If we’re so rich, why aren’t we happy?

by Thomas Rodham Wells

Not what we have but what we enjoy, constitutes our abundance.

Economists pay a lot of attention to productivity, the efficiency with which inputs are translated into outputs. This is quite reasonable since productivity is the source of the wealth of nations. But economists tend to focus on the supply side: the ratio of labour/capital to the final product. They tend to neglect the fact that productivity is also a feature of the other side of the market relationship: consumption. If we could be more efficient in our consumption decisions – if we were better at buying what we actually wanted – then we would be better off just as much as if we could afford to buy more stuff in the first place. We could achieve our present level of utility with a smaller outlay than present (allowing us to work less). Or, if our budget stayed the same, we would be able to get more utility for it than we do now.

ScreenHunter_679 Jun. 09 11.20The late Gary Becker was an economics genius who made a career out of applying perfectly orthodox economics methods in radically unconventional ways and to unconventional subjects, like crime, discrimination, and fertility. (Unfortunately, his 'economic approach to human behavior' has also led to excesses like Steven Levitt's Freakonomics, where the “Hidden Side of Everything” turns out to be only always about incentives, but that's another issue.) One of Becker's contributions was to point out that consumption itself requires production. For example, if you buy a book for $20 completing that transaction does not mean that the book has now been 'consumed'. In order to consume the book (in the normal way) you still have to read it. In other words, to enjoy your purchase you will have to put several hours of your own labour into producing utility out of it. The same goes for restaurant meals, clothes and so on. (This, by the way, is something to bear in mind when giving gifts. Just how much work are you implicitly imposing on your friends and family if they are to appreciate your present properly?)

If one prices the labour you put into this 'productive consumption' at even minimum wage levels (let alone your actual wage levels), one will often find that the market price of a good is less than it will cost you to actually enjoy it. And this should not be a surprise. The reason we have outsourced so much from the household to the market is that it allows us to access the productivity pay offs from vast economies of scale and divisions of labour. Indeed, there is some further scope for increasing the productivity of consumption with the help of the market. For example, eating at a fast food restaurant like McDonald's is not only quite cheap in price but also in the time it requires of you. There is even specialised capital equipment available to make the household a more efficient factory for turning purchases into utility, like the dishwashers and washer-driers which make meals and clothes cheaper to consume. Yet it must be noted that some kinds of consumption activities, like watching a movie with your friends or reading Jane Austen, stubbornly resist such market efficiencies. That is because the time and attention they require are intrinsic to their enjoyment.

Becker's analysis is very pertinent to how economists should think about production, as something that occurs on both sides of the market relationship. Yet I want to add a further point that he could not because as a neoclassical economist he was committed to taking preferences as given, as pre-existing facts that identify and define each of us as unique beings. Becker assumes that we are rational agents who maximise our utility by choosing the bundle of consumption goods that best satisfies the preferences we already have, given our budget constraints. The conception of rationality employed here is purely instrumental, a complex but superficial matter of logistical calculation.

As many people have noted, including plenty of economists, this is a very limited view of rationality. So limited that it can be applied to insects and plants as easily as to humans. But humans are more than the things that we want, and human rationality is about more than how smart we are in getting what we want. We also have the capacity for valuation, for critical reflection on what it is that we should desire and how much.

Aristotle thought this capacity for working out what it is we want in life, not just how to get what we want, was what separated humans from other animals. We can ask ourselves not only whether we can get away with another glass of wine on a work night, but whether we want to be the kind of person who wants to drink quite so much wine. And there is a rigorously utilitarian – a rigorously economistic – argument for taking this capacity seriously. As Epicurus, the first philosopher of hedonism and a successor of Aristotle, agued, taking charge of our desires is essential to doing egoistic hedonism properly. Having the wrong desires, such as desires for status goods that can never be satiated, can make our lives unhappy or even painful. Epicurus was notorious not for his gluttony but for his ascetism, not for his selfishness but for the importance he placed on friendship.

The intellectual neglect, particularly by economists, of this essential ability of human beings to review and revise our desires has had a major influence on our so-called consumer culture. Most people most of the time have a very weak sense of what it is that we want, and how much we want it. We want to be loved, successful, rich, and so on, but we give relatively little thought to what other goals follow from that or the overall coherence of our desires. That is because we generally do not know how to reflect on what we want, or simply do not bother to. The result is that we do not have the clearly defined complete preference orderings over all states of the world that economic theory presupposes. Instead we have vaguely defined desires which stand in ambiguous relations to each other.

This is where advertising and marketing comes in as a shaper as well as a driver of consumption. Just as we seek to become more efficient consumers by buying things that require less effort to convert into the goods we really want – pre-chopped onions, no-iron shirts, and so on – so we, perhaps naturally, turn to the producers of consumer goods and services for advice about what we should want in the first place. We look to corporations to help us to make our own consumption decisions more efficiently, with less effort on our part.

While neo-classical economists still insist that the role of advertising and marketing is merely to inform consumers about the features, quality, and prices of the available options for satisfying their preferences, this is not a product of empirical analysis but of their axiomatic assumption that economic agents are rational calculators with stable preferences. It is obviously wrong, as advertisers themselves know full well (and social psychologists, behavioural economists, etc have analysed). Advertising plays an important role in shaping our vague desires about who we want to be and what we want to feel into concrete economics-like preferences for specific products that will make us sexy, clever, happy, etc.

Thus in economic life, though not economic theory, our practical reasoning about what we want is outsourced to the producers. The classic supply-demand micro-economics relationship of competitive markets, in which sovereign consumers demand and producers respond, cannot apply when consumer preferences are induced by the producers themselves. Nor, in such cases, can we assume that satisfying 'our' preferences by buying the latest I-phone or imported beer is really maximising our utility, since the way those preferences were formed may not reflect what it is that we really want. The involvement of producers in shaping and ordering our desires means that welfare (the satisfaction of our preferences) can depart from autonomy (the sovereignty or 'ourness' of our preferences). If you let companies like Apple tell you what you want in life the effective result is that whatever job you have you will in fact be working for Apple rather than yourself.

Economists have missed something. Producing actionable rational preference orderings is work and can be analysed as such. Just as Gary Becker pointed out that beyond market transactions lies 'productive consumption', so I argue that beyond choices lies choosing, and behind choosing there should be thinking. Just as consuming a book requires more than buying it, so choosing to read that book is about more than the constrained maximisation of a given preference ordering.

As I noted in discussing the idea of ‘productive consumption', there are some cases for which it is appropriate to seek efficiencies and some cases, like listening to an opera, where the investment of our time and effort is itself an intrinsic part of consumption. Likewise, in some cases it may be efficient for consumers to use brands as a shortcut to decision-making, where that allows us to economise on the information gathering and processing that doing our own market research would require. But to the extent that outsourcing our practical reasoning to corporations and marketers undermines our higher autonomy to decide on our own wants, we become less efficient consumers. The preferences we are so busy earning money to pay to satisfy are not our own and ultimately cannot make us happy.