The Scarcity Principle

Depending on whom you ask, “economics” gets defined a bunch of different ways.

Most textbooks, mine included, tend to evaluate economics under the lens of resource allocation:

  • Who gets what, and at what price?
  • What things are produced?
  • How are the gains from specialization and trade distributed?
  • Why do decisions get made the way they do?

That misanthropic fogey Malthus introduced us to the dismal side of the science, telling us we’d all starve. He was, happily, wrong.

Adam Smith, the great padre of modern econ, was also wrong from time to time. It happens.

But both guys’ essential pursuits were to unravel the mysteries of how finite resources get allocated. And in doing so, they wanted to help us overcome the single thing our entire human history has always been about.

Use the Scarcity Principle to improve your life.
Use the Scarcity Principle to improve your life.

The thing that concerns us most of our waking hours.

The thing that makes diamonds costly despite being essentially worthless, and water basically free despite being undisputedly essential.


Where’s Waldo?

When you boil it all down, that’s why you’re reading this site. You’ve got a finite life to live. You’ve got a limited amount of money to spend. You’ve only got so much energy to burn.

Everything that really matters seems more perishable and harder to find than good hygiene at Burning Man.

You want to make the good stuff somehow less scarce, and what’s written in places like FinanciaLibre might be able to help. This is a valid and most righteous pursuit.

But, fine Luchadores, this pursuit can be misguided.

The fact is you can’t escape scarcity.

It simply is.

It’s gonna follow you around everywhere, just like that coworker who’s always loitering in the hallways, ready to talk for hours while you politely try to get back to work.

Kind of a bummer, bro, this whole scarcity thing.

Indeed. But there is a pretty brotastic upside.

A leading driver of innovation over all of human history is scarcity.

Dealing with it. Taming it. Working around it. Overcoming it. The essential narrative of we as a species has been scarcity-provoked invention.

Not enough heavy stuff in Place A or too much in Place B? Make a wheel (or two).

Foraging sufficient seeds and leaves in the wild is getting tedious? Invent a farm.

Bored on Sunday afternoons? Conjure up a pro football league.

In other words, as a human, you’re pretty much a purebred specialist in surmounting scarcity. Your every sinew, synapse and corpuscle derives from a long line of particularly adept scarcity-killers.

These forebears didn’t fret the presence of scarcity. They didn’t cower in the corner while limited resources ravaged the village. They didn’t wet the bed. They invented outhouses. And urinals. And entire en-suite bathrooms with steam showers and smart toilets and radiant floors.

And now, we, the great-to-the-nth grandchildren of these ancestors, have a noble call to heed. It’s our great honor to nudge the mountain of human innovation forward.

Which means we ought not fear scarcity. We shouldn’t hate it or run from it. We don’t need to hide.

We should embrace scarcity. Invite it in for tea. Give it a nice foot massage. Get to know it. Own it. Use it to push ourselves, to motivate, to focus attention where it’s needed, to achieve greatness.

There’s Waldo

Why do I bring all this up? Why don’t I just stick to things like portfolio allocations, correlation coefficients and free cars?

Because, at the core, everything on this site and, indeed, virtually everything I’ve ever written in a professional capacity, is about scarcity. And for good reason.

In my work and in my personal life, the truth of scarcity has been a profound motivator for achievement.

Scarcity is the foundation upon which great edifices of invention and efficiency are built.

And this, actually, leads to the upside of accepting greater scarcity into your life, or merely recognizing resource limits that already exist. This acceptance/recognition is a precursor of efficient invention.

It’s a prerequisite to your best, most inventive, most resolute, most efficient self – your awesomest life.

All that’s needed to go from a scarcity-fearing-varmint to a scarcity-owning-Luchador is one tiny adjustment to perspective.

The presence of scarcity is not, as most society would tell you, a thing to avoid. Rather, it’s a field guide. This is the Scarcity Principle.

If there’s an element of particular scarcity in your life, that’s where efforts to invent, impose efficiency and disrupt should be most aggressively directed. Scarcity is a flashing neon sign screaming at you from across the street: Look here! Do something novel to fix this! Get started! Your life depends on it!

It’s that simple: If there’s a shortage of something good in your life, the Scarcity Principle tells you to focus your attentions there – to innovate yourself out of that shortage, to transform it into a surplus.

Easy, right? Well, it can be. But the trouble is how mangled this obvious-seeming logic has gotten in today’s society.

Instead of running to the contact, imposing one’s will on the universe and applying the endowed wisdom from our scarcity-crushing ancestors, most of our peers ignore scarcity in their lives or, worse, attempt to hide it.

This is nowhere more evident than in the consumption patterns, household debt levels and retirement debacles of us modern Americans.

“I’ve got student debt up to my sternum! This is my new Acura! My retirement age is 139!”

If you have a scarcity of money, why compound the problem by behaving like you don’t – and making money even scarcer as a result?

That’s Not Waldo

It sounds ludicrous that anyone would do that kind of thing when it’s phrased this way. But it happens all the time. All around us.

What’s more: It’s not only irrational behavior; it’s irrational behavior that’s inconsistent with how we act otherwise.

We’re more than ready to let everyone know we have a scarcity of time and to act accordingly. We do this despite the fact that a person’s perceived “scarcity” of time is really just a measure of his ineptitude. “So busy today; gotta run! I have so much to do! I’m terrible at allocating each day’s absolutely predictable and static number of hours!”

Why do we trumpet our utter incompetence at personal management and conceal our near-universally-shared source of financial stress? News flash: If you’re concerned about your financial situation, that places you squarely in the fleshy part of the distribution curve in the U.S.

Most Americans are concerned about their finances. And those who aren’t – perhaps especially those who aren’t – should be.

Which leads to the $12 trillion questions:

Why do we refuse to innovate where we really need to?

Why do we eschew financial efficiency, economic well-being and lifestyle disruption to keep servicing the ho-hum habits that make us worse off?

Why do we force-feed unnecessarily large levels of money at problems – like personal transportation – that can be solved cheaply?

The answer: We do all this irrationally destructive jiu-jitsu on ourselves because we all have one kind of deficiency that seems built into our DNA.

We’re total, degenerate, irreparable pushovers. We’re societal drone-slaves. We jump off the cliff just because everyone else does. We know they don’t like it, and we know we shouldn’t. We know how the parade ends. But we do it because – man oh man – we really care about convincing total strangers that we don’t face any financial scarcity in life.

“This new Acura has leather seats that are perforated just like my brain.”

This Is Waldo

Hence the change in perspective that’s needed, Luchadores, to finally take the presence of scarcity and make it work for you.

Please kindly take note of the following: Your self-worth isn’t a reflection of the kind of meat crate you drive or the size of living room you vacuum each week. Your self-worth is a reflection of your contributions to your family, community, profession and environment.

You can stop worrying about the stupid crap that seems to preoccupy our society. You don’t need to fret over whether your meat crate is as nice as Mr. Joneses’.

Liberate yourself from the societal-drone mindset.

Doing so frees you to figure out the next great mode of efficiency, the next outstanding workaround, the next game-changing way to do what you need to do. It enables you to use the scarcity you face to make life better.

How, exactly?

Dedicate resources to those places where scarcity exists in your life, and reduce resource allocations where you already have abundance.

If you have a deficit in your finances, follow through with easy practices that save money and make money. We talk about that kind of stuff right here. And use your own genetically-endowed human ingenuity to make each dollar go further to reduce the need for dollars in your everyday. Don’t spend money to buy more of something that’s already abundant in your life, like unnecessary stuff-things; do invest smartly for the long term.

The car example is too useful to ignore here: Do you really have a scarcity of transportation capabilities in an efficient, used, well-kept car? No. So don’t go making your already-scarce money scarcer by buying more transportation capabilities. Read: You don’t need a brand new car (or F-150), and if you have one, you ought to trade down for a more efficient ride. Unless you’ve already got more money than you know what to do with – in which case, spending 10x to 20x on transportation capabilities is totally reasonable.

If your health is just ok, spend some of your time and ingenuity resources shoring it up. Jog, do pushups, take the stairs, eat better.

Do you have a shortage of calories in your life? Luckily for us in America, the vast majority can answer this question in the negatory. So skip the expensive, calorie-intensive Big Mac and go for a homemade quinoa recipe instead.

If your life awesomeness is lacking, figure out exactly why – what in particular isn’t great? – and set your mind to righting it. Find the scarcity and eliminate it.

And do it directly.

“Directly” means: Don’t misperceive the sources of any shortfalls in your life.

If you feel stressed that your life isn’t unfolding as planned – you’d hoped for more freedom and flexibility, more travel and adventure – then don’t drop five figures on a sparkly new car thinking it’ll make you more satisfied while you’re locked down where you are. It won’t. It’ll just make your predicament worse.

Put that five figures to efficient use by changing your life so that you obtain more freedom, flexibility, travel and adventure. Maybe you invest it for a better manana. Maybe you use it to start a business. Maybe you use it to move somewhere you’d rather live and start a new more flexible, more adventurous life.

To really succeed at this, look for win-win-wins.

Grow your wealth, health and total life awesomeness every day by leg-sweeping scarcity through acts that multiply your input efforts into ridiculously rich outputs.

As an example, ditch your car and hoof it or pedal your Huffy: It saves you scarce money resources and provides you beneficial cardio and hulking mailman calves along the way.

Lose the remote and hang out with your family and friends for real. It’s a profound difference-maker in people’s lives, doesn’t cost a thing, and it’s doubtful you’ll look back on your life and despair over a shortage of TV-watching hours.

Get the F over what other, judge-y, know-nothing drone-slaves might (but probably don’t) think about your efficient, smart, awesome life. You’ll be happier, more in tune with what makes you tick and less likely to engage in the sorts of counterproductive behaviors that get people shackled into debt for the rest of their lives.

This is the Scarcity Principle in action. This is how you use what’s scarce in your life to directly, efficiently and awesomely make your life better. Every single day. And that’s really what good economics is all about.

Luchadores, what’s something good that’s scarce in your life, and what are your plans to make it abundant?

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