It is the Type of Consumption not the Size Which Matters

While an extreme focus on consumer consumption leads a country down the wrong path, I feel this article is really focusing on the wrong things.

The emphasis here is on investment and production. But focus on production without talking about what kind of production is as pointless as focusing on consumption without talking about what kind of consumption.

Consumption and production need to be balanced. If you just keep investing in production but nobody is buying what you are producing then you get into just as big trouble.

Production and consumption will generally be balanced, otherwise people would be standing in long lines or goods would pile up somewhere so this is not really what the problem is about.

What this is really about which the article seems to entirely fail to mention is inequality. You have rich capitalists investing in and expanding production of goods nobody can buy, because they have rigged the system so they get most of the profits. But the rich already have plenty of sports cars, yachts and private jets. They are trying to sell more consumer goods to people too poorly paid to buy it. The solution? The rich lend out their money to the poor, so the consumption cycle can keep on going.

So they the poor can keep buying on credit while the rich gets richer. The more money the rich get, the more they can lend to the poor to keep consumption going. This is obviously not sustainable. It it is what caused the 2008 crash.

It was supposed to be a time where the rich got financially punished for this recklessness, but they got bailed out unlike the poor, so they learned nothing and they have thus been at it again.

To balance the economy you need more equality, not as you claim more production. If the working poor or middle class isn’t making any more money then they cannot buy any of this new and extra production.

However even this perspective does not clearly tackle the actual problem. Increasing production of more flat screen TVs, more smart phones, more shoes, more fast food etc isn’t really making anyone better off.

One could double the production of skin care products or plastic surgery and it would not make the world a better place. Economists don’t like to talk about type of consumption. Because in their mind you cannot make value judgements on consumption. In the naive Economist mind every individual in the market is hyper rational and that individual knows what is best for him or her to buy. That is of course utter nonsense. If that assumption was true nobody would gamble away their house in Vegas, and nobody would be shooting up on heroin. Human individuals make lots of terrible consumption choices.

However as a society we have a pretty good idea of what sort of consumption makes us better off. What people need more than ten extra pairs of shoes is things like better health care, child care, education etc.

What makes life worth living is being in good health, living in a safe neighborhood, having a job you enjoy, having leisure, kids in a good school etc.

When society spends its limited resources on producing more private jets and sports cars for the rich you are not really increasing the quality of life in the society. That is why the type of production matters.

It is more important to build quality housing for more people than a luxury yacht for the few. It is more important to offer better education for the disadvantaged that an experience cruise for the few.

Thus just looking at an increase or decrease in total production doesn’t tell us anything about whether society is moving in a positive or negative direction. Production could double but if that production only accrues to the top 0.1% e.g. then that increase had very little if any impact on the general well being of a nation.

Consumption and production is strongly linked. You could say that when government expands public education, they are causing increased demand. They are after all building more school and hiring more teachers. But they are simultanously also causing more production. They are causing production of training or teaching services.

In American societies high on free-wheeling capitalism it is in fact often consumption and production of government services which are too low. And the distribution is wrong. As a European visiting the US it is bizzare looking at the extreme private wealth. The enormous McMansions and huge SUVs and pickups everywhere. The massive boxstores selling stuff. You see an abundance of private wealth.

Yet when you look at the patched up streets and the primitive wiring between wooden poles or go on a bus or a subway, you see a public sector deep in poverty. It is like the third world existing amidst opulence. When my North American mother and father in law visit us in Norway they are not impressed by the size of the houses or the cars people drive. There is nothing impressive about it. However when they see the quality of pre-schools even in low income neighbourhoods they are somewhat shocked. They are used to seeing public sector poverty.

This is the main problem I see with American consumer culture from having lived in the US. It is primarily hedonistic. It is about the instant gratification of buying a new pair of cool shoes, a bigger stereo, consuming some high calorie fast food etc. When more of societies resources ought to be shifted toward less hedonistic consumption such as a quality education, health care, child care, public transportation etc.

Just my opinion.

Written by

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.

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