-than-average old people are also feebler-than-average in old age, giving up more resources and/or suffering more deprivation than healthier and wealthier people in the same age range. Maybe it will do both, tending to narrow inequalities at the whole-population level while locally exacerbating them, much as the globalization of manufacturing and trade in goods appears to have done.

24

John Quiggin 12.26.20 at 11:16 pm

Kiwanda @11 “maybe indirectly, through reduction in the proportion of income spent on housing and transportation.” That’s part of what I have in mind. We can substitute communications for transport, and maybe there are other things that can be done similarly.

25

John Quiggin 12.26.20 at 11:21 pm

One interesting example is telemedicine. Until the pandemic, a combination of regulation and funding rules meant you needed a physical appointment for routine renewals of prescriptions and the like. The switch to telemedicine for this kind of thing has saved a lot of time for patients and I think at least some time for doctors. I’m still thinking about how to analyze all this.

26

J-D 12.26.20 at 11:50 pm

The just-in-time nature of services makes me keenly interested in what will happen as the ratio of retirees to prime age workers continues to rise. Japan should provide an early preview but most other highly developed countries (and many others) are going to face similar issues before this century is even half over.

At the same time as the ratio of dependent elderly to working-age population is rising, the ratio of dependent young to working-age population is falling. Any calculation which fails to take this into account will be significantly distorted.

27

Lee A. Arnold 12.27.20 at 12:30 pm

John Quiggin #25: “I’m still thinking about how to analyze all this.”

Transaction costs: Searching, bargaining, transporting, insuring, enforcing. Some estimates put the total of these at 45-50% of GDP. Any sort of agreement, centricity, proximity may help to reduce them. (Cell phone systems & platforms are infotech centers.) Reducing costs enables more flow — a basic definition of growth. Smith, Mashall, Coase, North. But it is hard to see how it might be mathematized: The centers are incommensurate. And the improved flows (of transaction, transportation, transmission of message, transformation into product in a firm, translation of physical force in a machine) don’t have a single unit of measure & may not all be usefully quantifiable. Examples of the pattern:

28

Tm 12.27.20 at 12:59 pm

It is interesting how Worstall is trying to mix up monetary value and use value. The standard economic paradigm is that use value is correctly measured in money. Everybody knows that that is bullshit but Worstall‘s approach seems pretty arbitrary to me. Arguably one could count the non-monetary value of internet services as positive externalities. But then you also have to take negative externalities into account. I would argue that these are very considerable (the amount of attention monopolized by social media, the easy spread of fake news and conspiracy myths, the aggravated poisoning of political discourse).

29

Robert Laubacher 12.27.20 at 2:11 pm

OP noted “A negative implication is that real incomes (that is, incomes deflated by a consumer price index) can increase, even as basic needs like food and housing become less affordable, because the price of inforamation related services is falling fast. I can’t find much that’s readily accessible on this – pointers would be appreciated.”

Erik Brynjofsson, who recently moved from MIT to Stanford, has done interesting work on the impact of free information goods on the measurement of productivity and inflation. Some of that work may be on point for the questions raised in John Q’s post.

One recent example is Brynjolfsson, Erik, Avinash Collis, W. Erwin Diewert, Felix Eggers and Kevin J. Fox. “Measuring the Impact of Free Goods on Real Household Consumption.” January 10, 2020. AEA Papers and Proceedings, 110 (May 2020). SSRN abstract 3517017.

30

Phil H 12.28.20 at 1:16 am

I learned a new phrase from Alex Tabarrok this year: Baumol cost disease (https://marginalrevolution.com/marginalrevolution/2019/05/why-are-the-prices-so-dmn-high.html)
Using not quite that concept but something that feels related, I agree with John Q and Lee Arnold above that the issue of plenty seems to need new analysis.

If food is plentiful, by which I mean enough can be produced to meet all the needs of the population for a small percentage of GDP, then a few things will happen. (1) production will be limited by demand constraints only, not by supply constraints. (2) producers will by motivated by profit/prices, and will use cosmetic/convenience improvements to capture higher prices. (3) increasing prosperity will mean that the average consumer will be able to afford cosmetically improved food. (4) most food production will shift to the cosmetic/convenience food sector. (5) while the demand for low-priced (unattractive/inconvenient) food continues to exist, a Baumol-like effect may make it uneconomic to produce, as the priority will be to invest food-production resources in high-margin food products.
I don’t know if that makes sense. I think it’s the same kind of thing that John Q was getting at!

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