Friday, January 20, 2012

Lower cost of satisfaction

One of the few people who regularly reads my blog chided me this morning for not posting. That's because we're busy moving (you can follow those adventures there). Ridding our house of most of our belongings, many of which were obtained second-hand, has made me think about what I need to be "content." I think that so long as I have high-speed internet, a low-end notebook computer, an iOS device, a refrigerator, and hot water I'll be okay. Most of the satisfaction I get during the day revolves around those items. 

This has me thinking about one of Tyler Cowen's hypotheses in The Great Stagnation, that things like the internet entertain us immensely for so cheap that we're willing to live on less, need to work fewer hours, and we are therefore less productive (meaning slower GDP growth). This is partly why I frown on OWS-type railing against income inequality and calling for greater redistribution. A local Hebrew professor pointed out at church last week that Solomon's words in Ecclesiastes are backed up by economic studies of Richard Easterlin. Income, in and of itself, does little to predict or improve happiness.  Relationships, access to health care, internet, etc. are more important.

One chart I like to share with my Principles of Microeconomics students is one displaying the real cost of various household items over time as Mark Perry often does on his blog. Items like microwaves and refrigerators haven't changed much over the years, they bring the same basic benefits. While median wage growth in real terms may have stagnated since the 1970s, the hours worked to obtain these items has decreased significantly as their prices have fallen:
"In other words, with the income earned working 121 hours, the typical consumer 45 years ago in 1965 would have only been able to purchase a single appliance - the electric oven pictured above, compared to the eight appliances that a typical consumer could purchase today with the income earned working 121 hours."
In terms of appliances and internet speed, those in the top 1% aren't able to buy a whole lot of improvement with their money, and those in the bottom 1% are able to buy much more than they ever could per hours worked. I get an awful lot of free or 99 cent apps that do things that would have been unthinkable or really expensive (like calculators) a few decades ago.Couponing and thrifting gives us access to more items cheaply than ever before, and those don't show up well in official statistics.

Before I'm accused of predicting some type of Wall-E reality where nothing else needs to be produced and nobody works, it's obvious that there is more to be invented and discovered (teleportation, for example) and our quest for more and better innovations will continue to fuel economic growth. However, as Cowen projects, we could be in for a much slower period of growth as we substitute from hours worked into leisure. Those who become unemployed may choose to take longer to find a job, they can get by more easily on their savings and unemployment checks. A slower-growth economy with higher structural unemployment than before shouldn't shock us.

What items do you need to feel "content?" What level of income provides those items?


Bill said...

I think Cicero had it about right: "If you have a garden and a library you have all you need."

And, as John Stott says, "Simplicity is the first cousin of contentment."

billybdlgn25 said...

As a 10-year-old in 1962, my father ran his own TV/refrigeration business, selling Admiral televisions. Back then a "home theater" consisted of a 27" color cathode-ray tube, AM/FM stereo radio, Garrard brand turntable (with genuine sapphire stylus/needle), and two sets of loudspeakers (woofer and tweeter), all in a massive piece of hardwood furniture, weighing somewhere between heavy and a ton-and-a-half.

That home theater cost $1,000.00 in 1962 dollars. Today, a 47" digital flat screen, Dolby 5.1, Blue-Ray, sub-woofer, and satellite receiver can all be had for about $1,000.00. And the quality of sound and video are orders of magnitude better.

Wolfram Alpha states that $1,000 in '62 is worth about $7600.00 today.

Not every commodity/product has followed this trend; most have, however.