Scarce things tend to be valuable.
Sometimes there's no rational reason for this. As Robert Cialdini points out in Influence: The Psychology of Persuasion, perceived scarcity has a whirr-click effect on people, and this is often weaponised by marketers and salespeople.
A key message: any time something is marketed as scarce, your BS radar should be on overdrive.
But just as often, something that's scarce is genuinely valauble.
It's an important thing to keep in mind at a personal level. If you're generic and replaceable in a professional context, then you don't have a lot of leverage and you're unlikely to get the best outcomes in terms of income and opportunities.
If you're generic and replaceable at a personal level – let's say, you're inoffensive but boring (like Harry Enfield's "Tim Nice-But-Dim") – you aren't likely to have thriving friendships or your choice of romantic partners.
Understanding scarcity, and how each of us is, or can be, sui generis, will help most people achieve some level of success.
One definition of economics is that it's about the efficient allocation of scarce resources. In other words, it's about getting more from less.
One of the central aspects of this definition is scarcity. If something is totally abundant, then it doesn't matter whether you're efficient with the use of that resource. You can waste it, share it, do what you will with it. You need to focus on what you do with things that are scarce.
When you're poor, money is scarce. You need to pay special attention to how you spend your money, and you need to make lots of trade-offs, including how you spend your time and attention.
When you're a billionaire, money is abundant. but some things remain scarce: like your time and attention. You still need to make trade-offs, but money becomes unimportant.
Something that's scarce is land. There is only so much land in very desirable locations to go around.
This is one of the reasons I think that the value of good property will tend to increase in value at a rate higher than inflation (although lower than the general rate of economic growth over the long-run). As people get wealthier, they will continue to spend a greater proportion of their discretionary income on property.
If people want good properties, they have no choice: they have to compete with other people who also want those properties.
Property is what is known as a "positional good". These types of goods create some social limits to economic growth. The value of these assets aren't necessarily linked to their inherent value, so much as what others are willing and able to pay. But that is an issue (with big policy implications) for another day.
I buy books for my Kindle. When I pay $10 for a book, I'm basically paying for a 2.6 megabyte file. When Amazon uploads that file to my Kindle, it isn't losing anything. The marginal cost to Amazon, the publisher, and the author for my copy of the book is pretty much $0.
In a sense, this is an example of manufactured scarcity.
There's nothing scarce about that 2.6 mb file. When I get that file, it doesn't disappear anywhere else.
Technically, I could probably acquire a copy of that file by illegal means. I could read a PDF copy on my computer or another device. I could probably even upload the epub or mobi file to my Kindle.
Legal and ethical issues to the side, there is a cost to doing this. The cost is time and inconvenience. (There's also risk: I've read about Kindles with pirated content being bricked, but I haven't verified that.) For me, paying $10 is worth it to click a button, have the book on my device, and in Amazon's ecosystem where I can take notes (and then connect to other services like Readwise and Evernote).
Does the scarcity relate to the file? No. It relates to less tangible things, like time, energy, and hassle.
The same goes with other instances of manufactured scarcity: music bought via iTunes, music available via Spotify, software bought via Apple's app store or on Steam.
There's a reason that it's younger people who tend to pirate stuff. They are the ones with the time and energy to expend, but not the money. It's a scarcity trade-off in action.
Another fascinating form of scarcity is beauty.
There are numerous benefits to being attractive. Attractive people tend to be seen as more likable and trustworthy. It's easier for them to find mates, make friends, and be invited to parties. Attractive people are usually more successful in sales and business development roles. They tend to have higher incomes. They are less likely to be arrested and more likely to get shorter prison sentences.
Yes, beauty is inherently valuable. But scarcity plays a part as well. Would those advantages accrue to people if we were all perfect 10s?
An element of scarcity is that it's positional. There are some things that are hierarchical in nature, no matter what.
We've touched on this with positional goods like property. Education might be anther one of those things: only so many people can go to Harvard or Stanford, or get into a medical training program.
Perhaps the most hierarchical thing of all is status.
There will always be status hierarchies, and as long as we are human, there will always be a desire for people to scale those hierarchies and compete for status. There are only so many spots at the top.
Scarcity and its implications are fascinating. But instead of being an armchair academic, I'd prefer to be a pracademic and consider the practical implications.
I have a massive aversion to people and organisations who fake scarcity because it will make people want to buy their goods and services. Holden Caulfield has a good word for that.
But as I get older, I appreciate that many things in life are scarce.
At the minimum, every one of us only has 24 hours each day, and we only have so many days in our lifetime. We aren't endless fonts of energy, and the amount of things we can focus our attention at any one time (and over the course of a lifetime) is likewise limited.
As I get older, I get more comfortable with focusing on some things and not others. I'll pay people to do things I can't or don't want to do, because my time and energy is scarce. Likewise, I have no qualms asking people to pay me for my services. I've had to raise my fees for Fairhaven Wealth a number of times now, and I can do this unapologetically because I know I'm creating value and that I'm providing a unique service in a unique way.
In what way are you sui generis?
But let me get more specific, and ask you some questions.
- What can you do that others can't?
- What do you know that others don't?
- What are you better at doing or learning than most people?
- What can you make or do that can't easily be replicated?
- What combination of skills, knowledge, and interests do you have that very few others have?
- What is scarce about you?
- In what ways can you become more scarce?
In other words: How are you sui generis?
If you're in a position in your career where your value is a function of your position and not what you bring to the position, then it's a risky situation to be in. You aren't scarce. Your position is scarce. (This isn't just in a professional context: it's blunt to say it, but it's also the case with friendships and relationships.)
If you want to manage risk and maximise opportunities in your professional life, asking what you do or can do that is scarce, is a good starting point.
Now, go and make yourself scarce!
I want to nod to episode 10 of the Review the Future podcast which inspired this article. The hosts, Ted Kupper and Jon Perry, talk about what will remain scarce in the future. More information is in Jon Perry's article.
Nor can I discuss scarcity without referring to Sendhil Mullainathan's book Scarcity: Why Having Too Little Means So Much. It's a wonderful book which IMHO has many policy implications.