Being poor taxes the mind every bit as much as the wallet. It does not end there. Financial scarcity is also shown by MS to damage decision-making over time. The mind-absorbing effects of making ends meet can lead to an excessive focus on the present at the expense of the future – that is, financial insecurity generates impatience or myopia. This, too, can have damaging implications for life choices. As MS demonstrate, it may lead people to under-invest in education and skills and to over-borrow at high interest rates and short maturities. MS call this a scarcity or myopia trap. It is a trap because it is self-fulfilling. Scarcity generates myopia and myopia is the enemy of human capital accumulation. For individuals, this means that scarcity traps may, over time, create poverty (lack of income) or unemployment (lack of skills) traps. And at the level of the aggregate economy, it means that scarcity traps, by taxing human capital accumulation, may generate lower growth and productivity. Physical capital accumulation, such as research and development, also relies on patient decision-making. It requires a willingness to defer gratification, either on the part of managers of firms (for example, through lower salaries and bonuses) and/or shareholders in those firms (for example, through lower dividends and share buybacks). Unfortunately, the evidence suggests neither have found it easy to do so. Public companies suffer from “short-termism” (Kay (2012)).
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