Friday, April 2, 2010

Do we always want more

This was part of a facebook conversation that I thought might have more general interest. I apologize for the lack of context. There were two strands going, one on the effectiveness of economic theory. The second, and I think more interesting, topic I paraphrase as "are humans hardwired to want more and to equate more with better".


I have no problem with the base notions that economists have come up with. They are extremely valuable. Supply/demand and the notion of marginal utility seem to explain some basic facts about humans as economic animals. The elaboration of those concepts into mathematics with the attendant simplifications is also fine by me, as long as the basic shortcomings are acknowledged. Unfortunately, certain brands of economists (pure free market capitalists) have hijacked the political discussion by making their value judgements into articles of political faith, partly on the basis of "science and mathematics".

On the basic question of more equals better in the human animal, I think the jury is out. Even if we accept more is better, what we want more of is quite malleable.

It is quite clear that virtually all human groupings larger than tribes establish social hierarchies and that social status is announced by appearance and behavior. It is also clear that in many groups, displays of wealth are associated with high social status. Wealth is often associated with a surplus of labor. In the middle ages, kings might have torch holders at a feast. This was not because the wall sconce was not invented. On the Yap islands, large carved stone discs served served as currency. The value of a stone was largely associated with the difficulty of acquiring it.

Social status is not always associated with material goods though. In academic circles status comes with papers, citations, and awards. In religious communities it can come with piety, prayer and even asceticism. These are cases where the hierarchy is disconnected from wealth. Hereditary social status is often associated with wealth, but the existence of sumptuary laws shows us that higher social classes (typically hereditary) may try to eliminate the advantage of wealth to maintain their own status.

Within the larger social hierarchy, both religious and academic social status often exist side by side with wealth or hereditary social status. That indicates that while social status is important, it need not be wealth based.

Even if we accept displays of wealth as indicators of status, what we spend our money on is almost completely arbitrary. Take fashion. The codpiece shows us that people can make anything fashionable.

To Michael's point on advertising. There are two ways that advertising can be effective. One is to channel existing notions of desirability into a particular product. For example, when I want a drink, advertising can influence my decision to get a Coke instead of a Pepsi or water. Thirst is the need, and advertising changes the choice, not the need.

The second way advertising can be effective is to create a new sense of need. That is, it changes the utility function rather than just directing it. The current market for diamonds in jewelry is an existence proof that this is possible. This should be a textbook case in marketing. Diamonds are sparkly and pretty. They have been used in jewelry for several thousand years. Through advertising, the De Beers company manufactured the diamond as the standard engagement ring. They controlled supplies and were able to create an artificial scarcity. This both increased the price and fed into the notion of giving a valuable engagement ring as a symbol. Now that synthetic diamonds are increasing in size and quality, they have added "natural" to the marketing. You must give a "natural" stone even though an electron microscope may be required to decide whether a given stone is natural.

Research shows that when you take a school class, the specifics of the subject are quickly forgotten. What is remembered are the basic concepts, the shape of the world. Advertisements are the same way. This is what allows Coke ads to be effective without mentioning any attributes of the product. What comes through, the shape of the world, is that Coke is part of good times with friends and family.

For commerce as a whole, the basic shape of the world is that things make the world better (which is often quite true) and that having the latest, most full featured, most stylish thing is fulfilling (which is often not true).

I personally believe that there has been a concerted commercial effort in the United States to base almost all social status on wealth and the conspicuous consumption of goods, many of which are designed either by manufacture or fashion to become obsolete quickly. I am not suggesting that this is a conspiracy, just that it makes economic sense for every business to increase the desirability of its products. In a world of mass media, non-economic spheres have less effective incentives and means.