Have We Become Stupid?
The richer the economy the more we spend on things that are less important to our survival. In the most advanced economies around the world the average household spends more money on its leisure budget than on food. Apparently the question: “do I really need this?” is not a good enough barrier in our quests to satisfy an ever-growing consumer need. In pre industrial times all that was earned went to feed the family and have a place to live. In those times life was much harder than it is today and families often had to work from morning until evening in the fields just to make a living. On the other side of the industrial revolution economic activity has accelerated at a breathtaking pace and the average purchasing power of an individual has risen dramatically. This has been associated with the development of more specialised functions in society that benefit overall production and increase efficiency. However, some of the jobs that have been created in this economy I seriously do not understand! Why is there such a thing as a dog-stylist or a celebrity on a reality show about Botox parties? These things are totally irrelevant and a complete misallocation of resources!
It can sometimes make me so frustrated that I consider running for government with the mission to tax these markets starting with gossip magazines! Why are we not spending all that money on fighting hunger, AIDS, malaria or something else useful? That is because we are irrational human beings – all of us – including this economist. Why does anyone play the lottery when the expected value is so small? Dan Ariely, one of the world’s top behavioral economists, jokingly put it: “playing the lottery is like a tax on stupidity”! Adam Smith touched upon this as early as the 18th century in his work “The Theory of Moral Sentiment” when he described our desire to seek the approval from the impartial spectator. We are all biased towards promoting our own best self-interest be that getting a good job, finding an appropriate spouse or receiving recognition from our peers. This drive has a big influence on how we spend our income. In a perfectly rational world we would consider what is best for us, both individually and collectively, and only spend our money on things that truly benefit society like finding a cure for cancer. However, we are much more selfish than that and living in a perfectly rational world would also be boring.
Our consumer choices are dictated by many factors such as: looking good, getting more money, saving time, feeling comfort and many more. In this aspect it can be quite useful to look at Maslow’s pyramid. Abraham Maslow described in this pyramid our hierarchical needs from physiological needs to self-actualisation. This goes some way in explaining the allocation of a household’s demand. Especially how it can vary over time and depends on a given person’s situation. When a lower level is sufficiently saturated we become complacent and crave to satisfy higher desires. However, why do these useless things arise on the supply side in the first place? This is perhaps a harder question to answer but it is probably because marketers understand these needs and lay out very persuasive messages to the public about becoming successful if you watch their show or buy theirs product and nobody want to be left behind. In this perspective supplier powers are much greater than that of the demand side and with a bit of collusion it is not hard to imagine that very few can dictate what the new trend is going to be. Industrial lobbies are, for instance, fully integrated into the political process; however, one does not see many consumer groups putting pressure on producers of dog outfits or dog jewellery.
I do not care about what Katy Parry does or who becomes the next top model, neither am I interested in the Kardashians! But apparently other people are because otherwise they would not have paparazzi chasing them or there would be no such show as Big Brother 12. People that buy gossip magazines and watch these reality shows give incentives to these industries to push on. Should they be banned during times of crisis or scarcity? With the risk of being inconsistent it could be argued that it not a bad idea, however, I believe in free choice and I therefore have to accept others wish to buy useless things. However, I do encourage a more critical approach by consumers towards spurious producers of things we don’t really need. It seems like such a waste, especially in difficult economic times when people are out of work when others take their dogs to get kitted up.