independent news and opnion

Was Alexandria Ocasio-Cortez Right About the “Scarcity Mindset”?

0 12

In an earlier article, I suggested AOC misconstrued “scarcity.” She might have been right.

In a prior article for Arc Digital, I argued that Congresswoman Alexandria Ocasio-Cortez (D-N.Y.) misconstrued a basic principle of economics by conflating scarcity with distribution.

Here’s what originally caught my eye. During a town hall event to discuss education policy, Ocasio-Cortez took aim at the dearth of high-quality public schools in New York City. When a constituent in the audience tried to silence a heckler, the congresswoman remarked: “My concern is that this right here, where we’re fighting each other, is exactly what happens under a scarcity mindset.”

Given that Ocasio-Cortez was urging people to join her in a fight against moneyed interests corrupting the political establishment, I argued that she mistakenly employed the concept of scarcity to make a point about distributional justice. As I wrote:

AOC has a point when imploring her constituents not to fight each other in a town hall or compete over their children’s admission to elite school, and that they focus their attention instead on beseeching their political representatives to develop legislation to provide every child an opportunity for a “good” education. But that’s about distribution, not scarcity.

I employed the classic economic model of an Edgeworth box diagram to convey a larger point that “AOC presumes a one-size-fits-all model of high-quality education.” My point was that in doing so she fails to appreciate that a good policy in this context calls for an optimal alignment between resources available to a community and various preferences of parents and students about what types of schools their children should attend. (This is assuming, of course, that political negotiations can also pursue policies aiming at distributional transfers from rich to poor communities to ensure that poor communities have the resources with which to decide on an optimal tradeoff.)

Scarcity forces us to think about allocative efficiency. Distribution is a different problem that involves taxing rich communities to endow poorer communities with sufficient resources to design the policies they deem necessary to achieve allocative efficiency.

Since getting our concepts right is an important step toward meaningfully taking on social problems, I criticized Ocasio-Cortez for conflating two separate ideas. Was my criticism on target, though?

Astute readers have pointed out that I may have overlooked the concept of a “scarcity mindset.”

According to a write-up in Psychology Today, a 2013 book by University of Chicago professor Sendhil Mullainathan and Princeton professor Eldar Shafir attempted to “broaden the concept of scarcity” by accounting for how an acute awareness of scarcity can affect decision-making. Here are some questions the authors ask:

What happens to our minds when we feel we have too little? How does the context of scarcity shape our choices and our behaviors? They show that scarcity is not just a physical limitation. Scarcity affects our thinking and feeling. Scarcity orients the mind automatically and powerfully toward unfulfilled needs. For example, food grabs the focus of the hungry. For the lonely person, scarcity may come in poverty of social isolation and a lack of companionship.

Mullainathan elaborates in an interview with NPR: “When you have scarcity, and it creates a scarcity mindset, it leads you to take certain behaviors which, in the short term, help you manage scarcity but in the long term, only make matters worse.”

The “scarcity mindset” may function like a kind of tunnel vision. In such circumstances, our more measured priorities go by the wayside—scarcity’s psychological impact crowds out our more reflective selves, our long-term ideals. This might be why, according to Shankar Vedantam, “when we’re in a hole, we often lose sight of long-term priorities and dig ourselves even deeper.” As another article puts it: “When you have a scarcity mindset, all decision-making is based on the false notion that there isn’t anything else coming or that you can’t make more money.”

Under the scarcity mindset, you can become “jealous of others”—such as, for example, being resentful about the dearth of high-quality public schools in New York City—such that you impulsively jump into the fray at a town hall meeting rather than call for cooler heads to prevail because a more important, longer-term objective of improving the quality of schools is at stake.

I was not initially prepared to concede that Ocasio-Cortez used “scarcity” correctly. Some readers had suggested that rather than conflating scarcity and distribution, Ocasio-Cortez asserted that a “scarcity mindset” was preventing cooler heads from prevailing. Even so, here’s why I resisted.

First, AOC and I both have degrees in economics, so it seemed reasonable to assume she had “scarcity” in mind when invoking a “scarcity mindset” as an impediment to productive exchange about education policy and distributional justice. Second, she invoked a “scarcity mindset” without further elaboration—it was just supposed to describe the tension in the audience, but it wasn’t clear how. Third, even if one acknowledges that she was explicitly quoted as saying “scarcity mindset,” she still conflated scarcity with distribution by failing to clarify that scarcity is not necessarily an obstacle to, and may even promote, distributional justice.

On this third point, the scarcity mindset arises from an awareness of scarcity that becomes so acute one fails to make optimal decisions. But it doesn’t have to.

So, “scarcity prioritizes our choices and it can make us more effective” by creating “a powerful goal dealing with pressing needs and ignoring other goals.” A scarcity mindset can facilitate the effort to arrive at optimal decisions. How so? Here’s an example: we may become “more frugal with the toothpaste as the tube starts to run empty,” or in the case of education policy, as I wrote in my original article, deciding the optimal mix of elite and vocational schools depending on the preferences of parents and students. The scarcity mindset also “contributes to an interesting and a meaningful life” by underscoring the message of mortality that we can’t “be anything, do anything, and experience everything,” persuading us to “restructure our lives around the needs that are essential.” This mindset can thus make us more likely to act and think as economists say we should—it can help us evaluate the opportunity costs of our decisions.

But the main thrust of Mullainathan’s and Shafir’s research is that scarcity impedes optimal decision-making for the poor. Scarcity refers not only to the limitation on resources which forces one to evaluate tradeoffs based on the marginal benefits and marginal costs of alternatives. It also imposes a psychological cost that can impede one’s ability to assess those tradeoffs. This is especially the case for the poor, for whom the stress of scarcity, relative to people who have more means, exacts a higher toll on the psyche. Being poor thus undermines the ability to evaluate the opportunity costs of decisions.

A scarcity mindset is less stressful for people of greater means because “a bigger budget makes decisions less consequential and lessens feelings of scarcity.” But “poverty taxes cognitive resources and causes self-control failure. … When you can afford so little, so many things need to be resisted…and resisting more temptations depletes the willpower, which in turns makes [the poor] less capable of giving up, say, a smoking habit.” In sum, “poverty, at its very core, taxes self-control capacity. The poor lack freedom of mind. They are short, not just on cash but also on willpower.”

Thus, it can make one less capable of balancing present and future consumption because one becomes so myopically stressed by present needs that he becomes less capable of properly balancing present consumption with necessary investments to ensure a desirable level of consumption in the future.

I still maintain that Ocasio-Cortez’s rhetorical broadsides against the moneyed interests corrupting the political establishment are unhelpful, and I also don’t think the point should be lost that the concept of scarcity draws a distinction between allocative efficiency and distributional justice. Homo economicus is a classical model of how people would allocate resources if they rationally evaluate the marginal costs and marginal benefits of options from which they have to choose. Behavioral economics emerged as a result of insights from psychology on how people actually make decisions, rather than how they ought to make decisions if acting rationally.

In a famous paper, Nobel Prize-winning economist Richard Thaler introduced the concept of an “endowment effect” to describe how people underweight opportunity costs (foregone gains) and overweight out-of-pocket costs (actual losses) rather than treating them as the same. In refining our understanding of how people actually make decisions, however, Thaler demonstrates how people can improve their decisions by treating opportunity costs, e.g., foregone gains, as out-of-pocket costs.

The “scarcity mindset” is an example of how the way people actually behave can diverge from how people should behave. It can thus help people make better decisions. Maybe this is what Ocasio-Cortez had in mind. Something like: Instead of fighting each other in a town hall because they were worked up about the dearth of high-quality schools in New York, her constituents should instead take a deep breath and focus on the long-term objective of fighting the moneyed interests that supposedly stand in the way of improving the quality of public education.

In that case, if Ocasio-Cortez’s point was that a “scarcity mindset” prevented her constituents from appreciating the distinction between scarcity and distribution, then she was making an important point about how, for the least well-off, scarcity can impose a psychological cost that prevents people from taking a more expansive, and more progressive, view of education policy not as a zero-sum game but as a “win-win” for both the rich and the poor, if only we can convince to rich to share some of the wealth.

Jonathan Church is a government economist, CFA charter holder, and writer whose work has appeared in Quillette, Areo, and other places. Follow him on Twitter @jondavidchurch.

Source link

You might also like

Thanks !

Thanks for sharing this, you are awesome !