Review: Scarcity

“The truly efficient laborer will be found not to crowd his day with work, but will saunter to his task by a wide halo of ease and leisure.” – Henry David Thoreau.

I didn’t do as well in college as I did in high school. I went to community college immediately after high school, which required me to have a car. Paying for the car required that I have a full-time job. The job took away from the time I had to study. I was constantly playing catch-up, sacrificing the important for the sake of the urgent.

This is my experience with scarcity, so I appreciate what authors Sendhil Mullainathan and Eldar Shafir have to say about how scarcity – whether physical, mental, or financial – affects people’s ability to make decisions.

The early chapters focus on building a vocabulary. Focusing and tunneling have cognitive benefits, but they also have disadvantages. There's tunnel vision, of course, plus something the authors call the bandwidth tax. When a person's over their capacity, any new stressor causes them to drop something.

The authors use packing and slack in the context of a vacationer packing a suitcase. Those with resources to spare can afford to make a mistake (like bringing a coat for a trip to Hawaii), but those with small suitcases require greater focus to make good decisions. Expertise can help, but the cost of a bad decision has a bigger impact on the person with the small suitcase.

The demands of short-term goals detract from a person's long-term capacity. Staying up all night to study for a test can provide a short-term boost to performance, but constantly doing it results in worse overall performance. This sounds like a character problem, but “Myopia is not a personal failure. Tunneling is not a personal trait…. Rather, it is the context of scarcity that makes us all act that way. Tunnels limit everyone’s vision.” P121

Persistent borrowing from the the future like that leads to a scarcity trap – people end up constantly juggling short term crises, one after another, and can never escape. They’re always one step behind. Getting out of a scarcity trap requires that a person take a step back and make a plan, but the risks of a dropped ball force the person to keep juggling.

"Escaping the scarcity trap does not merely require an occasional act of vigilance. It requires constant, everlasting vigilance; almost all temptations must be resisted all the time.” P132.

How can we fix the problem? A one-time payment to eliminate debt does not solve the problem – lack of slack means in the long term, people will mess up eventually. Hourly workers can face intermittent employment and varying hours. A buffer against shocks would smooth the instability, but a buffer is exactly what people in that situation are least likely to have.

If you've never experienced it, this is what it's like to be poor.

“If you want to understand the poor, imagine yourself with your mind elsewhere. You did not sleep much the night before. You find it hard to think clearly. Self-control feels like a challenge. You are distracted and easily perturbed. And this happens every day. On top of the other material challenges poverty brings, it also brings a mental one…..The failures of the poor are part and parcel of the misfortune of being poor in the first place.” P161.

So there's room for empathy. Yes, poor people make poor decisions, but that's as must a symptom as a cause.

“To understand the poor, we must recognize that they focus and they tunnel and they make mistakes; that they lack not only money but also bandwidth.” P163

*****

While the first two parts of the book are about building a common vocabulary, the third is about the policy implications of scarcity.

It begins with the WW2 problem of bomber pilots committing “wheels up landing” errors. Instead of putting the flaps down when they landed, they instead pulled the lever that retracted the wheels. Strangely, this only happened to bomber pilots, not transport pilots.

Was it because bomber pilots were stupid, unmotivated, untrainable, or careless? No – it was because the two different levers were located right next to each other, and looked very similar. Given all the bandwidth that landing a bomber plane requires, the problem was one of scarcity – in this case, mental bandwidth. The pilots weren't dumb -- they just had a lot going on.

To correct the issue, the investigating officer recommended putting a rubber stopper on the landing gear lever, which fixed the problem. (As a side note, this “dummy proofing” is called poka-yoke {ポカヨケ} in process improvement circles.)

These kinds of solutions have far-ranging implications. If a student is doing badly in school, is it always because they’re bad students, or could it be viewed as a scarcity problem? My own experience suggests taxes on mental bandwidth are a significant factor.

The authors then look at how this applies to aid programs. We assume the problem with the poor is their lack of understanding or motivation. We design aid programs around the “stick and carrot” approach, looking to incentivize certain behaviors, while ignoring the fact that we are treating people as nothing more than dumb animals.

If the carrot/stick approach isn’t even appropriate for training animals (sticks don’t work), it’s even less applicable to people. So why don’t we – as in the wheels-up landing problem –design programs to be more fault-tolerant? If SNAP (food stamp) recipients find that money is always tight at the end of the month, why not make distributions weekly?

If a person has ever benefitted from the rumble strips along the side of the road (which doesn't "fix stupid" but still helps), they can also support better-designed social systems.

“Perhaps the problem is not with what these programs are trying to deliver, but with the actual delivery….[And a] better design will have to incorporate fundamental insights about focusing and bandwidth.” P181

*****

Another anecdote I find particularly relatable is the story of St. John’s Regional Health Center. They had problems because of a chaotic schedule, with near-constant emergencies that disrupted workflow – creating slack made things more efficient because contingencies could be addressed without interrupting work flow.

Designing systems to better benefit the poor *is* possible. After all, we've already designed systems that make it harder, right?

Consider the ways banks will approve debit card transactions without available funds and then charge high overdraft fees. They'll also approve high limits for credit cards, and charge high interest. And leading up to the 2008 financial crisis, they approved sub-prime mortgages for those who couldn't afford them, either.

A better system to help the poor would incorporate things that encourage impulse savings.The U.K. has retirement accounts that require people to opt out rather that enroll. Instead of pay-day loan vendors charging a $50 fee and keeping it all, half could go into a savings account in that person’s behalf.

“Imagine we imposed a hefty financial charge to filling out an application for financial aid…" Such a thing would be crazy. "Yet we frequently design programs aimed at people who are bandwidth-stretched that charge a lot in bandwidth.”

This point of view is not an excuse for irresponsible behavior, but better systems designed would allow more people to escape their scarcity traps. Hard work and discipline would still be necessary, but those who show it would be better able to escape instead of merely treading water.

Building better systems to help the poor starts with a better understanding of how people behave under conditions of scarcity, and this book is a valuable tool toward building that awareness.