Debunking the 'economics of abundance'

NEW YORK (CNNMoney) -- Whenever someone tells you that fundamental laws of economics have changed, it's usually smart to walk away. There was a lot of such talk in the late '90s, with hucksters claiming that the Internet had altered the rules for everything from productivity to inflation. You'd think that the market bust of 2000 and the lean years thereafter eliminated all notions that the business cycle was an anachronism.

Lately, though, the terms "post-scarcity economics" and "economics of abundance" keep cropping up in technology circles. Scarcity, remember, is one of the primary assumptions of economics; that is, societies must weigh human needs and desires against scarce material resources. Broadly speaking, "post-scarcity" theory holds that changes in technology and production methods mean that many long-held assumptions about scarce resources no longer apply, and thus some business models - and indeed perhaps some laws - based on scarcity are obsolete.

Chris Anderson's best-selling book The Long Tail rhapsodizes about the "economics of abundance": [W]e are entering the era of effectively infinite shelf space. Two of the main scarcity functions of traditional economics - the marginal costs of manufacturing and distribution - are trending to zero in Long Tail markets of digital goods, where bits can be copied and transmitted at almost no cost at all." Michael Masnick, the president and CEO of Techdirt, a technology consulting group that also publishes a lively, opinionated Web site, says simply: "In digital goods, scarcity doesn't exist."

It's curious that while these arguments are being used primarily to prop up a market libertarian worldview, the term "post-scarcity" was originally popularized by the Marxian anarchist Murray Bookchin back in the late '60s. Indeed, one of the first people to make an explicit connection between computer technology and post-scarcity was none other than Abbie Hoffman. "With the introduction of cybernation into industry we have a glimpse of economic theory built on a premise of abundance," wrote the Yippie leader in the late '60s.

Richard Stallman, the programmer/hacker who developed an alternative to the Unix operating system and helped create much of the intellectual space for what is now called the open source movement, was especially influential in transferring post-scarcity economic ideas into the technology world. In the conclusion of his groundbreaking 1985 GNU Manifesto, Stallman playfully evokes a famous Marx comment:

In the long run, making programs free is a step toward the post-scarcity world, where nobody will have to work very hard just to make a living. People will be free to devote themselves to activities that are fun, such as programming, after spending the necessary ten hours a week on required tasks such as legislation, family counseling, robot repair and asteroid prospecting.

Strains of such techno-utopianism have filtered into the Silicon Valley mindset (even if few executives there work ten-hour weeks). Lately, post-scarcity arguments have been evoked to oppose the more odious aspects of copyright protection. The implication is that if cultural goods have become more or less free to distribute, then legal prohibitions against unauthorized copying no longer make sense.

As Masnick exclaims: "The increasing digitization of so many parts of our lives (moving atoms to bits, in the words of Nicholas Negroponte) has wiped out scarcity in a number of markets -- and it's only just begun. Amazon used the web to wipe out scarcity on book store shelves. Netflix did the same for rental shelves."

This is a strange argument. First of all, Amazon (Charts, Fortune 500) by and large doesn't digitize books; it sells and ships physical books. Second, to focus on rental shelf scarcity is to miss more important scarce goods elsewhere. The fact that I can burn, say, a DVD of a movie onto my iPod in a matter of minutes does not change the fact the movie cost $150 million to make. Much of that money goes to pay actors, directors and technicians who, presumably, possess one of the scarcest goods that exists - talent; the digitization of the medium doesn't affect that at all.

In some of his Techdirt posts, Masnick acknowledges that scarcity and non-scarcity often coexist, but when the post-scarcity crowd tries to stretch its conceit beyond the digital realm, the arguments become thin indeed. In his paean to waste (inspired by a Caltech professor who in 1970 advocated "wasting" transistors), Anderson says: "Outside of technology, the green revolution brought abundance to much of agriculture (so now, to prop up prices, we pay farmers not to plant their crops). And what is the motive force behind China and India's rise if not abundant labor, allowing them to, in a sense, waste people?"

Logic apparently has a short tail: Whatever accounts for the recent economic rise of China and India, it can't be just their "abundant labor," which they have possessed for centuries. There is nothing "post-scarcity" about countries with large populations, as a quick revisit to Malthus will confirm. No matter what the Internet has enabled, abundance and scarcity continue to duke it out in a variety of arenas across the globe, and will do so, I predict, at least until I get a ten-hour-a-week job as a robot repairman.