Spoiling Affluence
Why Affluence Is Different
by Jim Klumpner, September 2016
Each spring, the Social Security Trustees’ Report projects economic growth for the next 75 years, about the average lifespan for a person in the U.S.. In 2015 for instance, the Trustees assumed that real GDP per worker would more than triple by 2089 (average growth of 1.68 percent per year). What does this mean? Will more than tripling money income to almost $150,000 per person in today’s dollars have a similarly gigantic impact on wellbeing? Will Americans one lifespan in the future be far, far better off than we are?
For affluent societies like the U.S., where average yearly income is already about $43,000 per person, the answer is no. For the vast majority of the world’s population that isn’t affluent, more is clearly better. But conventional economic growth does not bestow benefits to affluent societies comparable to those from escaping poverty.
Two fundamental things are different. The motivations that drive market life – and thus the satisfactions derived from it – change when needs are met and desires take over. Moreover, the satisfactions of unending market growth bump up against unyielding constraints, most importantly finite individual life.
Short-term movements in GDP and market income do reflect changes in wellbeing. Sudden income loss in recessions harms health, strains families and overthrows dreams. Not surprisingly, most people equate falling GDP with hardship and rising GDP with wellbeing.
But over spans of decades, rising market incomes, the continued expansion of buying and selling per person, yields diminishing returns to wellbeing. Getting more GDP is a low priority for countries that already have lots of GDP.
Even orthodox economics teaches that the net benefit of market exchange (consumer surplus) differs from market spending (GDP). Emeralds sell for lots of money and add significantly to GDP, but we could easily live without them. By contrast, necessities like water and food may account for a small part of spending, but they make a huge contribution to our wellbeing. Unfortunately, market spending, not consumer surplus, is what drives profit-seeking businesses.
Earlier in history, economic activity focused more on satisfying needs like food, water, shelter and clothing. People first addressed those scarcities where even small amounts yield big benefits, i.e. a large consumer surplus. But when basic necessities have largely been secured, spending growth turns to the fancies of affluence, such as gems, with small consumer surplus. The kinds of purchases that make GDP grow in affluent societies thus offer only small net benefits to households by their very nature.
When satisfying desires drives growth rather than fulfilling needs, it also means that marketing – sales generation – plays an expanding role. Marketing has exploded with affluence and become far more intrusive. Don’t think for a minute that businesses are wasting their money. Advertising effectively synthesizes spending desires we didn’t know we had. However, growth based on first creating dissatisfaction and then alleviating it is fake.
Finite individual life also constrains the benefits of unending market growth. A person with great riches still has only 168 hours per week and limited lifespan to enjoy them. Buying a sailboat isn’t the same as sailing it, and having more stuff necessarily means that you spend less time on average with any individual purchase. Benefits from market consumption suffer diminishing returns because time pressure constrains enjoyment, not because desires are satiated.
We’re also obliged to pack our limited time more tightly with decisions as affluence multiplies them. This degrades our decisions in the marketplace as we devote less time to each one. Affluence requires more and better decisions about what to buy but simultaneously deprives us of the time needed for sound choices.
Sellers can then exploit information advantages for unjustified gain, and the proliferation of specialized services makes this worse. Service purchases oblige us to evaluate expertise that we had hoped simply to hire. But even after the fact, we may not know how much our purchase represented good value, rather than just the seller’s money grab. The scale of specious services spending is immense, witness money-driven health care, predatory finance, fraudulent education, and the mechanic who deadpans, “This is gonna’ be expensive.”
Of course, an individual can benefit from having a higher income than others – i.e. by “getting ahead.” Inequality makes possible exclusive pleasures and dominion over others; everyone aspires to be the restaurant patron rather than the server. But inequality’s benefits are zero-sum for society as a whole, because everyone can’t get ahead of everyone else.
Most of what makes GDP go up in affluent societies is empty, and much is harmful. After a point, market-driven economic growth tempts us with transient pleasures, depletes our savings, imposes insecurity, trespasses on non-market affinities, and gobbles our time — the stuff of life. Once a society reaches a certain level of market prosperity, long-term market growth simply fails to deliver much additional wellbeing because of the nature of affluence itself.
Pie for the Pope
by Jim Klumpner, September 2016
Conservative critics of Pope Francis’s economic views note how market growth has lifted millions out of deep poverty. The Pope agrees and said as much to Congress. The Pope’s critics also argue that any problems with capitalism at this point in history spring from manageable defects, not from unending market growth itself. They believe we can keep fine-tuning market capitalism so that growth continues to improve wellbeing, as it often has in the past.
These arguments are based on a familiar metaphor: the economic pie. We’ve been taught that the economy’s benefits are like a pie from which people get slices. Economists typically emphasize enlarging the pie, which potentially allows giving bigger pieces to everyone, provided we agree how to share growth’s benefits.
Thinking in these terms, conservatives believe the Pope’s distrust of market capitalism is misplaced. Profit-seeking businesses operating within a reliable legal framework can grow a country’s pie. A bigger pie widens the scope of opportunities and can soothe the sting of inequality with larger slices for all.
We’re told we merely need to make good choices about distribution, while letting properly regulated markets work wonders of efficiency – and determine the mix of output. Unfortunately, the mix of output in which profit-seeking businesses thrive often does real harm to people.
Conventional conservative analysis assumes that the pie is uniform and grows in a uniform way. But GDP – the pie – is actually made up of many different things. We literally add together production of apples and oranges, using market prices to evaluate their contributions to GDP. Expressing everything in money terms this way makes the pie and its growth seem uniform.
In reality, some parts of the pie are savory, and some parts suck. There are plenty of market activities that contribute to GDP that are stupid or harmful: wasteful healthcare, predatory finance and education, specious services that don’t deliver on promises, and intrusive advertising to name a few. Just because money changes hands, someone gets income, and GDP gets bigger, doesn’t mean everybody’s better off. This is especially true in affluent countries.
For poorer countries, the pie metaphor is less distorting. For them, getting more of the basics — food, water, clothing, and shelter — is clearly better, and the mix is less important. However, about a billion people live in societies with high average income, where needs are largely met and desires drive growth. In this context, growing businesses sales require conjuring or coercing new market demand, which leads to mischief.
The Pope laments that people in affluent societies are “caught up in a whirlwind of needless buying.” Mindless acquisition gobbles resources that might otherwise relieve suffering and provides the affluent only diminishing satisfactions. For instance, much spending in affluent countries simply signals status – my watch is fancier than yours. Pope Francis shuns this zero-sum competition, because such display conflicts with humility and goodwill.
Increasingly intrusive marketing synthesizes desires we didn’t know we had, and much of our spending merely scratches for relief after applying itching powder. We stockpile possessions in swelling houses, garages and storage units, but still have only 168 hours each week to enjoy the cornucopia.
Then, we try to save time by hiring others to do tedious tasks for us, but this requires inequality. After all, you wouldn’t pay more than your own wage for chores you could just as easily do yourself. Maids don’t hire maids to clean their houses unless forced by circumstance.
That means that in affluent societies you don’t need more money per se; you need more money than the next guy so you can buy his time. This is the economy of exclusion that the Pope condemns. This quest to get ahead, to have more money than others, feeds upon itself as all strive to be the restaurant patron rather than the server. Meanwhile, gated communities foster gated mindsets. Increasingly, the well-off mingle with those lower down only in commercial transactions where the former have the advantage.
Inequality means that the majority’s time – their 168 hours per week for enjoying family, friends, and market pleasures – becomes more insecure, despite money income and things to buy. This is something that the Pope particularly laments. As increasingly on-demand workers, those with less money in a money-driven society dance to the tune of those higher up. Such soft slavery robs those lower down of time — the stuff of life and the essential prerequisite for love and enlightenment.
Market globalization sends ripples from this around the globe as the economy of exclusion in affluent countries spreads to poor ones. Globalization allows affluent countries to outsource much manufacturing, resource extraction, and pollution, raising poor countries’ incomes but poisoning lives. The well-off can afford unpolluted living, while those in Port Arthur and Tianjin cough.
The Pope sees the current pattern of economic growth damaging God’s children in real time. He asks for a new kind of growth with less subservience, where not everything is for sale, where families have time, where money power respects community power, and where people are more sacred than property rights.
The Pope’s views reflect long-held Catholic doctrine, but also a wide array of venerable teachings. Until the last 300 years of market capitalism, every great religion and philosophy at least nominally disapproved of selfishness — what we blithely call self-interest today. The Pope holds fast to this tradition, disparaging acquisitiveness beyond need as suspect and, when immoderate, harmful.
I disagree with the Pope on many issues, especially his blindness about women. But his economics are sound, being based on observed reality rather than happy abstractions. The economic pie that conservatives throw at the Pope ignores how and what people consume and the texture of their work lives. It forces a false two-way choice: whether the pie gets bigger and how the division is made. This distracts from more complex but realistic questions about how markets do and don’t serve people.
Why Paying People to Annoy Us Is “Good for the Economy”
by Jim Klumpner, September 2016
When I was a kid, most of the time the phone rang it was someone you wanted to talk to. Today, most of the time the phone rings it’s someone you don’t want to talk to. Phone spam, which was rare fifty years ago, has undercut the telephone’s usefulness. What was once handy and reliable voice communication has become yet another privacy battleground where people must defend against intrusive commercial appeals.
Some telephone solicitations, those from charities and political organizations, are explicitly protected by law. In my experience, though, most phone solicitations are from businesses. Some of these solicitations are legal, because any time you shop you establish a “business relationship” with the vendor and its affiliates. Providing contact information then gives these businesses the right to spam you.
By law, the consumer must be allowed to opt out, i.e. to request “do not call” or “unsubscribe.” The consumer who simply wishes to be left alone shoulders the burden of opting out. Businesses get to assume that they have permission to intrude unless you make the effort to tell them otherwise. Even that often fails to stop intrusions.
Many marketers ignore requests to opt out, and illegal marketers don’t even bother with a “business relationship.” You can pursue sanctions such as fines against these violators, but that consumes still more of your finite time — all so that you might be left alone to spend time as you choose. It’s simply not worth fighting as a rule; better to just put up with routine annoyance.
Intrusive marketing has grown immensely in recent decades and goes far beyond phone and email spam. Advertising is the financial foundation for much of the internet, and pop-ups are the bane of users. Sidebar ads have also gotten better at commanding our attention. Marketers know that evolution programmed humans to respond viscerally to stimuli such as motion, bright color, sudden change and nakedness. No matter how much our pre-frontal cortex tells us to focus, ancient cues from the reptile brain still grab our attention.
Video screens impose advertising in elevators, gas stations, urinals, taxis, doctors’ waiting rooms, and supermarket checkout lines. Our mailboxes are jammed with third-class mail that usually goes directly into recycling. The daily newspaper comes with a wrap-around ad that must be jettisoned before you can get to the front page. Buying a fashion magazine exposes a person to aromatic assault.
Public transportation is plastered with ads. Billboards are ubiquitous along our highways, even though Americans promised to do away with them half a century ago. The sides of buildings are festooned with gigantic commercial appeals. There was even a proposal some years ago to use immense, light-weight satellites as reflective screens for night-time advertising — until astronomers went bananas with outrage.
Yet, intrusive marketing contributes to GDP; we say it’s “good for the economy.” It creates jobs, and the money earned is counted as a good thing because it boosts national income. GDP growth is routinely assumed to be an overriding goal, even if it’s not perfectly allocated. The conventional wisdom holds that what’s “good for the economy” is more GDP, and getting the right mix of activities is a separate, secondary issue.
That’s backwards. Whether economic growth is a good thing or a bad thing should depend on whether the activities that increase GDP are good or bad. What’s “good for the economy” should be what’s good for people, and intrusive marketing is bad because it’s coercive. We pay twice for this annoyance, once for added costs in the prices of things we buy and again trying to protect our time from pestering. This will get worse as growth increasingly crowds the marketplace and businesses compete more strenuously for our limited attention.
GDP in rich countries is made up of a great variety of activities, itself a reflection of affluence. Some of these activities contribute to our wellbeing, some are empty, and some harm us. In each case, though, money changes hands, contributing to GDP. But perverse growth happens easily in affluent societies because basic needs are generally well met and growth is driven by desires. in this context, getting sales obliges firms to conjure new desires, whether by enticing or coercing.
Thus, we’re submerged in visual, auditory and psychological pollution that is difficult or impossible to avoid, but which adds to GDP. Worse still, there are many other empty or harmful activities that also boost growth in affluent societies: predatory finance, fraudulent education, wasteful health care, specious services, commodification of social capital, and stealthy risk shifting.
Be very skeptical whenever someone assures you that we need to do what’s “good for the economy.” Growth should serve people, not the other way around.
Actually, inequality is a problem.
by Jim Klumpner, September 2016
Why should we care about growing inequality as long as incomes are rising? Many argue that we shouldn’t. They say that as long as incomes increase faster than inflation for most people, then they’re better off. Outsized gains at the top that worsen inequality shouldn’t make any difference. Indeed, careful analyses, such as those of the Congressional Budget Office, do show that most Americans have seen small real income gains over the past 35 years, despite soaring inequality.
However, in an affluent society like the US, relative income standing is more important to the majority’s wellbeing than the growth of market pay. That’s because needs are well met for the most part in affluent societies, and growth of market income is largely driven by fulfilling desires.
Needs are things that would be horrible to do without, such as food, water, and shelter. Providing for needs bestows great benefit to households, what economists call a large consumer surplus. Desires have small consumer surplus, because making do with an iPhone 5 instead of an iPhone 6 doesn’t ruin your life.
Total expenditure for new iPhones and the market incomes generated thereby have nothing to do with the size of consumer surplus — i.e. households’ net benefit from purchasing iPhones. Smartphone spending may add a lot more to GDP than spending for food or water, but being denied a fancier phone doesn’t compare with hunger or thirst.
In societies with lots of GDP, getting more GDP is a low priority because most of what makes market incomes go up is rather empty, and some is harmful. The swollen health care sector alone accounts for trillions of dollars of pointless spending (while the US trails Bosnia in life expectancy). To this, we should add the predatory behavior in finance and education, specious services like inflated bills for repairs, and intrusive marketing. Just because money changes hands and someone gets market income, doesn’t mean we’re all better off.
In affluent societies, the primary constraint on household wellbeing isn’t money and the things it buys, but time. Everyone gets precisely 168 hours per week, and market prosperity doesn’t change this. Higher market incomes and a profusion of things to buy don’t create more time in which to enjoy those things. Satisfaction from market consumption faces diminishing returns, because increasing purchases must be packed ever more tightly into the same, unchanging 168 hour per week.
In this context, growing inequality makes time pressure worse for the majority, because those with money can more easily buy others’ time to spare themselves tedious tasks. The demand for personal services — services that one could just as easily do oneself — is driven by pay differentials and is unrelated to average market income. That’s why servants, gardeners, food service workers, drivers and childcare attendants in the US have far higher money incomes than those doing the same work in truly poor countries.
When inequality increases, time becomes more fragile for the majority, with the most severe impacts for those at the bottom. In the extreme, workers become on-demand labor with little control over their lives and little opportunity to enjoy affluent society’s benefits. Their time — the stuff of life — consists of obeying directives of those higher up, irrespective of the material affluence surrounding them. Overall market growth — getting more GDP and money income — does not change this; only reduced inequality does.
In an affluent society, therefore, one doesn’t need more money to be better off; one needs more money than the next guy. It’s much nicer being the restaurant patron than the server, even though the relationship ostensibly represents a fair market exchange.
In the 1970s, economist Fred Hirsch invented a telling metaphor to describe the problem of affluent inequality. He asked that we imagine a column of soldiers marching along a dusty road, and those at the back are complaining. However, those leading the procession assure them that, if they just keep marching forward, they will soon get to where the officers currently are enjoying fresh air.
What If Machines Become Smarter Than Workers?
by Jim Klumpner, September 2016
Predictions that technological change would make workers redundant go back at least to the early 19th-Century Luddites. However, predictions of overall job loss have thus far proved wrong. In the past, displaced workers more often than not found other jobs, as productivity growth boosted total income and overall demand. Some jobs were destroyed, but more jobs were gained elsewhere due to rising living standards.
Recently, concerns about machines replacing workers have again surfaced because the digital revolution seems to have altered the nature of technological change. Formerly, much innovation harnessed energy for human direction. For instance, steam shovels harnessed carbon energy for digging, far outstripping the efforts of laborers with hand shovels. However, the steam shovel still needed a human operator who knew where to dig and how deep.
The digital revolution is changing this. Computers have gotten better at so-called cognitive tasks, i.e. knowing what’s needed in a given situation. The thought may give you the willies, but computers typically land commercial aircraft these days. They react more quickly and surely than impulsive human pilots who can freak out. Computers also do basic legal research and read x-rays. Usually, we think of automation replacing low skill tasks, as with internet shopping. But machines are now taking over work that requires more complex thinking.
Moreover, machines can sometimes learn more reliably than humans, dispassionately calculating from evidence while humans hinder themselves with predictable biases. Human decisions typically are over-confident concerning the ability to address problems (action bias). We often filter out evidence that contradicts earlier judgments (confirmation bias). Sometimes we simply don’t see relevant information that is right in front of us (failure to notice). When presented with truly random data, we even see non-existent patterns, confusing our imaginings with revelation (apophenia).
Given these advantages, digital technology is increasingly doing the decision-making in production, something that once was the exclusive province of humans. That’s why there are worries that — this time — technology might in fact lead to generalized job loss. Machines might become so smart that workers would find little economy-wide demand for their energies. Income from smart technology might well go mainly to the owners and creators of smart machines, unlike more widespread benefits in earlier eras.
However, problems with this kind of technological change, go well beyond income loss due to weak demand for human workers. Work life isn’t solely a source of money income. It also provides a sense of purpose and a setting for social interaction. Historically, it has been the single activity commanding most of our waking hours, and institutions have arisen based on this premise. Work for pay will remain central in capitalist societies for a long time; people are used to it.
That means that workers will have to perform tasks that smart machines can’t handle. Those tasks fall into two categories. First, there are so-called “high-touch” jobs that require direct human contact. Human beings evolved as social animals that need direct interaction with other species members to thrive, and jobs can cater to this. Some high-touch jobs are relatively low-skill, such as child care and elder care. Some are high-skill, such as psychotherapy.
Secondly, there are jobs where the context in which decisions take place is too idiosyncratic or complex for computer algorithms. Such decision environments are too unstructured, with simply too many relevant variables or ambiguities. One low-skill job that requires such fine-grain contextual awareness is pulling weeds. The myriad ways that the weeds insinuate themselves among the plants you want makes mechanical analysis impractical. It’s hard to imagine a machine doing this affordably. A high-skill job that requires keen contextual awareness would be negotiation, where success depends on participants being creative rather than formulaic.
Unfortunately, we can’t all be negotiators and therapists. It seems likely that most of the jobs that smart machines can’t replace will be low-skill, i.e. pulling weeds and wiping butts. Indeed, there might be a great many personal service jobs in a world of smart machines. These jobs address tasks that most anyone could do but that are convenient to hire. Employing others to perform tedious tasks that one could just as easily do oneself saves time — though only for the purchaser.
That has a crucial implication. Demand for personal services depends on pay differences, not the income levels of either buyer or seller. Maids don’t hire maids to clean their houses. Only people whose time is more expensive than maids’ time hire cleaning services. Maids in the US may have higher money incomes than maids or even masters in poor countries. But it is inequality that drives the demand for their services.
That means it might actually be easy to create lots of personal service jobs in a future of smart machines. All it takes is inequality, which cognitive technology may well worsen. Still, it would keep people employed. In this future, more restaurant servers would have advanced degrees.
But will having lots of suck-up jobs be a good thing? Remember that these jobs are the exchange of one person’s time for another’s, of one person’s inconvenience for another’s. The time the purchaser saves is time that the seller sacrifices, and time is the stuff of life. From the worker’s point of view, personal service means that the hours of their lives are more fragile; they’re paid to dance to the tune of those higher up.
An expansion of personal service jobs would make GDP go up. Personal service workers’ salaries would add to national income, and the services provided (to those who could afford them) would add to total household consumption. This GDP increase would be said to raise “living standards.”
However, greater subservience, even if paid for, does not make life better for the majority. The most important constraint on affluent life is limited individual time, not money and the things it buys. We all get exactly 168 hours a week, and economic growth hasn’t changed that. Unfortunately, not everyone can save time to enjoy the fruits of affluence by hiring personal services; servants don’t get to have servants.
Predictions that technological change will lead to overall job loss may again prove wrong, though for different reasons this time. Workers will still need money income, but opportunities for getting it may increasingly shift towards suck-up jobs. This will contribute to market growth, but sadly it will reflect employees being denied control over their lives and the time needed to enjoy productivity’s miracles. It will indicate the increasing use of money as an instrument of power over others.
