February 18, 2008

KUFM / KGPR

T. M. Power

Competitive Consumption and Economic Well Being

Fifty years ago economist John Kenneth Galbraith puzzled over the emergence of “private affluence amid public squalor” in the United States: As real incomes rose dramatically, American’s were not willing to spend more of that income on improving publicly provide goods such as schools, parks, public transportation, roads and highways, and urban open spaces. That phenomenon, of course, remains with us a half-century later.

Galbraith ultimately placed much of the blame for this on the way in which commercial advertising was able to capture the power of culture and art to convert us into mere consumers rather than productive crafts-people, active citizens, or families. Advertising was manipulating our values to create a series of escalating culturally defined needs that kept us “needy” no matter how much our real incomes rose.

Although there is clearly an element of truth to this, if we individually and collectively are that easily manipulated by advertising or other propaganda, there is not much hope for democracy, independence, virtue, or the good life.

A more convincing explanation for this phenomenon may be found in the fact that we tend to judge our well-being not by what we have but by what we have relative to what others have. The satisfaction we obtain from our expenditures depends on the context in which we find ourselves. If we live in a 2,500 square foot house but our family friends and professional associates tend to live in 4,000 square foot houses, we are likely to be much less satisfied with our house than we would be if our friends and colleagues lived in 2,000 square foot houses. In this setting, our homes can be said to be “positional goods,” whose value to us depends what they say about our relative position in the larger society.

This comparison of what we have against what others have need not be primarily a matter of envy or showing off. There are real consequences associated with our relative social positions. Consider the size and value of our homes. Across most of America the safety of your neighborhood, the quality of the schools to which your children have access, and local environmental quality are highly correlated with the value of your home. That is, we can buy into higher valued public goods by making higher private expenditures on our homes.

Not all of the uses of our household resources are associated with relative social position. There has to be a certain amount of visibility to our consumption for it to play that role. As a result, some potentially large private expenditures are not positional in character. The amount of health or life insurance we own, the amount of savings we have, or how much family time or leisure time we take may be largely invisible or irrelevant to our social standing. Similarly, publicly provided goods and services that contribute to our well-being but also are available to everyone else do not enhance our individual social position.

Given the asymmetry in how different uses of household resources affect our relative social standing, it is not surprising to find that our use of those resources is skewed heavily towards positional goods at the cost of other things that could contribute to our well-being but not to our relative social standing.

Even as our incomes rise, we find ourselves working longer hours, sending more family members to work, saving less, going deeper into debt, and resisting taxes that would fund public goods. We do all of this to protect our ability to spend more on crucial positional goods.

The problem is that we individually only control how much we spend on positional goods but cannot control how much others spend. As a result, we are drawn into an endless cycle of expenditures that contribute little to our overall well-being, but the alternative, not engaging in those expenditures, would be even worse since we would lose relative standing. We do what is smart for us as individual households but what is dumb for all households as a group because it leaves us with less family and leisure time, more debt, and an increasingly intolerable burden on the earth’s environment.

It is like an arms race. To stop the waste, we have to act collectively, not individually. In the past, we have done that. Workers struggled, often in the face of violent opposition from corporations and government, to reduce the workweek and to penalize firms that demanded longer hours of their workers. We acted collectively to impose health and safety standards on the workplace to prevent us from competing for additional dollars by putting our health and lives at risk. We imposed progressive taxation that had the impact of discouraging the pursuit of higher and higher incomes and consumption levels.

Now the same people who reject multilateral efforts to control the proliferation of weapons systems and insist on the right of the United States to unilaterally project its power militarily wherever it see fit also insist that, in general, the use of the government to improve our well-being is counter-productive or illegitimate. The mantra is that we, individually, are the only ones who are fit to make expenditures in the pursuit of our families’ well-being.

The folly of this radically individualistic ideology is as clear in a global consumption race as it is in a worldwide arms race. The outcome in both setting is the impoverishment of our lives and serious damage to the planet.