Tag Archives: economics

Less wants mean more abundance

Working Paper

Less wants mean more abundance

by Roberto Verzola, rverzola@gn.apc.org

If we make the realistic assumption that people can be satiated, saturated or satisficed when meeting their needs and wants, we can show that wants have a finite bound and are not “infinite”, as many economists tend to assume.1

If wants are finite and their satisficing levels can be determined, then it becomes possible to compute the ratio between consumer demand for a good and its satisficing level for a person. We can call this ratio the state of relative abundance of a good for a particular person. By aggregating demand and satisficing levels for groups of people and entire societies, assuming that all consumers have a satisficing level for some goods, we can determine the state of relative abundance for these goods in a particular society. Since consumer demand is price-dependent, the state of abundance is also price-dependent and would show the same downward-sloping trend as the demand curve.

In fact, due to a number of factors, some societies show much lower aggregate levels of wants compared to other societies. This decreases the denominator of the demand-to-satisficing-level ratio, and suggesting a higher relative abundance level for these societies. Less wants mean more abundance. These “want-reducing” demand-side factors include:

A culture of cooperation

Cooperation among consumers raises the possibility of further improving the aggregate level abundance, given the same supply and individual demands. With common pooling of resources and cooperative consumption, a group of consumers can enjoy through sharing more goods or services and get nearer their satisficing levels, thereby improving their aggregate level of abundance. A car, for instance, may meet the daily commuting needs of one or up to five persons. Compared to books in someone’s shelf, books in a community library – or videos and CDs for that matter, can be enjoyed by many more people. A huge body of literature can be found around common pool resources and the best ways to manage them.2 Perfect cooperation, which leads to more abundance, is as important an economic concept as perfect competition. A properly-managed free commons, like a freely accessible public library of books, CDs and DVDs, can help create more abundance as much as an unregulated free market often leads to artificial scarcities.

Simple living

Beyond the pooling of resources, cultural mechanisms can also bring satisfaction levels and demand down. In some societies, this can be a major factor in improving the level of abundance. Extolling simple living, highlighting voluntary simplicity, focusing on the spiritual aspects of life, or idealizing asceticism are various ways by which some societies have deemphasized material accumulation and enhanced their level of abundance from the demand side. As Gandhi put it when describing his own experiments in voluntary simplicity, “the real seat of taste was not the tongue but the mind.”3

Focusing on needs

Among the entire range of human needs and wants, it can be argued that not all of these should be treated on equal footing. Obviously, grey areas can exist. However, most will surely agree that those necessities which enable each person to simply survive and live his/her natural life span and each society to reproduce itself should be on top of any hierarchy of needs and wants. These include clean air, potable water, healthy food, protection from the elements and disease, and similar goods and services. If a society focuses on such goods and services its efforts to build abundance, the range of needs and wants that need to be satisficed is narrowed down even further.4

The economics of altruism

There have been societies where one’s worth is measured not in terms of how much one has accumulated, but in terms of how much one has given away. Many still admire this ideal and try to practise it occasionally or even regularly.5 Practised widely, altruism can help cut down the highs and fill in the lows in the income distribution. Filling in the lows, in particular, can reduce society’s failure rate, with direct impact on those who most need it. The continuing and even increasing role of charitable foundations, non-profit organizations and similar institutions reflects the persistence of altruism as a factor in poverty reduction efforts.

Economics of fairness

It is not only a sense of altruism or charity that should impel a society to ensure its members’ minimum basic needs, as these needs are called today in development circles. It is also a matter of fairness, justice and equity. We know that something is terribly wrong in the dominant economics of a society like the U.S. when, despite appropriating for itself much of the world’s resources and leading in the development of new technologies, 11% of the country’s adults and 17% of its children still suffer from occasional involuntary hunger.6 It is also from the U.S. where we get an example of a promising approach. The State of Alaska’s Permanent Fund is one example of an effort to guarantee a minimum income for every citizen.7 Many parallel efforts have been launched to develop the concept of a basic income guarantee (BIG).8

We have shown that abundance is a matter not only of supply but also of demand. Where societies are more cooperative rather than competitive, where a simple life of material sufficiency and intellectual/spiritual richness is instead sought after, where those who enjoy abundance are passionate about sharing it, and where the means for meeting the most basic human needs receive the most attention as a matter of right, then the members of these societies can enjoy much greater abundance.

1Verzola, Roberto. 2009. “Finite Wants Make Relative Abundance Possible”. https://rverzola.wordpress.com/2009/01/21/finite-demand-makes-relative-abundance-possible/

2See, for instance, Elinor Ostrom, Thomas Dietz, Nives Dolšak, Paul Stern, Susan Stonich and Elke Weber (eds.). 2002. The Drama of the Commons. National Academy Press, Washington, DC. See also Elinor Ostrom. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University, Cambridge.

3Gandhi, M. K. 1927. An Autobiography (The Story of My Experiments with Truth). Navajivan Publishing House, Ahmedabad. p. 52.

4 See Frank Rotering. 2008. Needs and Limits: A New Economics for Sustainable Well-Being (2nd ed.). http://members.shaw.ca/needsandlimits/pdf_files/needs_and_limits-2nd_edition.pdf

5The term “gift economy” may not be appropriate to describe this, since gifts are often seen as signalling mechanisms with various other motivations aside from altruism.

6Food Research and Action Center, “Hunger in the U.S.”, http://www.frac.org/html/hunger_in_the_us/hunger_index.html

7Alaska Department of Revenue Permanent Fund Dividend Division. “FAQs”. https://www.pfd.state.ak.us/faqs/index.aspx. See also Alanna Hartzok. 2002. “The Alaska Permanent Fund: A Model of Resource Rents for Public Investment and Citizen Dividends”. Earth Rights Institute. http://www.earthrights.net/docs/alaska.html

8The U.S. Basic Income Guarantee Network. “What is the basic income guarantee?” http://www.usbig.net/whatisbig.html

Finite wants make relative abundance possible

Working paper

Finite Wants Make Relative Abundance Possible

by Roberto Verzola, rverzola@gn.apc.org

[Note: the old title of this working paper was “Finite demand makes relative abundance possible”.]

It is almost by definition that economists predominantly focus on scarcity, when they define economics as the study of “the most efficient ways to allocate scarce resources to meet unlimited human wants”. If, indeed, people had infinite wants, then not even all the resources of this finite world will be enough for a single person.

It can be argued, however, that consumer wants are not infinite. There exist physical, physiological, neurological, psychological and cultural limits – both actual and potential – to consumption which can keep individual as well as collective needs and wants within finite bounds.

If these needs and wants are finite, then satisfying them becomes a real possibility, and relative abundance is within reach.

The following three concepts will help show that needs and wants can remain within finite bounds:

Satiation. Economists define satiation as the consumption level which the consumer most prefers. The closer the consumer is to this level, writes economist Hal Varian, “the better off he is in terms of his own preferences”.1 This satiation level for a bundle of goods is also called the bliss point. Beyond it, the consumer prefers to have less of the goods. Many economists still cling to the hedonist principle that “more is always preferred to less.” But some acknowledge, at least in theory, that a satiation level exists for some, if not most, goods. Varian, in particular, says that most goods have a satiation point and that “you can have too much of nearly anything,” which contradicts the “infinite wants” assertion in most definitions of economics.

Saturation. While satiation may apply more to the psychological attitude of a consumer not wanting more, saturation is more about the physiological or physical incapacity of a person to consume more. Beyond the saturation point, one’s body either will become incapable or will involuntarily reject additional servings of food and drinks. One can only wear so many clothes, or shoes. One can listen to only so many CDs or watch only so many videos. There are only twenty-four hours a day after all.

To reach the brain, a sense stimulus takes around 10-20 milliseconds. To respond in a conscious way, neuro-scientists have found out, the brain takes longer – around 500 milliseconds (half a second).2 This suggests that our brain can only enjoy at most two distinct events every second or about 170,000 every twenty-four hours. For a world with some six billion people, that adds up to an upper limit of one quad (i.e., quadrillion) consumption events per day. That is a huge number, it is true, but finite nevertheless. Most of us will probably exceed our saturation levels long before that point.

The argument for saturation is further strengthened by the findings of experimental psychologists that people – and animals too – get less pleasure from any stimulation, the more often it happens. Not only does the pleasure diminish, but the stimulation soon becomes undesirable.3 So, the finite time to consciously respond to sensory stimulation sets a limit to the variety of stimulation one can respond to, and a single type of stimulation will also soon become undesirable, also setting a limit on the desirable amount for that type. Economist Tibor Scitovsky has further argued that not all sources of stimulation can be exchanged in the market and therefore add to economic demand.4 All these support the argument for a finite bound to consumer needs and wants.

However, the concept of saturation as distinct from satiation is hardly mentioned in consumer theory and most economists still cling to the “infinite wants” idea.

Satisficing. Even before we reach our satiation or saturation levels, we may already reach our “satisficed” level, in which the quantity we have of a particular good or bundle of goods already suffices to satisfy, and beyond which we would only weakly prefer more.5 In contrast to satiation, which results in a strictly lower preference beyond the bliss point or satiation level, points beyond the satisficing level are either equally preferred or only so slightly or weakly preferred that it does not make a difference. The idea that consumers satisfice rather than optimize when fitting their wants to their budget was first raised by psychologist Herbert Simon, who subsequently won the Economics Nobel Prize in 1978.6

Any of these “sat” concepts – certainly all of them, together – are enough to argue that individual and likewise needs and wants have finite bounds.

This justifies the following assertion: some consumers have a satisficing level for some goods.7 As the price of a good goes down, consumers will then be able to afford enough to reach their satisficing levels. We will leave to future research the debate whether the weak assertion of “some consumers” and “some goods” can, in some contexts or periods, be changed to a stronger assertion of “some consumers for all goods”, “all consumers for some goods”, or even “all consumers for all goods”.8

The above assertion leads directly to a formal definition of abundance: when a person can afford enough quantity of a good or bundle of goods to reach his/her satisficed level, then the person enjoys a state of abundance for that good/bundle of goods. The concept is not new. Gandhi must have been referring to abundance when he said “the Earth has enough for everyone’s need”. This definition also allows a good’s state of abundance with respect to one person to be quantified: it is the ratio of that person’s affordable quantity (economists call this demand, which varies according to price) to his/her satisficing level, which is the point where any further reduction in price does not anymore increase that person’s demanded quantity. For instance, if a person’s satisficing level is five pairs of shoes, but s/he can only afford two pairs (i.e., she is only willing to buy two pairs at current prices), then s/he enjoys a state of abundance of 40% (two out of five) with respect to shoes. This makes it simple to relate abundance to its inverse, scarcity: the person needs three pairs more to reach the five-pair satisficed level. Thus s/he faces a scarcity level of 60%.

For a group of consumers, the level of abundance can be determined by aggregating the quantities each individual can afford (the demand), divided by the aggregate of their individual satisfaction levels. This makes it possible, in theory, to determine the relative level of abundance (and scarcity) of a good for an entire society.

Economics usually assumes that business firms maximize their profits by producing until their marginal cost (the cost of the next additional unit) equals their marginal revenue (unit price of the good). If, in addition to this behavioral assumption, we also assume diminishing returns or decreasing returns to scale, this will eventually result in increasing marginal costs. When the increasing marginal costs reach the good’s market price, economic theory says the point of maximum profit has been reached. Thus business firms will, in theory, reach their satiation point when they reach their maximum profits.

This also means, however, that profitable firms employing technologies with constant or increasing returns to scale will face constant or decreasing marginal costs. They will therefore have no profit maximum and likewise no satiation level. These firms will conform to the theoretical hedonist idea that “more is always preferred to less.” They will try to keep increasing their scale of operations, as they go after higher and higher profits – making them an engine of globalization.

It is the profit-motive, it seems, that keeps us away from abundance, not “infinite” human wants.

1 Hal Varian. 1996. Intermediate Economics: A Modern Approach (4th ed.). W. W. Norton & Co., New York. p. 43-44.

2 Robert Matthews. 2007. 25 Big Ideas: The Science That’s Changing Our World. Oneworld Publications, Oxford.

3Tibor Scitovsky. 1976. The Joyless Economy: An Inquiry Into Human Satisfaction and Consumer Dissatisfaction. Oxford University Press, London. p. 35-40.

4Tibor Scitovsky. See above, p. 81-83.

5 Economists often represent the quantity of good desired relative to another good (or other goods) using indifference curves, which include on the same curve equally preferred ratios of one good over another. Through the same graphical tool, “satisficed” levels may then be described using thick indifference curves. Such thick curves mean that small increases in quantity of a consumer’s bundle of goods do not increase a consumer’s preference for that bundle, suggesting that they have reached their satisficed level. Standard indifference curve analysis can then be used to determine the economic implications when consumers reach this level. One implication, for instance, is that the demand curve turns concave as the satisficing level is approached. This upsets the First Fundamental Theorem of Welfare Economics, which assumes strictly convex indifference curves and non-satiation. This is the theorem which asserts that a free market leads to an efficient allocation of resources.

6 See Herbert Simon. Feb. 1955. “A Behavioral Model of Rational Choice” in The Quarterly Journal of Economics (Vol. 69 No. 1). p. 99-118

7 “Satisficing” seems to have no noun form. Instead of “satisfaction” — which many economists use to mean “reaching the highest level desired” rather than “meeting a level that suffices” — this paper uses “satisficing level” if the level has not been reached yet, and “satisficed level” if it has been reached.

8The satisficing principle is widely used in logical/mathematical proofs and, by extension, in all physical, natural and social sciences that use such proofs in their fields. Consider the following assertions: (1) A, B and C imply X; 2) D and E imply X, and 3) F implies X. As soon as the truth of (1) is proven, the sufficient conditions for X will have been satisfied, a very common exercise in many fields. Subsequent work may show that (2) and (3) are also true, with (3) possibly established as the optimal sufficient condition for X. But (1), (2) and (3) are all equally sufficient to satisfy the conditions for X. Anyone who has ever established, used or accepted such proofs is using the satisficing principle.

Political economy of abundance

I have been studying in the past few months the subject of abundance.

My interest in this subject grew out of my interest in information, information technology and information economics. I think most of us who have not yet realized it ourselves can easily believe the claim that information goods have become easily accessible and abundant, especially to those who have Internet access. Abundance in the information economy comes from the diminishing cost of reproducing information, making it easy for anyone to share information with others. If you consider the vast and incredible collections of materials on the Internet, from Google to Wikipedia, from the websites to the blogs, from the various file, audio and video exchange sites to YouTube, I think you’d agree that one term which describes all these accurately is abundance.

After my semi-retirement from software, hardware and Internet work, I did volunteer work on environmental and agriculture issues. I worked with farmers groups. After nearly ten years of doing so, I realized that a unifying thread connects my experiences in the information sector, in nature and in agriculture. What is it? You guessed it, abundance.

Like the information sector, nature also teems with abundance. The reason is simple, every species is genetically programmed to reproduce its own kind. The reproductive urge built into every living organism is the source of abundance in nature and, by extension, in agriculture.

I have also been studying economics these past few months. One fundamental assumption in economics is scarcity. Economists define their jobs as the study of efficient options in the context of scarcity. This focus on scarcity has created a blind spot among economists. Many have missed, taken for granted, ignored or rejected abundance as an interesting field for study.

That’s the study I’m currently doing.

If you are interested in this subject, please download my paper Undermining Abundance, which will appear as a chapter in a book that will be released in the next few months by Zone Books, entitled Intellectual Property Rights and Access to Knowledge.

I’m working on another paper now, entitled “Studying Abundance”, which I will also release soon.