I mentioned below that I've been reading The Affluent Society. I'm as big a fan of it as now as I was when I wrote that earlier. The last two chapters I read were about, respectively, using economic production as measure of general welfare (this is what they are talking about when measuring the Gross Domestic Product) and quanitfying consumer desire.
The two topics are related. One of the issues with Bush's bread-and-circus tax rebate was to provide "economic stimulus" and spur not production but consumption. The problem with Great Depression was, originally, that there was a surplus of goods that people couldn't buy. This lead to deflation (since the goods were unsold, the prices went down) and people losing jobs (since dollars were worth more due to declining prices, old salaries became unbearably expensive to carry - as well, of course, as reduce revenue from the unsold goods). So a significant part of a healthy economy is something that they call the "velocity" of money - that is, that it needs to keep changing hands to keep the economy moving.
The notion that velocity is healthy on a macro level is counter intuitive to the notion that saving is healthy on a micro level. We, as consumers, provide the velocity in the economy, but we, as savers, provide not only our own security but also provide money that can be, assumedly, used even more efficiently by investors.
I remember reading an autobiography of Alexander Hamilton a few years ago, and he was famously against honoring the back payments of soldiers from the revolutionary war. This is because in, his view, normal poor people just spend money, whereas rich people invest it. Investment leads to a more efficient use of money, where efficiency is defined as "more goods are produced with fewer inputs", and GDP goes up and blah blah blah.
But, people still need to buy stuff at the end of the day. The consumer sector, and in particular the service sector, of the US economy is enormous. If people aren't buying, then things aren't doing so hot. So what do people buy? That was the topic of the chapter I read this morning. Economists have had to deal with, as JKG called it, "the indigestible fact" of price differentials. In particular, why are some things that are very useful extremely cheap whereas other things that are extremely frivolous very dear? Adam Smith referred to the situation of water and diamonds: the former is extraordinarily useful and free, and the latter is only used for decoration and is extremely expensive. Remember that Adam Smith wrote before both metered utilities and industrial diamond usage, but the point still stands. Water costs me approximately 1/10th of a cent per gallon from the city, whereas gem quality diamonds command thousands of dollar per 1/5 of a gram (or, as we call it, one carat).
This is an interesting problem, and is related to another facet of economics. That facet is that people never seem to become completely satisfied. Indeed, if they did, then they would stop consuming, and the economy as a whole would suffer. The fact that people are willing to pay a lot for things they don't really need is good for production, since it means that new desires can be created or realized and those desires can then be fulfilled from something else.
For an extremely contemporary example, look at the Apple iPhone. For years and years the Apple camp railed on Microsoft for many reasons, one of which was that the bastards had a monopoly over the world and used that monopolistic practice to extract undue profit. The iPhone, which, c'mon guys, is a fucking phone, commands a staggering fifty-five percent profit margin. That's right. Half of the thing is pure profit. Compare that with, say, garden.com, which did not compete on price, and commanded an approximately 20 percent margin. Or compare it to a super market, which does compete on price, and typically enjoys a 1 percent margin.
Profit, of course, can be directly traced to demand. Demand is related to supply, and of course no one else is supplying an iPhone. But there are literally hundreds of options for plain old "phones", and remember, at the end of the days this is, as I said, just a fucking phone. And nothing I have read has talked about how the phone sounds or dials (you know, the things that make a phone a phone). But something about this phone makes people want it so desperately that they will pay double what it costs, and sit in line for a week like that freak in New York, just to own one.
I'm sure that there's an underlying point here about conspicuous consumption, but I'm not interested in that. What I am interested in is that the iPhone can create a desire and demand that wasn't there before. This desire is very, very compelling and, if you are not a fanboy, difficult to understand. The same can be said for N Sync or World of Warcraft.
The underlying thesis of The Affluent Society is that historically, makind has been poor and, suddenly, this is no longer true. Life was nasty, brutish, and short. It is only very, very recently that a few countries have moved beyond poverty and into general affluence. This is shocking, and surprisingly, our psychological apparatus and defenses are not holding up as they should. I remember reading a Men's Health article once that put it succinctly: the reason we get fat is that we were bred to expect famine, and that our bodies haven't caught up to our "easy street address".
I'm only halfway through the book, but I'm suspecting that JKG is going to lay into this production/demand cycle. Back when everyone was impoverished, it wasn't hard to calculate demand and supply it. You literally couldn't make enough bread to feed everyone in mid 19th century England. But now... having enough is a natural way of things in the US (ignoring poverty and credit card debt etc. etc.). However, the economy still needs to produce to ensure that continuing affluence. So how does that happen? It's not so much the supplying that is a problem, it's the creation and identification of desires.
JKG is, I think, going to have a lot to say about advertising later on. He has already mentioned it explicitly. And in the third sentence of the book, he says that poor men have know what they want, which is more of the necessities of life, whereas rich men are unsure of what they want.
So that's a discourse on what I'm reading at the moment, but how is it actually changing me? It made me think about Joe Dominguez's belief in "enough". If the economy must keep producing more to maintain affluence, where the hell is "enough"? Can the two notions be reconciled?
This is pretty important to me. I'll have to write next about accupuncture and the scientific method, because I started thinking about that a month or two ago (short version: accupuncture, which appears to me to be bullcrap, can't actually be tested in a double blind study like more traditional western medicine such as drug trials. It can't be double blind because you, supposedly, need a skilled practitioner to administer it, so one of the people knows if it 's supposed to work or not. That opens to me an very interesting avenue of exploration... of course there needs to be ways other than double blind studies to prove efficacy, otherwise things like surgery or orthopedics wouldn't be testable either. But it made me think about a problem in software testing, which is that unit testing isn't effective for UIs.).
Given that we need to keep spending money, and increasing output, does "enough" make sense? Is it just a difference between micro and macro economics? Hmmm.