Response to Mike Caulfield Question

Mike Caulfield on Twitter asks a question today:

There’s more to it. It’s a whole thread.  Rather than respond in what would inevitably be a  long thread myself, I’ll just post my reactions & poorly formed thoughts here. Disclaimer: I haven’t read Simons in decade(s) and all economic “facts” I mention here are really stylized facts or trends.  Enter at your own risk.

Mike asks for example:

No. I don’t think so.  The idea of  industrial production –> scarcity of capital & scarcity of markets doesn’t fit.  Rather, I’d characterize the broad swath as surplus of savings amongst elite –> supply of finance for capital –> capital investment –> industrial production –> greater surplus of savings amongst rich elite –> rinse and repeat.  If anything, we suffer in recent decades from a surplus, not scarcity of capital. Indeed there’s been a fair literature about that in recent times.  Somewhere in that cycle, the supply of finance for capital creates a demand for markets (both capital & final production). I don’t see much evidence that there’s been a shortage of markets, though.  Indeed, the supply of markets seems to be rather elastic and responsive to finance capital’s demand for markets.

I agree with Simons observation but I think it helps to understand the mechanism. Scarcity issues are often driven by either physical constraints (real scarcity) or changes in opportunity costs (relative scarcity).  In the information – attention context he’s talking about it’s both real and relative scarcity.  There’s a real, fixed, unchangeable constraint on attention. Attention necessarily requires time (also other inputs such as cognition, etc). Each human is at maximum only capable of 24 hrs of attention per day. Information, all information, requires some degree of time to process (i.e. “pay attention”), ergo, more information bumps up against fixed constraint. Result: increasing real scarcity.

We can also consider the opportunity cost of paying attention to a piece of information.  Notice we use the term “pay attention” – we’re implicitly doing the trade-off.  As more information exists, the value of our attention rises. When I pay 10 minutes of attention to a particular chunk of info in order to gain the benefit of knowing that info, the opportunity cost is the not-knowing-other-stuff.  When there’s more info, that means there’s a lot more other-stuff–to-not-know.  It gets expensive opportunity cost-wise to learn something in particular.

I’m not sure where your’e going with this, Mike, but one econ phenomenon that might be relevant is the entry of married (middle+upper class) women into the workforce in the mid60’s to mid-80’s. In that period, the rise of feminism and feminist attitudes led to a cultural and values change in the middle and upper classes (in U.S.).  Workforce participation among married women rose from 1 in 4 married women working outside the house for pay to 3 of 4.  That was a big shift. It was a huge increase in supply of married women to labor markets.

That in turn led to much larger numbers of employed women. The opportunity costs of time changed a lot. Their time was now worth a lot more since it could be traded for substantial $ in labor market and previously social/cultural constraints prevented that.  At the time, social/cultural constaints on married men cooking meals for their households hadn’t changed yet (that’s been pretty laggy), so the “responsibility” for meal production in households still largely resided with the married women.  A home cooked, largely from scratch dinner now became very, very expensive opportunity cost wise.  Goodbye home-cooked from scratch meatloaf or fried chicken, and hello McDonalds, KFC, or microwaved factory-prepared food.  Ultimately, this translates into a what appears to be a relative scarcity of home-cooked food from fresh ingredients.

Don’t know if I helped. I fear I only muddied things. But then, that’s what I do. I’m an economist.

 

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