Three Scarce Resources

This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35.  Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.

I first took an economics class in university, and I found it enthralling. It described how some interactions worked and how certain decisions were made, especially choices about buying, selling and working. One of the aspects that I most appreciated was that classical economic theory replaces conspiracy theories of why businesses and governments make the decisions they do. Instead of believing in a small group of powerful decision-makers, it is simpler to see the economy as a large group of more-or-less self-interested individuals. The economic view doesn’t entirely conform to reality, but it provides a useful working model.

Economics 101 describes two scarce resources, time and money. The idea is that we only have a certain amount of time. We make choices about how to spend our time based on our abilities and our preferences. An interesting variable around “time” is that none of us know how much time we have. We also make choices about how to spend our money, based on our preferences and our resources. Money, when it was physical gold coins, was limited in how much could be earned, but also how much could be stored. Whereas an individual’s share of “time” fits a normal distribution (ask any insurance company), an individual’s share of “money” is not normally distributed. Some ultra-rich individuals control more money than entire communities.

An excellent example of the tension between the scarce resources, in my mind, is the debate around public vs. private health care. Private health care provides care first to those who can pay. Public health care provides care first to those who can spend their time in line. The way we approach this issue depends on whether we believe people should pay for their care using time, which we all have more-or-less equally, or money, given that spending time could have negative health impacts. I won’t weigh in on this debate, but it’s interesting to look at the total cost of health care as “time+money”.

Since I decided to work toward a “free at 45”-type early financial independence, I realized I would at some point have a reasonably large store of both time and money. Not having a financial requirement to work, I could take a day or a week off work, if I felt I needed to spend more time. Having enough financial resources to retire, but continuing to work, I could spend additional money. But I felt there is still something more that rich people have that middle class people don’t. Upon reflection, I determined that there is another scarce resource that can be called “relationships” or “networking”. This is illustrated in the dictum that “it’s not what you know, but who you know.”

A few years ago, I offered to coordinate volunteers to build a playground in our community. I didn’t have an established network, so I set an ad in the community newsletter and mentioned to a couple people I knew that we needed help. Less than a handful of people showed up, and it ended up being a lot of work. On the other hand, my wife is involved in a group called Save Our Fine Arts. They have a board of seven well-connected people and between them they have been able to organize a meeting with the Minister of Education which will be attended by MLAs, school board trustees and administration from the public and separate boards, CEOs and leaders in the arts community, journalists, authors, teachers, parents and students. They could not buy this type of support with either money or time alone.

People who don’t have an established network sometimes try to minimize the importance of relationships by calling it “favouritism”, “cronyism” or “nepotism.” But “who you know” really is important. Think of people you know who have found jobs, and ask yourself how often it was through a help wanted ad, and how often it was working through people they know (or a recruiting agency, which is about the people they know).

How have you developed relationships? Have you been successful in networking, and using your network for a beneficial purpose?

3 thoughts on “Three Scarce Resources”

  1. Networking is key, but not really a scarce resource.

    It is favoritism, but just think of yourself as being on the other side: If you have a job lead, are you going to pass it to a friend or are you going to ask random people on the street? If a friend asks you for a favour, are you more likely to do it?

    I got all my jobs through networking. All my other efforts, even though I think I have an awesome resume, basically fail.

  2. GoalHunter, Thanks for your example. You’re right that it is favouritism and I think only people who DON’T have it try to either downplay its importance or act like it’s a bad thing. It’s part of life, as you pointed out.

    I believe it’s a scarce resource because I think your Rolodex, like a bank account, can only grow so big. And it can only grow at a certain rate. Like with money, technology has extended the upper limits, but it hasn’t removed them.

    What was interesting to me was the idea that once I’ve got time and money, the next area I can work on is networking.

  3. I also noticed that successful people I have met are generally sociable and have large networks.

    Is it the success that attracted the large network, or the large network that supported their success. I think one feeds the other.

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