Is Consumption the Point of Economic Activity?

On the Economist Free exchange blog, Ryan Avent objects to some of my recent writings on the production economy vs the consumption economy. In the process, he makes a statement  that I feel needs further examination. He writes:

consumption is the point of economic activity; why work except to obtain things?

I have heard this line before. To me, it sums up the essence of the consumption economy: The only purpose of work is to consume.

I would like to raise two objections to this statement–one technical, one philosophical. First, even if you believe that consumption is the only point of economic activity, presumably we  care about the consumption levels enjoyed by our children, and our children’s children’s. So if you care enough about future generations, you personally will choose to consume less and invest more today. Given that we as a society are running up big debts,  it is highly likely that our children will be better off if we choose to invest more today and consume fewer goods and services, whether they are imported or domestic. Under current circumstances, there is no moral imperative to consume.  

Second, I’m going to wax a little philosophical here.  Mr. Avent writes that “the only purpose of work is to consume.” That’s a little bit like the people who say that the main goal of life is to be happy. I would disagree with both statements. I would say that once we are above some level of income, the main goal of work (and life) is to contribute to society in the best way we can.  Happiness (and consumption) flows out of that contribution.

End soapbox.

P.S. I wouldn’t have any trouble at all with a trade deficit if we had a high rate of investment. But our current level of net investment, in nominal dollars,  is less than half of what was before the recession. We’re borrowing from the rest of the world to fund our consumption today, not our investment and productivity gains.

[Added on 8/17

Here is a Keynesian post that claims Consumption – To Repeat the Obvious – Is the Sole End and Object of All Economic Activity ]

 

Comments

  1. Matt Clancy says:

    Regarding “the main goal of work (and life) is to contribute to society in the best way we can.” On the whole I agree. However, something about this philosophy that has always bothered me is it requires society to have problems for me to have a higher purpose in life. I don’t like the idea that if our society ever eliminated all major sources of misery I would be existentially worse off. Put another way, when we help people who are worse off than us, what are we helping them achieve? A life where they too can help other people? It seems like a circle. Shouldn’t there be something good in itself that we are striving for?

  2. Matt Clancy says:

    Oops. I guess I saw what I wanted to see.

  3. Michael,

    In response to your comment on another thread, see this Weekly Standard Article :

    http://www.weeklystandard.com/Content/Public/Articles/000/000/016/659dkrod.asp?pg=1

    This, combined with the fact that Male unemployment is 3% higher than female unemployment and has been for over 3 years, says it all.

    Government policies to steer stimulus away from male-oriented jobs to female oriented ones, due to feminist lobbying that goes largely unopposed, has a lot to do with your production vs. consumption description economic orientation.

    Don’t choose to ignore an economic reality just due to some sense of chivalric obligation. Feminism has moved from getting women to do the same jobs as men, to forcing the government to siphon funds towards what women prefer to do, thus underfunding jobs women don’t want to do (construction, manufacturing, infrastructure), no matter how badly the latter is needed.

    You will never create the complete story of production vs. consumption without addressing the pro-feminist social engineering that the government is doing.

  4. On your first objection, I agree that paring back consumption now might be a good idea, particularly if it’s debt-fueled. But households are already paying down their debt, it’s only the dimwits in govt who are borrowing us back to WWII levels as a percentage of GDP. Household debt of almost $14 trillion is 25% lower than ballooning govt debt of almost $18 trillion and rising fast, most of it at the federal level. Funny how the Tea Party just tries to do something about this crazy federal debt orgy and they’re the ones labeled unbalanced by the mass media, highlighting just how partisan and insane the media has become.

    As for your second objection, you may be right on some level but most people just do it for the consumption. Face it, most people only work to meet their basic needs and their consumption desires on top. If they were guaranteed the same income without working, most wouldn’t work.

    • Mike Mandel says:

      FYI, WordPress likes to hold your comments for my approval because you have so many links in them.

    • I know, :) that happens to me on most blogs, because of the crude algorithm they use to filter potential spam comments.

  5. Doesn’t “consumption” imply that things are “consumed”–that the acquisition of something at the end results in something that is used up, digested and turned into waste to be flushed away? Obviously some things have a limited lifespan: cars wear down, clothing wears out, food is consumed, literally. But not all things we buy are “consumed”: houses last, even if the home owners don’t. Production machinery if maintained can have a very long and productive life, with the effective cost of the things those machines produce dropping from year to year. (Thus we have cheap bread from old bread making machines.) Intellectual property (such as writing) potentially lasts forever. Even some consumer goods are intended to last beyond a lifetime (such as the Saddleback Leather products which are guaranteed for 100 years, or cast iron cooking ware which will last forever is properly cared for), so rightfully they’re not “consumed” in the sense that they’re digested up and thrown out.

    It’s why I have a problem with the very premise of the question. Some “consumption” doesn’t consume, but instead builds on what was there before.

    On the other hand I do agree with you that it is important that once we have achieved a certain level of comfort that we give back to the community that has given us so much.

    • Mike Mandel says:

      William,

      I’ll think about your point. Consumption in the economic sense has two meanings. One mean is a flow of services, which need not imply being used up. The other meaning is a flow of money to purchase goods and services. The two meanings get mixed up in the data.

    • William, granted that consumption is a vague term, your redefinition of the word towards objects that are disposable doesn’t work either. Most things lose their currency as houses wear down with the weather just like cars, same with production machinery. More than anything else new technology and trends constantly obsolete everything we buy. The production machinery will be obsoleted by robots and intellectual property is constantly superceded by new stuff. When’s the last time you read a book from 100 years ago or used software from 15 years ago? Even though a diamond may last hundreds of years, by that time we won’t care about it. ;)

      • “When’s the last time you read a book from 100 years ago or used software from 15 years ago?”

        Actually I was working through J.A. Robinson’s textbook on unification (from 1965), and I’m posting this on a system based on Unix–an operating system that dates back to 1969, and includes oft-used utilities that haven’t been changed since the shift from K&R C to ANSI C back in the 1980’s, while living in a house built in 1938–so I may be the wrong person to ask. :-)

        Maintaining something is far cheaper than building new, and that includes production machinery, houses, cars (though eventually enough wears out that buying a new car becomes cheaper), and computer software (assuming it was well-designed, which, more often than not, it’s not). And even algorithm implementation is easier if you go to the earlier texts and work forward, rather than starting with the state of the art and work backwards.

      • William, while you may be reading a 45 year old book, I suspect that it would be useless without computers from the last decade with which you could actually implement what it describes. As for Unix, the one you’re using today is vastly different from the one built in 1969, to the point it would be unrecognizable under the hood to the original authors, same with your house or a ’65 Mustang. The point is that these old clunkers have been so redesigned and updated over the decades that far more has been spent on that recreation than was spent on the original creation. That’s not an issue of good design, that’s a matter of being unable to predict the future. ;)

  6. “William, while you may be reading a 45 year old book, I suspect that it would be useless without computers from the last decade with which you could actually implement what it describes. As for Unix, the one you’re using today is vastly different from the one built in 1969, to the point it would be unrecognizable under the hood to the original authors, same with your house or a ’65 Mustang.”

    I won’t speak to cars, since I don’t know them–but houses and computers I can.

    The last real innovations in housing came with the invention of the refrigerator and it’s release as a stand-alone home appliance, in the 1920’s. While various equipment in a house has had marginal improvements over time, your basic house and the components in that house would be instantly recognizable to someone transported in time from the 1930’s. The only things that would not be instantly recognizable (outside of stylistic differences) to someone from the 1930’s is the electronic thermostat that controls the HVAC system. Even the HVAC system itself would be recognizable–though they may marvel at the fact that a private house is equipped with one. But outside of incremental improvements which either make the components cheaper or make them smaller, aside from the flat screen television on the wall and the microwave in the kitchen, it’s all completely recognizable technology.

    Hell, the 1930’s era dial phone I picked up at a flea market plugged right into the phone system in my house. Sure, I had to swap out the largish four-prong connector for a modular jack. But I get a dial tone, and I can dial out and receive calls, no problems. (We have it in case the power gets knocked out.)

    The same applies to Unix, as well. The underlying driver model has evolved over time, we have better algorithms for process scheduling and for handling processor resources. And of course the programming language used has evolved from K&R C to ANSI C to C++, all of which were incremental changes that (until the invention of templates) are relatively straight forward. But the ‘ls’ command remains relatively unchanged since 1971, with the last major improvements added in 1983. This is typical of most of the core Unix commands.

    Really the only thing that has changed with Unix is the fact that we have a wider variety of underlying kernels to choose from, and various kernel architectures to pick from.

    So to suggest Unix is “vastly different from the one built in 1969″–I picked Unix because in fact it is not “vastly different.” The only major things that have changed are it’s popularization, the fact that we now can create process threads within a single process, and the number of windowing systems that have been built on top of it.

    • William, you seem to be arguing that since some electronic parts in a house or basic Unix commands retain superficial similarity with the versions used 40 years ago, not much has changed. If that were really the case, I suggest you try using one of those old ’70s Unix systems for your daily work and see how long you last. ;) Not only does a refrigerator or phone or HVAC system or basic Unix utility work much better today than it did 40 years ago, it has so many more options and is so much more energy-efficient than it was back then. A lot of the change is under the hood, because people don’t like learning new things so some of the old human interface has been kept around.

      Your argument is like saying that since cars still have steering wheels, a gear stick, and a volume dial, not much has really changed since 1969. That ignores that they now have hundreds of computer microcontrollers in them, that you’re likely using an automatic transmission, that you often don’t use a radio anymore but a little computer in there that’s wirelessly downloading your favorite podcasts off the internet. It’s the same with practically any object that you can think of buying. Yes, we maintain backwards compatibility where possible, but almost nobody wants to use the old versions because they’re almost always just plain worse than what just came out, with the possible exception of you and all the vintage gear you seem to use. ;)

  7. My point is it’s all incremental. It all builds on what was there before. We didn’t throw away the entire Unix stack just because someone figured out how to get instructions to go through the Intel processor pipeline faster. We didn’t tear down the entire house just because someone came out with a processor-controlled thermostat to replace the bi-metallic strip-controlled thermostat with a little mercury tilt switch.

    To suggest this is all somehow “vastly different”: that somehow using smaller die sizes in a microwafer rather than building computers out of discrete TTL components makes the Unix operating system completely unrecognizable (an assertion I, with respect, will decline since I was using Unix back in the early 1980’s, and can state for a fact that, under the hood, little has really changed) ignores the slow but haphazard way that intellectual property has grown and evolved.

    Wealth has, in fact, grown by accumulating layers on top of layers. We didn’t just pull the modern house and it’s modern amenities out of thin air, nor did the current incarnation of MacOS X 10.7 “Lion” appear fully formed out of the forehead of Zeus.

    And yes, the incremental improvements have added up to make vastly superior products: I’m amazed that my $60K sports car has better 0 to 60 times than the fastest sports cars in my youth, despite an inflation adjusted cost that is an order of magnitude less. But they’re incremental.

    Meaning they had to increment from something…

  8. I think we’ve ranged far afield from the original point, which was that almost everything we buy is almost completely replaced over time. Of course, all the new stuff is built by employing new concepts that often incrementally build on older intellectual frameworks, but that’s neither here nor there when we’re talking about how you spend your money to replace Panther with Tiger with Lion every year or two. ;) And regarding your Unix point, it’s actually been my personal theory recently that Unix is holding back OS development, because it was so simply and cleanly designed for its time that people are stuck on that decades-old design, rather than even considering a clean-sheet redesign for today. So you’re right that old ideas can have great currency even now, but that can often be a sign of backwards thinking too, just look at much of religion. ;)

Trackbacks

  1. [...] a bit harder and it looks like what Mandel is really worried about is debt, not consumption vs production: Given that we as a society are running up big debts,  it [...]

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