But how useful a guidepost is this concept of scarcity today? It’s still true, of course, that diamonds and rare and rain is free. But there are indicators and persistent dynamics in economies across the globe that suggest ways in which the scarcity framework can point us toward the wrong choices. For example, scarcity is invoked in fiscal austerity arguments, as when policymakers argue we can’t afford a big enough relief package to help people deal with the slowing economy and the surging coronavirus (it’s also true that such arguments are often more political than economic).
Two critical indicators that should get us thinking differently about scarcity are interest rates and inflation. I’ve often commented about low interest rates, most recently arguing that they were essentially saying “be my guest” in terms of extending government borrowing to meet urgent needs. But why have rates been so low — not just here, but across the globe, and what should that teach us about scarcity?
Going back to Econ 101, it must be that savings are not scarce, and thus the price of borrowing those savings — the interest rate — is low. In fact, this has been the case for years. In 2005, then-Federal Reserve Governor Ben Bernanke observed what he called the “global saving glut,” wherein he worried that excess savings could flood our capital markets and inflate a credit bubble in … wait for it … real estate.
In a similar vein, economist Larry Summers has written about the return of “secular stagnation,” another way of describing the problem of having more available savings than productive, private investments. In a new paper addressed to the incoming economic team for President-elect Joe Biden, Summers argued that this imbalance demands attention as it “is the ultimate cause of excess leverage, asset bubbles, sluggish growth, and insufficient inflation,” the latter being another sign of soggy economies with excess capacity.
Simply put, the fact that interest rates are very low in many countries and expected to stay low for years to come tells us that scarcity is not the right framework for thinking about borrowing and spending right now. Instead, we should take advantage of excess savings and the low rates they provide, and apply these resources for two purposes: one, to act quickly to meet the most pressing challenges of the moment, including pandemic relief and economic hardship, and two, to invest in productive public goods.
Regarding the latter — public investment — recall my profound realization that water falls from the sky. True (outside of droughts), but there are still places in this country where “water contamination is a major issue.” In other words, while private investors may not perceive enough worthwhile investments to absorb the world’s excess savings, there are tons of vital public projects that are starving for investment. The return on these investments, especially those in clean energy; clean water; and affordable child-care, health-care and education pay future dividends such that the return on these investments is much higher than the low cost of borrowing.
The constraint here is not scarcity — investment capital is, and is expected to stay, uniquely affordable at a rate well below projected returns. The constraint is another related problem: inequality. In this case, it is underutilized private capital that could fruitfully be moved over to the public side of the investment ledger.
Because of inequality, it’s easy to look around and conclude that scarcity abounds. Some people — too often people of color — clearly have too little access to health care, decent housing, quality schools, affordable child care and even criminal justice. But a closer look reveals that here again, the problem isn’t scare resources; it’s the imbalanced, unequal way in which access to these resources is distributed. After all, other advanced economies, all of which have lower per capita income than we do, provide much more equitable access to these necessities. A moment’s thought confirms that it makes no sense that Europe and Scandinavia have enough health care to go around, but we don’t.
We live in an economy with tremendous gaps between the resources available to different groups of people. In that same economy, the cost of relief and investment capital is expected to stay low for a long time. The private sector is underutilizing that capital, while the public sector is starved for investment. And the return on those public investments, especially if we’re smart about them, is sure to be well above their cost.
Once again, the economic constraint is not scarcity of resources. It’s scarcity of bold ideas and the political will to bring them to fruition. As we stand at the cusp of a new presidential administration (for which I was an informal adviser during the campaign) with very different ideas from the outgoing one about inclusivity, investment, inequality, racial justice and the role of government, I suggest we banish false scarcity arguments and watch what happens next. I suspect a lot of us will quite like what we see.