Scarcity: Why Having Too Little Means So Much (10 page)

All this suggests that we ought to broaden our notion of scarcity. When we think of having very little (time, money, calories), we focus on the physical implications of scarcity: less time for fun, less money to spend. The bandwidth tax suggests there is another, perhaps more important, shortfall. We must now get by with fewer mental resources. Scarcity doesn’t just lead us to overborrow or to fail to invest. It leaves us handicapped in other aspects of our lives. It makes us dumber. It makes us more impulsive. We must get by with less mind available, with less fluid intelligence and with diminished executive control—making life that much harder.

You are about to leave on a business trip.

Imagine how you might pack a suitably large suitcase. You might start by putting in all the essentials—toiletries, business clothes, electronics. With room left over, you might add a few less essential items. You pack an umbrella in case it rains. You take a sweater in case it is cold. You pack your gym clothes and running shoes. (Perhaps this time you’ll actually get in a workout.) Satisfied, you close the suitcase with some room to spare. There are other things you could take, but you feel fine with what you have.

Now imagine instead packing a small suitcase for the same trip. As before, you might start by casually tossing in the bare essentials. But these already quickly fill the suitcase. You take everything out and pack again, this time more methodically. You carefully stack and arrange. You become creative in making room. You stuff socks and a phone charger inside your shoes and uncoil your belt and slide it along the suitcase edge. This leaves a bit of room to spare. Should you take the sweater? The (optimistic) gym clothes? The umbrella? Is it better to risk the rain and give yourself at least a chance to start getting in
shape? Packing the small suitcase forces trade-offs. After some deliberation, you choose the sweater and squeeze the suitcase shut.

Both the large and small suitcase impose limits: no matter the size of the suitcase, you obviously cannot fit every possibly useful item. Both suitcases require a choice of what to pack and what to leave out. Yet psychologically only the small suitcase really feels like a problem. The large suitcase is packed casually. The small suitcase is packed carefully and intently.

This is a metaphor for many other problems in life. We have a time suitcase that must fit our work, leisure, and family time. We have a money suitcase into which we must fit our housing, clothing, and all our expenses. Some of us even have a self-imposed calorie suitcase into which we must fit all our meals.

As this metaphor illustrates, when scarcity focuses us, it also changes how we pack. It changes how we manage each dollar, each hour, or each calorie. It also leaves us with differently packed suitcases. The big suitcase is packed carelessly, with room to spare. The small suitcase is packed carefully and tightly.

Understanding these differences in how we pack is crucial for understanding how scarcity creates more scarcity.

The cost of one modern heavy bomber is this
: a modern brick school in more than thirty cities. It is two electric power plants each serving a town of 60,000 people. It is two fine, fully equipped hospitals. It is some fifty miles of concrete highway. We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.

—
DWIGHT EISENHOWER,
1953

You are at a restaurant, having dinner with friends. The waiter describes the specials and then asks if you’d like to have a drink. You
don’t typically order a cocktail but something on the menu catches your eye. How do you decide whether to order it? You may calculate how long before you’ll need to drive. You may wait to see if any of your friends order drinks. You may even wonder whether you’ll be splitting the bill. Or you may consider whether $10 is a reasonable price. What’s notable, though, is the dog that didn’t bark. There is one question you don’t ask yourself: “If I buy this drink, what will I not buy instead?” You do not ask this question because it almost seems silly. It
feels
as if you can buy this cocktail without giving up any other purchase. It feels as if there is no trade-off.

Think about how remarkable this is. As a matter of basic accounting, of course there is a trade-off. No matter how rich you may be, you have a finite amount of money. If you spend $10 on anything, it is $10 less left for something else (even if that something else is the inheritance you leave your children). Those $10 must come from somewhere. But it often does not feel that way. Many of us make $10 purchases as if there are no trade-offs. We do not have to sacrifice some other purchase just to make this one. Taken to the extreme, it feels as if there is an endless supply of $10 bills in our budget. If pushed, we know at some level that there isn’t, but we do not act that way.

Sometimes, though, we do recognize trade-offs. Picture yourself on a diet and contemplating the same cocktail. Even though the $10 price tag may not lead you to consider trade-offs, the “calorie price tag” might. Suddenly, those extra three hundred calories must be accounted for. Drink that cocktail and something else must be given up. Is it worth forgoing dessert? Or the bagel tomorrow morning? Diets make us calorie accountants. The books must balance. We recognize that having one thing means not having something else. We engage in what we call
trade-off thinking
.

Of course, for those on a tight money budget, the $10 is just like the dieter’s three hundred calories: the money spent must be accounted for. In the packing metaphor, a small suitcase forces us to recognize that putting in one item means some other item must come out. The
packer of a big suitcase who contemplates adding a pair of sneakers simply thinks about whether he wants them. The packer of a small suitcase thinks about what he must take out to make room.

Scarcity forces trade-off thinking. All those unmet needs capture our attention and become top of mind. When we are tight on cash, we are highly attentive to all the bills that must be paid. So when we consider buying something else, all the bills are there, making the trade-off apparent. When we are working on a tight deadline, all the things we must get done are foremost on our mind. So when we think about spending an hour on anything else, the trade-offs again are salient. When time or money is not so tight, we are not as focused and the trade-off is less apparent. By this account, trade-off thinking is an inherent consequence of scarcity.

To test this more rigorously, we did
a survey of commuters
in a train station in Boston. We asked them to list everything they think about when contemplating buying a TV. All the obvious candidates—the size of the TV, the screen resolution, and the fairness of the price—showed up. When we then divided our sample into lower-and higher-income groups, a pattern emerged. Only some people also reported trade-off thinking, volunteering such thoughts as, “What do I have to give up to buy it?” The people who asked themselves these questions were disproportionately poor.
The poor reported trade-off thinking almost twice as often as the better off
(75 percent vs. 40 percent). This was a striking difference, especially since the income cutoff we used was at best a crude proxy for scarcity. Some of those whom we classified as well off might well have been experiencing scarcity—for example, some were surely burdened by mortgage payments, credit card debt, college loans, or large families.

The same study produced a noteworthy wrinkle when we conducted it in India. We saw how scarcity is determined by an interaction of one’s budget and the size of items. As before, when asked to think about buying a blender, richer subjects mentioned tradeoffs less than 30 percent of the time while the poorer ones mentioned
them over 65 percent of the time. But when we asked about a more expensive item—a television—
both the rich and the poor reported trade-offs
. Whether or not we think about trade-offs depends on the size of the item relative to our budget. The blender was a significant fraction of the budget for the poor but not for the rich. The TV, in contrast, was a significant expense even for the richer households in India. Put differently, the blender evoked scarcity for some, but the TV—because it would have been big relative to everyone’s budget—evoked scarcity for all, much as contemplating a car would most likely have generated trade-off thinking in most American households.

The packing metaphor illustrates why scarcity creates trade-off thinking. We pack big suitcases loosely. Not every nook and cranny is filled. There is space left unused here and there. We call this space
slack
—the part of our budget that is left untapped because of the way we pack. It is typical of large suitcases. Slack is a consequence of not having the scarcity mindset when we pack with room to spare, of a particular approach to managing resources when we experience abundance. The concept of slack can explain our tendency to consider (or fail to consider) trade-offs and to attend to (or fail to notice) prices.

Imagine that after having packed a large suitcase, you want to add an item. You can just throw it in. No item needs to come out. You do not need to rearrange the contents because the suitcase had extra room to begin with—it had slack. But with a smaller suitcase, adding something necessitates taking something out. Slack is what allows us to feel there is no trade-off. Where does the money for the $10 cocktail come from? If you are well off, the cocktail will feel like it comes at the expense of nothing because in a way it does. Slack picks up the tab. Slack frees us from making trade-offs.

We
all have experienced slack in time. On a not-too-busy week, we leave holes in our schedule. You leave a fifteen-minute window between meetings, where in busier times you would have squeezed in a quick phone call. This time is just there, like loose change lying around the house. You feel no compulsion to use it. You do not work hard to keep things tight. When a colleague says she’ll call you sometime between ten and eleven, you don’t bother to pin her down; you just allocate the whole hour for a thirty-minute call.

Many people enjoy slack in money as well. One study showed that high-income shoppers are twice as likely to report that they do not track their spending because they
“don’t have to; [they] make enough money.”
A Dutch study
found that wealthier people don’t practice mental budgeting at all. And financial planners often assume slack. They meticulously account for the big items but then often leave the remainder to be spent as you want. Richard Jenkins on MSN, for example, suggests
leaving 10 percent aside as “fun money”
—the slack in the budget, literally play money.

Of course, it can be very sensible deliberately and carefully not to spend everything you can. Leaving room for unanticipated expenses can be a conscious, deliberate, and smart strategy, an insurance policy of sorts against life’s vagaries. Even if it takes only twenty-five minutes to get to the airport, you give yourself forty-five minutes, just in case. We, however, do not use
slack
to refer to the sort of room deliberately created to deal with the unexpected, the kind that’s actually carefully budgeted. You might leave room in the suitcase for later eventualities, say, for shopping while in Rome. But notice, that’s intended slack, the kind you allocate carefully, as you would for any other item.

Slack the way we use it is not space deliberately left unused but, rather, the by-product of packing under abundance. During good times, we don’t meticulously account for every dollar. We generally choose a house and a car that leave us a comfortable amount of room for everything else. We have a rough sense of what kind of restaurants we ought to patronize and how often, so we can stay
broadly within our budget. We choose a vacation that is broadly of the kind we can afford instead of calculating what we have in the bank account and choosing one that exactly brings us to the edge of our budget.
This mindset is a feature of abundance
, and slack is the result.

Why do the poor end up with less slack and the rich with more? A metaphor from nature illustrates our answer.

No man-made structure
is built with the care of a single honeycomb. Young worker bees gorge on honey and excrete tiny specks of wax. The exchange rate is steep: each pound of wax requires eight pounds of honey, which requires more than ninety thousand individual bee trips to collect nectar from flowers. The wax is collected in small clumps while the bees cluster together and use their body heat to warm it so they can mold it. Bit by bit the bees put these pieces into place to create the tile work that makes the honeycomb. The work is piecemeal and local, with no boss to oversee it all. Imagine building a sand castle grain by grain, never stopping to survey where you are and with no one to give you directions. Now imagine doing that with hundreds of your friends, in total darkness. Yet it works. The bees create walls that meet at a remarkably precise 120 degrees, forming hexagons that are perfect to the eye. Each wall is less than 0.1 mm thick, with deviations of only +/− 0.002 mm. That’s a 2 percent tolerance—not a bad building standard. By way of comparison, the National Institute of Standards and Technology allows
a 10 percent tolerance
in the width of manufactured plyboards used in construction.

Like the bees,
mud dauber wasps are also nest builders
, but they build their nests out of mud. They then sting spiders and cram as many as two dozen carcasses into the nest, lay their eggs, and seal it. The hatched larvae feed on the stung prey, surviving the winter
inside the sealed nest. Unlike honeybees, the wasps are not elegant builders. The cells are roughly cylindrical, but they are plastered together erratically, with none of the precision of the hive.

Why do bees create such precise structures and the wasps such messy ones? Scarcity. The wasps build with material that is abundant: mud. The bees build with material that is scarce: wax. The bees’ wax—like space in a tight suitcase or dollars during hard times—must be conserved. Building badly means wasting wax, which is an incentive to be efficient, to pack well. The wasps, on the other hand, have abundant material, plenty of mud to waste. Wasps can afford slack—to build sloppily—because their building material is cheap. The bees cannot because theirs is expensive.

Something similar happens for the poor and the rich. Imagine that before packing a suitcase, you lay on the bed the items you want to take with you, with the most valuable items on the left and the least valuable ones on the right. For a three-day trip, the first pair of underwear would be on the far left; a fifth pair would be on the far right. You start putting the items in your suitcase starting with the most valuable, from left to right. You can pack quite a few items before your suitcase is full, by which point you’d be packing things you do not care much about, like the fifth pair of underwear. Unused room in the suitcases of the rich comes at the expense of items of little consequence. The suitcases of the poor get full while they are still packing items they very much need. Space is at a premium in the small suitcase, whereas its limits matter less when suitcases are big. Economists call this diminishing marginal utility: the more you have, the less each additional item is worth to you.