The Tax on Bandwidth and the Scarcity Trap

All types of scarcity cause the same behaviors and produce the same consequences.  A shortage of money, time, healthy food, or friends taxes your effective bandwidth, tunnels your vision, and perpetuates a scarcity trap.

The authors of Scarcity (book/video interview) use the term bandwidth to encompass a variety of categories of human intelligence and executive control.  The first subcategory is termed cognitive capacity which is used in problem solving, information retention, logical reasoning, and fluid intelligence.  The second subcategory is known as executive control, which allows one to manage cognitive activities, use working memory, multitask, and monitor one’s own behavior (47).

When someone faces any type of scarcity they will appear dumber.  Furthermore the effects of scarcity are beyond our control.  Scarcity changes “how we think, it imposes itself on our minds” (7).  In turn “we represent, manage, and deal with problems differently” (12).  More of our bandwidth is consumed which in turn gives us less mental power to deal with everything else in life.  This in turn leads to lowered perceived levels of intelligence and a series of poor future decisions that perpetuate the cycle (14).  Those affected by scarcity do not see the effects of neglecting certain present tasks because the future seems too abstract.  Decisions that would have had a positive impact on the future are effectively tunneled out of consciousness.

Typically it is taken that better socio-economic backgrounds produce persons with higher IQ scores.  The authors suggest that IQ scores should not be attributed to genetics, but instead the degree to which persons experience scarcity.  They use a variety of studies to show how the IQ scores of the same individual can vary dramatically contingent on how much their bandwidth is being taxed, isolated from social or cultural influences.

One example of this is a case study carried out in a New Jersey mall.  Jiaying Zhao administered the Raven’s Progressive Matrices Test to a group of participants.  The participants were asked how they would finance a sudden car repair.  The group was divided into rich and poor.  Half of the rich and half of the poor group were asked how they would finance a $300 car repair.  Afterwards, both subgroups took the test.  There was no statistically significant difference between the two income groups (49).

The two group remainders were then asked how they would handle a sudden $3,000 car repair.  The effect was the dismal performance of the economically poor group on the intelligence test.

Their study revealed “that simply raising monetary concerns for the poor erodes cognitive performance” (51).  When we face scarcity, we become dumber and more impulsive (66).  It isn’t that the poor are dumber, it is that their bandwidth is consumed and preoccupied with how to solve the hypothetical financial hardship, while those without this concern are mentally free to solve the problems in the test.

A different study observed the difference in IQ scores for the same Indian sugarcane farmers before and after harvest.  These farmers only received one lump sum for their crop when it was sold.  When the farmers had just earned the money from the sugarcane harvest their IQ points were 9-13 points higher than in weeks immediately before harvest when money was tight.  These farmers essentially scored better by having more available bandwidth to take the test.   Their mental resources were not taxed because they had financial slack, the by-product of relative abundance (74).  Slack absolves those not experiencing scarcity from the need to calculate opportunity costs and from making trade-offs.

As suggested both explicitly and implicitly, slack is the answer for escaping the scarcity trap.  We are all on a random walk in life, subject to the Markovian process.  Random shocks hit from all angles, pushing some of us into a “scarcity” mindset, while simply reducing the slack in those who were better prepared.  These shocks can be financial, but not necessarily.  Other examples can be: a shortage of time to finish an important project; being hungry in a kitchen without healthy food in the cabinets; and experiencing a sudden break up with a significant other.  When we anticipate the chance of these things happening, we can better prepare ourselves.

To illustrate this with an example of financial scarcity we can consider two persons making the same foolish purchase.  The only difference is, one of these has slack in their budget while the other does not.  The one that has a budget with slack is not affected in the same way as the person without slack.  For the person with slack, they now simply have less slack in their budget can make less future mistakes.  Unfortunately for the person without any slack, the foolish purchase now triggers a series of “trade-offs”, usually all involving items that the second person actually needs.  The person without slack now is mentally consumed by making these trade-offs, appearing less intelligent and less capable of making wise decisions.  Poor decisions are made which increase the probability of a future shock having an even worse impact on the second individual.

Scarcity not only creates tunneling of priorities, but also triggers the erosion of willpower capacity.  The authors cite an article that argues that willpower capacity is a finite resource, and does not improve with use.  This article is “Self-Regulation and Depletion of Limited Resources: Does Self-Control Resemble a Muscle?”.  Willpower they argue is not a muscle which can be made stronger.  Those experiencing scarcity also have less willpower, and make more mistakes.  When the bandwidth is taxed, it is harder to be vigilant, and much easier to succumb to failures or temptations.  This idea really could be explored at length separately…

What is the solution for the scarcity trap?  The authors would suggest systematically creating slack and remembering to free up some bandwidth…

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