inamerrata

Apparently economists are real scientists now; they’ve finally managed to reach that nadir of absent-mindedness that’s a requisite for genius in the hard sciences, so much so that they’ve forgotten we’re human. A choice claim:

[Clive Hamilton’s] book, Growth Fetish, published by Allen & Unwin, is a powerful attack on conventional economics and its rarely examined assumption that unending growth in the consumption of goods and services is what will make us happy.

But hey, increased consumption is what makes us happy. Having enough food that we don’t starve is a fabulous increase in consumption since the 18th century, having the ability to visit distant lands to enjoy other cultures is pretty much new in the 20th century, being able to enjoy fabulous artworks from any part of the globe within days of their completion anywhere in the world is barely a couple of decades old. Cars are a recent enough invention on their own, even discounting tape decks, AM radios, FM radios, CD players, CD changers, air conditioning, power windows, power steering, anti-lock breaks, seatbelts, air bags, GPS enabled electonic street maps, blackbox recorders, sun roofs and all the other things we take for granted. All of those are increased consumption, which are you eager to do away with?

Even better, no one’s asking you to do away with any of them. Instead, we’re finding more efficient ways of doing them all: using less materials, less power, less resources, which all adds up to less cost, either to your pocket book or to the environment.

That’s not to say you can’t increase your happiness by means that don’t involve increased consumption. Meditation, gossip, sex, can all enrich your soul. Just make sure you don’t fly to Tibet, or troll the internet for interesting news, or buy a pack of ribbed condoms to do it, if you find economics quite so demeaning.

Another quote:

How’s this for a weakness in the model: economists never doubt for a moment that if someone’s annual income rises by $1000, they’ll be happy. It never enters the economist’s mind that, if my income rises by $1000 while everyone else’s rises by $2000, I’ll be either murderously angry or suicidally depressed.

That would actually be what’s usually called “inflation”, in this case 100% inflation, which is to say that your real income has actually dropped by $500. It’s also not what usually happens, or at least, nor the most significant factor — inflation is generally a bad thing, and something central banks like to limit. The real trick, is that generally things get cheaper, so that what it used to cost $1000 for, now only only costs $500. Compare the cost of getting a car with air conditioning and power windows in the 1980’s and now. But the great thing about lower costs is that it benefits everyone; unlike governments, the market doesn’t discriminate.

Continuing on.

But from the laughable assumption that we’re all rugged individualists flow two key assumptions of market economics.

The first is that a consumer’s preferences are “exogenously determined”. Each of us knows exactly what it is we want to buy, and all we’re waiting to be told is the prices we have to pay. Once we know that, we adjust the quantities on our lifestyle shopping list so as to maximise the “utility” we derive from what we have to spend.

In Physics, this is what’s known as a “simplifying assumption”. Take the prediction that if you drop any two objects from the same height, they’ll take the same time to fall to the ground. Doesn’t matter how much they weigh, or what they’re made of. It’s true — try it, hold a glass in one hand and your laptop in the other at shoulder height, then let go. The shards of glass will be cutting your legs at the same time the shards of remorse are cutting into your wallet.

That doesn’t always work since we made some simplifying assumptions: we assumed that air resistance wouldn’t matter, but sometimes it does: try a rock and a bit of paper sometime if you like. We also assumed air pressure wouldn’t matter: try a rock and a helium balloon if you want to see what effects that can have. We also assumed that the Earth’s gravity field was constant: if you want to check on that one, try dropping a rock from shoulder height at sea-level, and try again on the International Space Station. Those caveats are all important to know, because sometimes they dominate the calculations, but good simplifying assumptions generally introduce errors that don’t make any real difference in the outcome, but make the calculations easy enough to perform without having to do the experiment.

For economics, simplifying assumptions (like the rationality of your customers) allows you to make predictions like “all other things being equal (availability, price, features, etc), the car that is the most comfortable will sell better”. If that comes out to be right nine times out of ten, it’s probably better to try to design a more comfortable car, than ignore that and just spend money on advertising.

Let’s look at:

Hamilton, however, argues that for most people in the rich countries, the economic problem has been solved. After 200 years of rising real incomes, capitalism “has moved to a phase of abundance, and abundance broadly spread”.

Is that true? Are we in a post-scarcity world? There’s plenty of food to go around, but is it abundant enough that we can give it away? Why are lobsters so expensive? The answer is we simply don’t live in a post-scarcity world; we live in a highly efficient world (compared to anything that’s gone before us, although probably not whatever’s coming next). If people want tomatoes and steak and bananas, we can grow more than enough to give everyone what they want without taking up too much time. But we can’t provide an arbitrarily large amount, and nor can we do it for no effort. We can’t even provide a particularly large amount of delicacies like Moreton Bay bug or Lobster, instead they manage to sustain prices such that your average punter can only afford them once every now and then. Likewise petrol’s a long way off being free, and it’s certainly not so abundant that people don’t bother even thinking about how much they use. Far from being a society of such abundance that capitalism and markets have been rendered useless, we’re instead seeing the continued usefulness of markets as a means to regulate scarce resources.

And this has turned the economists’ model on its head. Unending growth in the consumption of goods and services doesn’t create happiness.

Rather, unhappiness sustains economic growth. The marketers and advertisers have to play on, and play up, our discontents, holding out the promise that another tub of margarine – or a Rolex watch – will bring us to nirvana.

The producers have to con us into keeping up our consumption so that production can keep growing. This makes sense?

Ross Gittins is the Herald’s Economics Editor.

Mmm. I’m halfway through a book called Basic Economics, and the Herald’s Economics Editor can’t come up with arguments that I can’t see through? (The alternative explanation, that Ross’s analysis requires more economics background than I have isn’t particularly complimentary to someone who is presumably writing to an audience that doesn’t read textbooks for entertainment)