Book Review from the March 2015 issue of the Socialist Standard
Sendhil Mullainathan and Eldar Shafir: Scarcity: The True Cost of Not Having Enough. Penguin £9.99
Scarcity is defined here as ‘having less than you feel you need’. This is applied not just to material goods and services but also to time-management and, less obviously, to dieting and loneliness. The basic idea is that scarcity can take over your mind, sometimes leading to a focus on an up-coming deadline that makes you more effective. But more often it can reduce our mental capacity, what the authors call our bandwidth, making it hard to take proper account of other matters. So if you are really busy, you may focus on urgent tasks, neglecting those that are important but not so urgent. And poverty may lead you to forget to take your medication.
The Socialist Standard is not a journal about how to deal with your to-do list or how to keep to a diet, so let’s focus on the book’s remarks on poverty. Mullainathan and Shafir argue that ‘the reason the poor borrow is poverty itself’. You might think that you don’t need the combined efforts of a Professor of Economics and a Professor of Psychology to tell you that, but in fact it is not quite as mundane as it appears. The point is that borrowing (often at high rates of interest) is not caused by predatory lenders, financial ineptitude or a common tendency to think about the immediate future rather than the long term. Poor farmers or market traders, in Africa or India for instance, borrow in order to tide them over periods when they have less income or bigger expenses, since they do not have enough financial slack to cope with shocks to their budget.
Various solutions are offered to these and other problems of scarcity. Give or lend people money at the right time to avoid problems with insufficient financial slack. Reduce the chance of people taking out ruinous payday loans by showing them the cost in dollars rather than in abstract interest rates. Or get employers to provide advances on wages.
But what is missing in all this is any real understanding of the causes of poverty. Mullainathan and Shafir note that half the children in the world live below the global poverty line, and that half the children in the United States will at some point be on food stamps. But they simply do not mention exploitation, the extent of inequality, the wealth of the super-rich or the feasibility of growing enough food for all. A proper study of scarcity requires rather more depth than is shown here.