We Will Not Live in a Post-Scarcity Economy

I've been asked a lot about the "post-scarcity economy" as it relates to policy going forward. I have done some research into the economics of this and decided to not seriously consider the question as I've concluded that we will never live in a post-scarcity economy. The technological changes required would be so vast that society is unimaginable.

One example that someone suggested would be that food would be so abundant that one could just walk into a store and take it for free. While we may develop enough wealth that anyone can trivially afford food, there will never plausibly be a place where one can walk into a store and walk out of it with products without exchanging money or resources.

Why Can't it Exist?

We may within our lifetimes have enough productive power to produce enough goods for everyone to have their needs and comforts met, and this would be great. But there are two primary reasons that there will not be a "post-scarcity economy."

First, we have to define "scarcity" from an economic perspective. It consists of the idea that there is more demand than supply of a good; that is, if there was more supply, it would be used. Why wouldn't supply of most goods ever be greater than demand?

The first reason is that there are limited quantities of raw materials, and we can always find ways to use them when they are cheap. What do I mean by this? Let us imagine aluminum: there is a certain amount in the earth (and, in the mid-term future, on nearby asteroids). There is some limited amount, no matter how much is being produced. 

When a great deal of it is produced, the price goes down, and demand goes up to use it: more airplanes and buildings are built, more bicycles and lacrosse sticks, etc. There is not enough aluminum for every person to own their own airplane, large building, bicycle, lacrosse stick, etc. Therefore, there will always be a "scarcity" of aluminum--when more is produced, it can be consumed as people decide to build things with it. 

The second, and more interesting reason, that one cannot walk into somewhere and get something for free is that prices are necessary to get things where they need to go. How do you get aluminum to a remote part of Iowa? Someone bids for it, and that aluminum--which is not infinite in supply--goes to Iowa rather than some other location. If it were free, everyone could request aluminum from a limited supply of it, and it would not be clear whose request should be honored, and whose ignored.

Similarly, let's say you own an aluminum smelting facility. How do you know whether to create sheets 1/4" thick, or 1/2" thick? How about how many beams, and of what size, for buildings? Or tubes for bicycles? If you did not have information of who wanted what and how much, where, and how much they wanted it, there would be no way to determine the production schedule. Even if you had an infinite amount of aluminum, you would need to produce an infinite amount of each product and send it everywhere to meet demand if you did not have some sort of bidding mechanism--prices--to determine who really wants what. Making it "for free" cannot work. 

And further, how do we know how many aluminum facilities to build, and where, to process and distribute aluminum? We cannot build an infinite amount; each of these also requires material. Same goes for the mines, and the trucks to transport them. There must be a limit, and the way to determine what and where to build is determined by the bidding for different kinds of aluminum in different places. Those bids--the relative demand for different kinds of aluminum in different prices--are reflected by prices. 

For even a simple commodity like aluminum, prices are critical to determining what forms of aluminum to make, how much to make, and where to send it. In a "post-scarcity" economy of no prices and enough aluminum that everyone might want--no matter how much they might want it--the manufacturing and distribution process simply cannot work.

What Would it Take?

You'd need to be able to, on-demand, convert some type of matter into an arbitrarily different type of matter. So, basically, Star Trek Replicators. Maybe something-something nanobots.

What Could Exist Instead?

The alternative is that everyone has enough money that they can buy their needs and comforts without needing to be employed. This could come about in a number of ways; one plausible scenario is that AI and automation are so prevalent that most people are largely unemployable, and basic income is distributed to all.

This may be what people mean when they mean "post-scarcity economy," but it will not be an economy in which "scarcity" in any meaningful sense is eliminated. 

Basic Income may also not be a totally utopian solution

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Erik Fogg

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