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The Good Kind of Scarcity

There has been much ado about web3, “crypto”, and decentralization lately. I care about, study, and work with the web, decentralization, and even a touch of cryptography - but I think that recent trends hinge less on technological specifics and more on economics, human behavior, and scarcity (or lack thereof).

Technology obviates scarcity, and computational technology especially so. Price is driven by supply and demand, with effectively infinite supply making price negligible. This makes the marginal cost of digital goods generally near zero, with the barrier to create and share content lower than ever.

The result is a world that gives consumers unprecedented media options, and at the same time makes it challenging to compensate artists. The blockchain enables a form of (artificial) scarcity, with NFTs digitally embodying assets, which some argue can address the above challenges. To form opinions on manufactured scarcity like NFTs, I think it is useful to more generally consider what is good about scarcity and what is not so good, economically and beyond.

Scarcity is good when it encourages ingenuity and rewards creativity, for instance increased energy efficiency. It is bad when it causes and reinforces inequity through stockpiling and similar dynamics, as occurred with both vaccines and food during the COVID-19 pandemic.

Scarcity is good when it strengthens balance by limiting indulgence, such as a puzzle released once per day or a weekly TV show. It is bad when it prevents entire possibilities from raw lack of resources - a world without any puzzle games or TV shows. All things in moderation, including moderation.

Scarcity can enhance our appreciation of something by increasing contrast - a point of beauty jumps out from the background. But it can also limit beauty itself, resulting in the dominance of the bland sameness of the usual.

Purple flower bud in close-up

Good things - things that inspire us and bring us joy - are often scarce. Are they good because they’re scarce, or scarce because they’re good? Likely a little bit of both.

Would it be good to have a “post-scarcity” society? Maybe - or maybe not. Likely a little bit of both.

So, should we manufacture scarcity? Can we artificially bottle the good, using scarcity to inspire and reward things we truly value, while omitting the bad, the inequity and waste and limited potential?

Doing so would require the creation of a more sophisticated and considerate system than humans have a track record for creating. It would require avoiding economic and psychological pitfalls and finding how to sustainably reward those involved. Everyone would need to be informed - to learn and really understand a new system - in order for them to engage with it in an appropriate and fair manner.

Inventing beneficial scarcity is already hard for individual humans - the main examples I can think of are fasting and meditation. So there is such a thing as good scarcity, and we can clearly manufacture scarcity (companies have been doing it long before the blockchain). But I’m skeptical of the intersection of the two - or at least, we have a ways to go before we get there.