Warning: This one is nerdier than normal*.
This blog’s last post, “The happiness scam”, got an unusual amount of attention. I think the issues of materialism, consumerism, and greed and their toxic effects on our wellbeing must resonate with readers. If so, that’s something that needs to be celebrated. We may have a long way to go, but the spark of discussion seems to have been lit.
One of the most common responses I tend to receive after writing a post like that is: Isn’t our whole economy based on consumerism? Won’t the whole thing collapse like a house of cards if we all stop buying useless junk?
I’ve kinda broached this topic before, but I think it’s time it deserves it’s own post. Somehow it became a popular meme, especially within my generation, that the American economy (or maybe even the whole modern-day global economy? I dunno) is based on nothing of substance, and that rampant spending is the only thing holding up a giant economic pyramid scheme. But this is (mostly) wrong.
I say “mostly” because in some cases, the economy desperately needs people to spend. This is essentially what happened during our last economic crisis, and in many other recessions. When we started to figure out that the housing bubble was ready to burst in 2008, banks got scared that they wouldn’t get paid back on the money they’d lent, and pulled back on their loans and hoarded cash; businesses followed suit, canceling a lot of their investment projects and laying off staff; and consumers tightened up as well, all of a sudden becoming less likely to take out a mortgage, buy a dishwasher, or take the family out to dinner. Collectively, everyone slammed on the brakes simultaneously and as the natural flow of the economy was abruptly shut off, we got a crash.
Unless you’re a complete market purist who believes the best way forward in such a crisis is to do nothing and let the economy take its bitter medicine, then the government and central bank can and should step in to keep banks lending, businesses investing, and yes, consumers spending. So in really unique circumstances in the short-term, yes, having everyone stop buying stuff, even if it’s useless junk, is a bad idea. But that’s really the only way that the meme above makes any sense.
In the long-term, a “less consumerist” society simply means that we stop buying things that don’t tend to raise our wellbeing. Think, for instance, of the time you bought that ridiculous kitchen device while watching Home Shopping Network at 1am, the thing that was amazingly marked down from $500 to $19.95 plus shipping and handling. A heightened sense of perspective in life, a greater sense of moderation in all things, and an ability to control one’s natural impulsiveness would mean that the economy would in the aggregate produce fewer of these things that don’t add much to our lives. Collectively, more of the things that actually benefit us would end up getting produced and consumed.
What if less tangible stuff (by that I mean physical merchandise) ends up getting produced? Wouldn’t that mean that we’d all be poorer? Well, first of all, manufacturing isn’t the only thing that matters in an economy. Services matter too, in that people value them and they can improve people’s lives. Think of your computer at home or at work, and then think of all the software programming, distribution/sales (eg. your local Apple store), or technical support that’s needed for that particular item. If that’s still too materialistic an example, imagine these other valuable services: babysitting, retirement planning, weight-loss counseling, your kid’s pediatrician’s appointment, etc.
But what if people in a less materialistic society just simply spend less of their money because they’ve shifted their priorities? Once again, in certain short-term cases (a recession) this is bad, but in the long-term it just means that savings rates go up for the time being, and collectively we choose to spend more of what we’ve earned in the future. That’s certainly not such a bad thing if we can use those savings now to invest in things that will improve our lives later. Think about a family owning one car instead of two in order to have enough money left over for their kid’s college education, or a young man in a developing country saving up for a motorcycle in order to improve his small business.
This broad argument — that we would be better off consuming a different combination of things instead of what we consume now, if only we had the right priorities — is controversial among economists. That’s because, like I’ve mentioned before, economic theory relies on a handful of assumptions in order for it to produce neat and useful mathematical solutions. Among these assumptions is that we always perfectly choose the things we want to consume to maximize our own welfare; in other words, each of us is already consuming the perfect combination of this and that right now. Therefore, any deviation from our current choices can’t make us better off. This can be extrapolated to the level of the economy at large; in most macro models, society automatically strikes the perfect balance between consuming now and saving for the future.
Of course, behavioral economics tells us that real-life humans don’t tend to behave exactly as the economic models would dictate. That’s hardly an indictment of the models, which once again are intended to make general points about economic behavior and outcomes, not deep psychological or moral pronouncements about the human condition. But the point is this: Just because we tend to consume a certain combination of A and B, doesn’t necessarily mean that’s best for our wellbeing.
So no, there is no trade-off between upright spiritual conduct (that is, being detached from material things, being moderate, not acting selfishly or impulsively) and material wellbeing. Quite the contrary, in fact: We can easily make the case that these qualities would make us better off, both as individuals and as societies.
Please spread the word at your next cocktail party.
*A while back I wrote a post entitled “The over consumption debate, part I of III”. Subsequently I realized that no one would ever read blog posts whose titles sound like action movies for economics geeks, so I stopped after part I. But let’s just call this part II so I don’t completely feel like a quitter.