Consumption and net gain

· January 9, 2019

From an introduction to consumption:

The situation of rising consumption levels has been compared to one in which the front row of a crowd of spectators stands on tiptoe to see better. Everyone else has to stand on tiptoe also, just to see as well as before. All are more uncomfortable, but none except the front row are better off. There is probably no net gain.

Consumption behaviour is a significant element in considering what the future of work and of productivity might be - The future of work and the future of consumption are, largely, sides of the same coin. Assumptions based on the experience of the US and Western Europe over the last 100 years may not be accurate or helpful, as it is unclear whether trends can continue as they have or whether it is desirable that they do so.

Juliet Schor wrote a great paper in 1995 on the market failures around consumer behaviour, A New Analysis Basis For An Economic Critique of Consumer Society. The paper highlights several effects, a couple being:

The failure to meet conditions of worker, and hence consumer, sovereignty

The assumption of revealed preferences is that people will try and do what is right for them, so if you look at what they have done, you get a sense of what they want. The interesting point here is that most people don’t really have a lot of granularity in deciding how much work they do, or whether gains can be taken in terms of time rather than in terms of money. Very few employers give promotions where you get either a higher raise or a shorter working week.

This means you can’t really tell whether people are consuming optimally, because you can’t tell if they are working optimally. If people have something unpleasant to do that has a desirable outcome (like working an extra day) and you reduce the unpleasantness, more people will choose to do it: the cost, though non-monetary, has reduced. Consumption and work have an odd relationship - if you have a long work week but can now listen to music on your phone, that makes the work more pleasant but also costs money which has to be earned at work.

This critique also touches on why the idea of a government mandated shorter working week feels questionable to me - it doesn’t necessarily get to what peoples actual preferences are (though it may still be the best of a bad set of options). There is definitely something weird in the fact that the US has among the lowest average paid time off of the advanced economies, but also among the most vacation not-taken (amusing citation Project: Time Off by the US Travel Association).

Collective action failures around relative income

This failure models consumerism as an inadequate, but stable, equilibrium where people work harder to maintain their relative level of affluence compared to those around them - the situation described in the quote at the start. In particular, there is a pressure around the social status of different types of consumption - leisure (at least in some societies) has less of a status component than goods, even if leisure drives as much benefit (or more) than goods.

I believe this argument to be correct, but its also hard to get to a clear image of what the world looks like without this equilibria. As much as there is keeping up with the Jones, there is an element which is the existence proof that someone very similar to you can have X or Y pleasant thing. While advertising and general media undoubtedly creates empty, pointless consumption that doesn’t deliver utility, it also exposes people to a much wider range of possibilities than previous generations had access to. Even if there was a way to trigger coordination to a new, better, equilibria, it’s unclear what that equilibria would look like, and it may not be net-lower consumption.

There is a difference between buying a new, fancy phone because it is visibly new and fancy and buying it because it has an amazing camera which allows you to capture images you never would have without it. It is possible for the second case to be a genuine new capability, but it still results in the same consumption.