In Defense of Consumption

Nearly four months ago, two economists at the University of Chicago released a paper purporting to show that much of the ballyhooed rise in income inequality in the United States actually closes when measured by prices and inflation across different classes of goods and services.

This paper has been written up in a few different places (see here and here), so I won't dwell on its counterintuitive yet completely common-sense conclusions, except to say that it (and other work on consumption as a better measure of relative inequality) confirms this observation made long ago by Joseph Schumpeter:

    "The capitalist achievement does not typically consist in providing more silk stockings for queens but     in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort."     (Page 67 of Capitalism, Socialism and Democracy.)

Consumption is often derided as either wasteful or mindless or soul-destroying. (This, by the way, is not a partisan issue: you can locate various criticisms of consumption at any point on the spectrum of American politics.)

Such knocks, however, see only one stage of consumption: the actual purchase of a product or service or its actual use. They usually don't extend (necessarily) to what that consumption gets you. When you "consume" a cell phone, what you're really consuming is connection with other people. When you purchase a better refrigerator, you're consuming the ability to store food for longer periods of time than was available to most humans throughout history, thus raising the ability to improve nutrition. When you buy a drink from Starbucks, you're getting not only the drink itself but also the experience and interaction with others. (One of the original investment bets behind Starbucks, remember, was provision of a "third place" for people to get together.)

In other words, there is a great essay waiting to be written in defense of consumption. I'm not the first to observe this, of course--a couple of years ago Nick Gillespie had a brief but fantastic commentary on Marketplace. I won't venture into that perennial bugaboo of video games--there has been plenty of recent scholarly work on their cognitive and social benefits. See, for example, this interesting story in yesterday's New York Times, on the front of the Arts section no less. Also in the Times is Rob Walker's fantastic weekly column, Consumed, which provides an additional perspective on consumption and all its manifold uses and benefits. Walker has a new book out, too, which I look forward to reading.

Anyway, maybe the research paper with which I began this post will give us a new view of not only relative inequality but also consumption in general and its possible uses in, for example, international development.

(I am indebted to Kauffman Foundation president Carl Schramm for some of the insights and comments in this post.)

Comments

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Something I cannot understand about the foundations of microeconomics: Why are goods rather than human activities treated as fundamental?

Consumption could be a sink of wealth or a source depending on where it fits within a larger chain of activities that involve other people.

Has any economist written about how utility functions could be measured by watching how often people engage in certain activities?

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