Scarcity Never Goes Away

Economics, specifically Microeconomics in Everything

One of the best quotes by Thomas Sowell is “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

Thomas Sowell is an amateur photographer. One of the things he has said he loves about photography is that when you set up to take a photograph, you have to adjust the lens. More field of vision means there is an opportunity cost for something else. More light, another opportunity cost.

This morning, I read this pretty deep essay by Packy McCormick. It’s on Hyperlegibility. His point is that humans try to take things that are randomized and make them legible so we all can see and understand. It’s worth your time and worth spending time thinking about.

We are at a point in technology where things are starting to move very quickly. AI, and other advances in technology are opening up a whole Pandora’s Box of innovation. As non-technical humans, how do we make sense of it all?

We can’t stay cutting edge in engineering or science. It’s just impossible, and if you aren’t working in those fields what benefit would you receive by becoming cutting edge? (Hint: there is an opportunity cost)

The one thing I have found that works to help you decipher and think about things is Microeconomics. Not Macroeconomics. Our public discourse is filled with macroeconomics. Our political discourse is filled with macroeconomics.

Macroeconomics is mostly uncertain. It’s subject to a lot of variability and argument. It’s not as objective as microeconomics.

There is a reason the best business schools in the world teach accounting and microeconomics as their first two courses. They are the tools for analysis to make good decisions. Accounting shows you history and where you have been. Think of it as the wake you see behind a boat. If you make forward-looking decisions based on accounting, you will make bad decisions.

Probability and statistics help with decision-making, too. But, without a solid microeconomics base, they are meaningless. Corporate finance can run numbers for you and

Microeconomics helps you forecast. Microeconomics helps you with operating the business day to day. It distills complex concepts down to a number. If you understand basic calculus, you can grasp microeconomics. Everything happens at the margin.

One of the classic equations in microeconomics is MR=MC. Businesses strive to produce to the point where marginal revenue equals marginal cost. The “marginal” means the cost to do one more. This is why software was revolutionary. The cost to do one more became next to nothing.

The trick is in calculating all the costs correctly and that’s where businesses often lose objectivity. They bring in subjective ideas that aren’t about the real costs of doing business.

If you want to try and make sense of a fast changing world, take a class in microeconomics. Understand the core concepts. They are flexible and can be applied anywhere.

One of the first lectures I heard at Chicago Booth was by Kevin Murphy. He talked about a “marriage market”. There is a supply and demand curve for marriage with corresponding marginal costs but also marginal revenue. Your life can be exponentially better if you are in a good marriage.

This brings me back to Hyperlegibility. As the essay says, we are forced to make ourselves hyperlegible, even if we don’t want to. It’s because of MR=MC. This passage in the essay opened my eyes quite a bit.

My friend Tina He wrote an excellent essay last week, Jevons Paradox: a personal perspective. She noticed that instead of letting us work less, AI actually incentivizes working more. The more you can do in each minute, the higher the opportunity cost from not doing anything. The problem is, even if everyone agrees that’s not what we want, who blinks?

If you work less, someone else will happily take your slice of the pie. She calls it a Malthusian Trap; it’s like Scott Alexander’s Moloch or a Red Queen’s Race: "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"

Same same here, with Hyperlegibility. You could opt out, stop publishing, encrypt yourself. Someone else will happily fill the vacuum.

Attention is the scarce resource. Information you can get.

Information, long alpha, becomes beta.

Do you think American society is out of step or in step with the above concept?