Scarcity: Why Having Too Little Means So Much (16 page)

Stepping back, detaching from the moment, and thinking ahead requires a wider perspective and some cognitive resources. Thinking about the bills due next month, the other income sources you might anticipate, the new time commitments that might arise, all require some leftover cognitive capacity. With the mind focused on present scarcity, looking ahead risks becoming yet another casualty of the tunneling tax.

Could we re-create this in
Family Feud
as well? As before, subjects were asked to play several rounds. Once again, some were rich
(they had many seconds per round to play) and some were poor (they had only a few seconds). But now we gave subjects a chance to look ahead a little, to prepare for future rounds. Half were given a preview of the next round’s question. They could think about that question in parallel to thinking about the current one. They could look at it and decide to save or borrow because they think they ought to spend more or less time on it.

The previews helped. To be more accurate, they helped the rich, who looked ahead, took advantage of the information, and scored more points. The poor, on the other hand, did no better with the previews. They were so focused on the current round that they did not expend the mental resources required to look ahead. Scarcity kept them tied to the present, unable to benefit from a glimpse of what the future might hold.

A common theme stretches across many forms of the tunneling tax. Scarcity brings about behaviors that make us shortsighted. We ignore the (future) health cost of eating out when we are busy. We do not think about the implications of paying back payday loans (in the future) when we are tight on cash. We do not consider the (future) benefits of keeping our offices clean when working on a deadline. Of course, there will be exceptions, things that grab our minds no matter where we are. You may forget a meeting today while busy contemplating your wedding a year from now. That’s part of the beauty of the human mind. But by and large, the problems of scarcity press on us today. Tomorrow we may also be poor (in time or money), but that is another problem, left for another day. The scarcity that captures us is now, and it yields a tunneling tax and makes us act myopic.

But what is remarkable in this account is that myopia is not a personal failure. Tunneling is not a personal trait. It would be foolhardy, after all, to call Sandra myopic. She rose from a Head Start program to become employee of the year at UNC-W and a board member of Head Start. Similarly, we would not describe the busy people we know as myopic. And the students in our lab studies
probably didn’t get to Princeton through shortsightedness. Many of the busiest people who borrow time are the same people who have invested years in demanding careers and planned carefully how to get ahead. In fact, as far as personality traits go these people are anything but myopic; rather, it is the context of scarcity that makes us all act that way.

Tunnels limit everyone’s vision.

Everywhere is walking distance
if you have the time.

—
STEVEN WRIGHT

Koyambedu market in Chennai, India, is a spectacle. Sprawling over forty acres, it is crammed with 2,500 shops that sell everything from mangoes to marigolds. Tens of thousands of buyers flow through its colorful displays like one long rush hour on the subway. There is a lot to catch the eye. But perhaps the most interesting thing there is also the easiest to overlook.

In the hours before dawn, the street vendors arrive at the market. Anyone who has been to the world’s poorer cities has seen and probably bought from a street vendor. In Chennai, they sit on the roadside, sometimes with a small stall but more often with only a blanket, hawking vegetables, fruits, or fresh flowers. Their business model is simple.
A typical vendor buys about 1,000 rupees
($20) of stock in the morning. She sells it throughout the day for about 1,100 rupees, turning a gross profit of 100 rupees (
a little over $2
). Her business uses two inputs: her own labor and the 1,000 rupees she needs to buy stock every day. Some vendors have 1,000 rupees of their own money, although most (in our data over 65 percent) borrow this
money. And the loan does not come cheap: the median vendor pays 5 percent
per day
on what she borrows. In other words, at the end of the day, half of the 100 rupee gross profit goes to paying interest. This, the interest rate that the vendors pay on their loans, is perhaps the most fascinating story in Koyambedu.

You might think that only an economist could use the word
fascinating
in conjunction with the words
interest rate
, but consider this. Nearly every vendor has a small amount of slack in her budget, something she can cut back on. She may buy a cup of tea, a small food treat like a
dosa,
or some candy for a child or grandchild. Suppose that instead of spending, say, 5 rupees on these items every day, she used those 5 rupees to purchase her goods. This way, she borrows 5 rupees less each day. It might seem that it would require two hundred days for the vendor to become free of her 1,000 rupee debt this way. In fact, it would only take
thirty
days. This is the power of compounding (especially when the interest rate is high). Five percent a day compounds quickly.

The magnitude is striking. By cutting back a little, within thirty days the vendor becomes debt free. By becoming debt free, she
doubles
her income for the rest of her working days. A social program for the poor that doubled incomes in a month would be considered astonishing, too good to believe. And yet while every vendor has access to this “program,” they fail to use it. And persistently so. In our sample, the typical vendor has been borrowing for 9.6 years.

The vendor is trapped. But what is particularly interesting is how she is trapped. We are used to thinking about scarcity as a slice of reality that is handed out. And in some cases, this is true. The difference between someone who lives in the developing world on $1 a day and someone who lives in the developed world on $100 a day has little to do with behavior and everything to do with the geography of birth. But some scarcity—as with the vendors—is partly the result of human behavior. The vendor could be much less poor if she behaved differently.

The
vendor’s condition is an example of what we will call a
scarcity trap
: a situation where a person’s behavior contributes to her scarcity. People in scarcity traps, like the vendor, may inherit components of scarcity that are beyond their control. Had the vendor been born in New York, she would be significantly richer. But we are particularly interested in that part of scarcity that follows from our behavior. And more than that we are interested in how scarcity generates that behavior, in how scarcity perpetuates and often amplifies itself through what we do when in a scarcity mindset.

Imagine two students, Felix and Oscar. Felix spends a good amount of time on work due at the end of each week and turns in his assignments on time. He is busy but relaxed. Oscar, on the other hand, who is equally talented and taking the same classes, is crunched for time. He is working more hours, feels harried, and rushes to turn in his assignments late every week. What makes Oscar so much busier? He is not taking more classes. He is not a less productive person. Instead, Oscar is simply one step behind: he is working on
last
week’s assignments. Unlike Felix, for whom the material is vivid because he just heard the lecture, Oscar takes extra time reminding himself what the class did last week and trying to keep it apart from (yet not forget) this morning’s lecture. Oscar works harder but gets no more work done. Oscar is one step behind.

You can also be one step behind with money. Imagine now that Felix and Oscar are farmers, planting the same crop season after season. Felix uses his own savings to buy seed, fertilizer, and to cover living expenses until harvest time. Oscar borrows money for the same purposes. Just as Felix the student looked more relaxed, Felix the farmer now looks richer. Oscar has less to spend. Although both Felix and Oscar earn the same income, some of Oscar’s goes to paying off the interest on his loan. Again the problem is that Oscar is one step behind. Felix’s income goes to investing for the next season; Oscar’s income pays off last season’s loan.

These scenarios illustrate how scarcity is not merely about
physical resources. In both cases, Felix and Oscar have the same resources available, yet Oscar experiences scarcity whereas Felix does not. In the first case, Felix and Oscar have the same amount of work and time; in the second, they have the same amount of land and income. Their different outcomes come from how those resources are deployed.

This contrast between Felix and Oscar clarifies what we mean by a scarcity trap. Both face clear constraints, but Oscar is trapped into scarcity through his own behaviors. More generally, the scarcity trap is more than a shortage of physical resources. It is based on a misuse of those assets so that there is an
effective
shortage. It is constantly being one step behind, constantly paying off last month’s expenses. It is a way of managing and using what you have so that it looks and feels like you have even less.
An initial scarcity is compounded by behaviors that magnify it
.

We often observe scarcity in the world and overlook this feature. We might observe Oscar the farmer continuously borrowing, and we might think, “He spends too much. He cannot save.” We might see Oscar the student work long hours and miss deadlines, and we might think, “He works too much. He should slow down.” But once we understood the logic of the trap, we could then just as easily say, “Oscar spends too little (remember, he is spending less than Felix who has the same land)” or “Oscar doesn’t get enough work done (he works more, accomplishing no more than Felix).” The problem is not how much is being spent but
how
it is spent. The perpetual borrower is spending less on what he wants; a lot of his income is going to paying off loans. The person who is perpetually behind is spending less time on getting things done; a lot of his time is going to playing catch-up. More concretely, we might look at the vendors and think they have too little money to save. We might think they have too little income. This is of course true. But scarcity traps them for another reason as well.

In this chapter, we describe scarcity traps, how they operate and why we fall into them. And why, like the vendor who does not put
aside her 5 rupees a day, we do not do the things that would get us out of the scarcity trap.

To understand why we stay stuck, we must first understand an overlooked feature of scarcity traps. In our own work we first encountered it while doing a project with the economist Michael Faye on jewel loans in the rural villages of Tamil Nadu, India. These loans are the equivalent of pawning jewelry. We were working with a bank in a poor village that was offering
jewel loans at 13 percent annual interest
, and we were surprised to discover that customers routinely preferred to do business with the local moneylender, who charged a much higher rate, more than 70 percent interest. The prevailing wisdom in the village was that jewel loans were used in emergencies; they were a “last-minute” resort. And the moneylender was always there. He had flexible hours. You could knock on his door on weekends and get a loan, whereas the bank was only open during the week and part of Saturday. But, of course, in an emergency you might not be able to wait. It’s what you would do once you tunneled. It made sense, at least at first.

But then we saw the data on exactly what counted as an emergency. Number three on the list seemed reasonable: medical expenses. Numbers two and one were more puzzling: school fees and seed purchases. People presumably knew long in advance when school fees would be due and when they would need money for planting. How could that have been an emergency? In fact, when we dug deeper, even some of the medical expenses were not real emergencies; the money was being spent on planned surgeries such as cataracts or childbirth. Why were people reacting to these events only at the last minute? Why were they treating routine, scheduled events as if they were shocks?

Surely you must have experienced this before. When you are
focused on making ends meet this week, you are not dealing with the details of what next week holds. And then, when next week arrives, some things it brings, which you should have anticipated, surprise you. You missed the one-week-prior-purchase discount on an airline ticket you long knew you needed, or you report to your spouse with embarrassment that there are no longer any tickets available for a show you enthusiastically agreed to go to long ago. At work, after frantically finishing one project, you are stunned to realize you have only two days left to work on another. Only recently that deadline was weeks away. What you always “knew” is now a rude surprise.

Play this out over time and it leads to what we call
juggling
: the constant move from one pressing task to the next. Juggling is a logical consequence of tunneling. When we tunnel, we “solve” problems locally and temporarily. We do what we can in the present, but this creates new problems in the future. The bill today generates a loan, which becomes another (slightly bigger) bill in the future. The cheap medical treatment works for a while, but we will need more expensive medical attention later. With many balls in the air, we focus on the ball that is about to drop when we tunnel. Sometimes we solve the problem for good. More often than not, we catch the ball just in time, only to toss it back in the air again.

Juggling is why predictable events are treated like shocks. When you juggle, you tunnel on the balls that are about to drop, and you neglect those high in the air. When those balls “suddenly” descend, they are news to the tunneled juggler, a shock if you will. An observer might see the ball coming down for quite some time. As disinterested parties, we can see school fees looming. To the poor juggling their finances, they only become real when they are imminent.

This way of managing scarcity leads to a messy balance sheet. As we reach repeatedly for the most proximate solution to the most immediate problem, over time these short-term fixes create a complex web of commitments. The result is a messy patchwork of assets and obligations. For the busy, this means burdened and contorted
schedules of the kind we talked about in the opening chapter, with “near toppling” piles of to-dos and double-booked appointments. For the poor, it means complicated financial lives. Detailed research in the fascinating book
Portfolios of the Poor
shows that the poor use
about ten distinct financial instruments on average
. In Bangladesh one instrument—a short-term interest-free loan—was used more than three hundred times by forty-two households in one year. At any point in time, the poor in these surveys owed and were owed money from numerous sources, a patchwork that was created through months and even years of tunneling on the moment’s most pressing problem.

Decisions—whether about a new purchase or a new investment—must now navigate this increasingly complex patchwork. The legacy of previous choices makes each new one even more challenging. By juggling we—through our own behavior—make the problem more complex. The messy balance sheet of the scarcity trap increases the complexity and challenge of making ends meet.

Juggling is not about being busy in time. In some places, the poor hold multiple jobs and are truly busy. But in other places, they have plenty of free time, and they still juggle. In farming the end of the harvest cycle is when there is the most juggling. This is the time when the income from the previous harvest has run out. This is when, in our studies, people showed lower fluid intelligence and diminished executive control. At the same time, this is when farmers have little to do other than wait for the crops to be ready. Time-use data suggest
they work very few hours those days
. And yet there is a lot of juggling happening. Juggling is not about being harried in time; it is about having a lot on one’s mind. Much of one’s bandwidth ends up being devoted to the balls in the air that are about to fall.

These two features—being one step behind and juggling—define the scarcity trap. Life in the scarcity trap is about having even less than you could have. It is about playing catch-up, dealing with each ball just before it lands and the messy patchwork that emerges as a
result. And much of this is a consequence of behavior under scarcity, which raises an obvious question. Why? If there are several ways to manage a fixed resource, why do we get stuck with one that is so terribly inefficient? Why do we not get out of the trap?

We have already seen one primary reason we stay stuck in scarcity: tunneling leads us to borrow. And when interest rates are high—such as with the vendors—then this very basic impulse creates more scarcity. This is not just the story of the vendors; it is also the story of Sandra and her payday loans from
chapter 5
. Though this mechanism is powerful, the psychology of scarcity makes it hard to get out of the trap for other reasons as well.