Understanding Scarcity
For some time now, Americans have been fixated on inflationary conditions in our economy — and that is with good reason. We are paying more for everything. A lot more. In fact, the official measures suggest a 7.9% increase in our annual rate of inflation, the largest increase in inflation since 1982. The jumps in consumer prices are being felt in everything from automobiles to construction costs; literally, no sector of our economy is immune. And so, it is unsurprising that food and energy are also costing us more. Energy costs were up 25% in January, with gasoline costing drivers 41% more than just one year prior. And the cost of eating a meal at home was up by 8.6% in January, as well. Yes, Americans, fresh from the exhausting uncertainty of the pandemic, are having to dig deeper into their wallets to buy the items necessary to live.
This is not quite the consequence of one politician or another. It would be quaint to think that could be true, but the truth is a lot more complicated. Our economy is a cyclical creature that ebbs and flows, and we are living through one of those moments when a period of uncertainty is fading and our rapacious consumerism is reigniting. Consumer prices began rising just as the Biden administration came to power. Incidentally, Americans were also returning to work, traveling more broadly, and beginning to reconnect socially, in 2021, as vaccines offered greater hope for dealing with the pandemic. (Yes, I am admitting that Donald Trump did something right.) The renewed everyday activities of Americans bolstered demand, but that greater demand came at a time when a wide number of supply chains were still affected by the material and labor shortages resulting from the pandemic. There were even notable bottlenecks in the logistics space, significantly delaying the distribution of goods. All of this amounted to fewer items on store shelves for consumers ready to spend. Consequently, when higher demand meets smaller supplies of anything, the effect is higher prices passed down from producers to those consumers, and that is how we got to where we are now.
Interestingly, when it has come to the energy question, in recent days, President Biden has tried to hang the blame for the run-up in costs on Putin’s brutal and unprovoked invasion of Ukraine. This is also not entirely the truth. Energy prices, like most consumer prices, were also on their way up for precisely the reasons stated above. Putin’s war only accelerated their rise as a product of our fear. The truth is that Russia only exports about half of its daily production, 5 or 6 million barrels of oil, to a world that consumes nearly 100 million barrels of oil per day. Much of that supply is purchased by European countries. Meanwhile, here, in America, Russian oil is not a significant factor — only 8% of our consumption last year.
So what is driving prices at the pump? In one word — scarcity.
You see, by its very definition, scarcity is the state of a thing being in short supply. When we think something could become less easy to obtain, fear convinces us to believe that it is scarce, and that scarcity encourages us to pay more for that thing, to speculate on the future value of that thing, and to horde that thing.
The notion of scarcity led me to scribble a few lines here. Okay, well, a lot of lines. Nevertheless, I think it is poignant to give this concept some consideration, particularly because scarcity is a genuine part of our lives, whether we are staring into the face of $100-plus oil or clamoring over other shoppers for next Christmas’s hottest toy. Indeed, if you suggest to the world that there will be a disruption to the flow of hydrocarbons, whether through war or a debilitating storm in the Gulf of Mexico, then you can run up oil prices on fears of scarcity. If you build a robot that can do everything, and then say “…while supplies last”, then you can create chaos, and drive prices on this robot up astronomically, even though you might secretly have an extra 60,000 units sitting in a warehouse in New Mexico … Buy now, think later — this has been the name of the game since the dawn of man.
Scarcity has a long history. Scarcity drove greedy Romans to conquer more and more lands, and, more importantly, it fed their need to control the resources of those lands for the Glory of Rome. Scarcity led avarice Europeans to kiss off the Ottomans, and to find new sea routes to The East, accidentally discovering a whole new hemisphere in the process. Scarcity created a justification for empire-building by those same Europeans, and they instituted mercantilist practices to control the resources of their colonies. Scarcity led Europeans to the enslavement of African peoples to answer a daunting labor question on a new continent. Scarcity prompted men to overthrow kings and establish in their stead democracies, all with the radical ideal of governance by, for, and of the people. Scarcity encouraged us to push west on this continent, and to unapologetically stomp out a host of indigenous peoples in the process. Scarcity led us to innovation — to faster transportation, to better communication, to viable infrastructure, to an Industrial Revolution. Scarcity led men to plunge head on into the stocks of early companies, creating (adversely) over-investment in oil, railroads, steam vessels, and telegraphs. Scarcity led this nation to civil chaos, when an industrial North demanded that its Southern brethren modernize for the sake of more production (“…and, by the way,” said the Yankees, “get rid of those slaves”). Scarcity stoked the first wave of globalization, in the age of Victorians, which led empires to dispute over territories and colonies and spheres of influence, and then led to WWI. Then scarcity led to the Roaring 20’s, a good time of over-abundance, financed by one bank after another, willing to build onto the house of cards. But then scarcity took the roar out of the bull, and killed it with depression, a great one, when we suddenly realized that there was really no money to be had. Scarcity led decent men and women in a battered country to seek salvation from a madman that promised a “fatherland” and the ascension of a master race, all built on the backs of the enslaved, inferior races. That scarcity led to invasions, and those invasions led to WWII. And then, when that was over, scarcity led to the ascension of America to fill in the void of leadership left in the devastated world. Scarcity propelled the Organization Man into the suburbs and transformed him into the Hydrocarbon Man, according to Daniel Yergin, while also encouraging his black and Hispanic brothers to step to the front of the bus. And then scarcity led disadvantaged Muslims — who knew their land was rich, though they continued to live in dirt — to cry foul, kick out the oil companies (and some of their own rulers), and set up their own systems of government. Scarcity created the Cold War, the oil shocks, Enron, global terrorism, Patrick Buchanan, the Bush family, the financial crisis, Barrack Obama, Donald Trump, and America’s recoil from the world stage … But scarcity also created some good things, too: public schools systems, new sciences and medicines, the internet, your HD televisions, Google, Amazon, Starbucks, Elon Musk, smartphones, and wonders like the human genome project.
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Fear, especially the fear of never having enough, has always driven men forward. It has brought out the best in us, leading some men with a thirst for knowledge to seek education, or others with a thirst for redemption to seek salvation. But it has led to some of our worst aspects — crushing debt, the horrors of war, addiction, and the sacrifice of morality…It is important that we measure what is legitimately a fear and what is hype — lest we will always fall into situations where we harm ourselves (i.e., an overreaction to news of a disaster) or where we deprive others, due to our own misunderstanding (i.e., anti-immigration movements); lest we allow fear to taint us in ways that do not go away (i.e., the Rwandan genocide); and lest we even allow fear to suspend our rights (i.e., the Patriot Act)…
The premise: truly know your enemy, and you will be surprised to learn that it is not whom you think.
That enemy — more often than not — is our own fear, residing and stirring deep within us. And it often takes control of our impulses and steers us in ways that only feeds the anxiety around us. Just as iron sharpens iron, fear, too, is a fire that lights itself.
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This is a bigger issue than the pain we face at the gas pump or in the supermarket. Runaway inflation points to those global problems that Americans cannot control. And so, Americans have yet another reason to recoil from the idea of their nation as the global superpower, and they come to question the benefits of globalization. Too many of them had already been bludgeoned by financial, demographic, economic, geopolitical, and technological anxieties. Now the challenges posed by rising consumer prices upend their household budgets, and this is particularly true for working-class families and those on fixed incomes. No one wants to think of a global role, when there is so much to do to improve conditions, here, at home.
Perhaps this helps to explain the coarseness and unease in our society. Perhaps this is also why “re-shoring” jobs and undoing global supply chains is a popular idea. And perhaps it is understandable why Americans have no appetite for foreign wars and harbor a healthy distrust for their leaders in Washington, D.C., and in statehouses… The anxieties of the people are now being given voice with the ascent of nationalist-populist leaders and progressive leaders from opposing sides of the political spectrum. And unfortunately, because moderate politicians do not seem to meet the moment, they are being shown the exits.
None of this means that Pax Americana is over — nor does it suggest that the world order we built in our image is broken. The enemy is not the system that created an age of abundance for vast swathes of the world, and as we try to fix it, we must be careful to assign blame only where it is due.
This is no justification for trashing globalization in our pursuit for greater self-reliance. Indeed, in calmer times, globalization has been of great benefit to American households, because bringing down trade barriers made the world smaller and brought down the prices of everything from sugar to machinery and from grapes to cotton sheets.
Everyone benefited when markets were made efficient and integrated. It does seem that, for a time, no two countries with McDonald’s — or, as Thomas Friedman pointed out, no two countries with an integrated supply chain — had ever attacked each other. The people were too busy trading and growing together. And so, that was the case, until autocrats like Putin showed the world that political ambitions as a destroyer could trump capitalism as a bringer of peace.
Even still, America’s best bets lie in the ongoing promotion of its liberal democratic values and capitalist ideals. Reactionaries all over the world know this. They have seen lives made better through democratic governance, open markets, freer flows of information, individual determination, trade, access to finance, better education systems, improved infrastructure, and better health care. These despots and zealots cling to old ideas and to the thoughts of dead empires, and they attempt to shield their people from the alternative, because they know that, once those people taste economic prosperity, they will not easily be subjugated again. Just look at how ferociously free Ukrainians are battling Russian invaders.
Perhaps thinking in these terms does not solve the immediate problem we face with higher energy costs. But, for many of us, here, this should help us understand the cyclicality of our global economy, and it should keep us from pointing fingers at scapegoats. This moment of high prices will subside, as the markets will correct themselves. What’s more, as we explore longer term solutions to our vulnerabilities, like the issue of energy security, this perspective can keep us from dismantling the system on which our world is built. You see, global trade is not bad. And the only way we can remain a leader in a world built on it is to remember that we, in fact, built it with the ideal of scarcity at its heart. The irony now is that, through scarcity — through a fear of being duked by some in the world, like China or Russia — we will be at our best, again, because we will have to out innovate the rest of the world — or perish.
That probably sounds like the words of a Social Darwinian, but they are true. And here is the catch: the only thing that I will remind you is, even as we innovate ourselves into tomorrow, we must protect those too weak, too old, or too defenseless to protect themselves today. Inflation like we are seeing now hurts those without means the most; it robs some people of the extra savings they have, while forcing others to make painful choices about necessities. These people deserve our consideration and our help. And if we don’t give it, we should not be surprised to see how they react or, worse, who they elect.
