Re: Robert Frank on increasing needs

[ken hanly <northsunm@xxxxxxxxx>]

There is not a word in all this about the pervasive
role of advertising. Advertising can cause people to
feel that their existing needs can only be met by
zillions of different products so there is no end to
the creation of demand and hence the desire to expand
income and thus work longer or rob more etc. is open
ended if not infinite.

--- Jim Devine <jdevine03@xxxxxxxxx> wrote:

> September 28, 2006
> Economic Scene/New York TIMES
> The More We Make, the Better We Want
>
> By ROBERT H. FRANK
>
> Productivity growth has raised living standards in
> the United States
> more than 40-fold since 1790. In his 1930 essay,
> "Economic
> Possibilities for Our Grandchildren," John Maynard
> Keynes speculated
> about how the continuation of such spectacular
> productivity growth
> might transform our lives. Like many other
> distinguished thinkers,
> both before him and after, he predicted that people
> would have great
> difficulty filling their days once it became
> unnecessary to spend more
> than a token amount of time working.
>
> This concern seems comical in retrospect.
> Productivity's upward
> trajectory has become even steeper in the decades
> since 1930, yet
> people are working just as hard as ever.
>
> How could Keynes, the most influential economist of
> the 20th century,
> have made such an absurd prediction? It would be one
> thing if he had
> merely overlooked the possibility of boundless human
> desire. Yet he
> explicitly considered this possibility, only to
> dismiss it.
>
> Thus, he wrote that human needs fall into two
> classes: basic, or
> absolute, needs, which are independent of what
> others have, and
> relative needs, which we feel "only if their
> satisfaction lifts us
> above, makes us feel superior to, our fellows."
>
> Keynes granted that although needs rooted in a
> desire for superiority
> might indeed be insatiable, this was not true of
> absolute needs. And
> seeing absolute needs as more important by far, he
> concluded, "A point
> may soon be reached, much sooner perhaps than we are
> all aware of,
> when these needs are satisfied in the sense that we
> prefer to devote
> our further energies to noneconomic purposes."
>
> Keynes was surely correct that only a small fraction
> of total spending
> is prompted by the desire to flaunt one's
> superiority. He was
> profoundly mistaken, however, in seeing this desire
> as the only source
> of insatiable demands.
>
> Decisions to spend are also driven by perceptions of
> quality, the
> desire for which knows no bounds. But quality is an
> inherently
> relative concept. The same car that would have been
> deemed as having
> brisk acceleration and sure handling by drivers in
> Keynes's day, for
> example, would be much less charitably evaluated by
> today's drivers ?
> even those with no desire to outdo their neighbors.
>
> An economist's formal mathematical model of the
> demand for automobile
> quality would incorporate an explicit comparison of
> a car's features
> with the corresponding features of other cars in the
> same local
> environment. Cars whose features scored positively
> in such comparisons
> would be seen as having high quality, for which
> consumers would be
> willing to pay a premium. In purely mathematical
> terms, such a model
> would be essentially identical to one based on a
> desire not to own
> quality for its own sake, but rather to outdo
> others.
>
> Yet the subjective impressions conveyed by these two
> descriptions
> could hardly be more different. To demand quality
> for its own sake is
> to be a discerning buyer. But to flaunt one's
> superiority is to be a
> boor, a social moron. Such people exist, but that
> most of us manage to
> avoid them most of the time suggests that they are
> rare.
>
> Perceptions of quality influence the demand for
> virtually every good,
> including even basic goods like food. When a couple
> goes out for an
> anniversary dinner, for example, the thought of
> feeling superior to
> others probably never enters their minds. Their goal
> is just to share
> a memorable meal. But a memorable meal is a
> quintessentially relative
> concept. It is one that stands out from other meals.
>
> The standards that define a memorable meal are thus
> elastic. When my
> wife and I were living in Paris a few years ago, we
> went out to dinner
> with well-to-do friends who were visiting from the
> United States. The
> restaurant we chose had a good reputation and, by
> our standards, was
> not cheap. But although my wife and I enjoyed our
> meals enormously,
> our friends found theirs disappointing. I'm
> confident they were not
> trying to impress us or make us feel inferior. By
> virtue of their
> substantially higher income, they had simply grown
> accustomed to a
> higher standard of cuisine.
>
> [this guy should read Duesenberry]
>
> There are no obvious limits to the escalation of
> quality standards.
> For example, dinner for two at Sketch in London can
> easily top $500,
> even if you choose the least expensive offering on
> the wine list. No
> one had to spend that much to enjoy a memorable meal
> in Keynes's day.
> But if productivity keeps growing, it is just a
> matter of time before
> the price of a special meal becomes twice that
> amount. For as we
> approach the frontiers of existing quality
> standards, even minor
> improvements can be enormously expensive.
>
> Until recently, for example, the Porsche 911 Turbo
> was considered
> perhaps the best all-around sports car on the
> market. Priced at over
> $120,000, it handles impeccably and has blistering
> acceleration.
>
> But in 2004, Porsche raised the bar by introducing
> its Carrera GT,
> which handles slightly better than the Turbo and
> beats its 0-to-60
> time by two-tenths of a second. People who really
> care about cars find
> these small improvements genuinely exciting. To get
> them, however,
> they must pay almost four times the price of the
> Turbo.
>
> By placing the desire to outdo others at the heart
> of his description
> of insatiable demands, Keynes relegated such demands
> to the periphery.
> But the desire for higher quality has no natural
> limits. Keynes and
> others were wrong to have imagined that a two-hour
> work week might
> someday enable us to buy everything we want. That
> hasn't happened and
> never will.
>
> [so longer hours of paid work are due to more
> needs?]
>
> Robert H. Frank, an economist at the Johnson School
> of Cornell
> University, is the co-author, with Ben S. Bernanke,
> of "Principles of
> Economics." E-mail: rhf3@xxxxxxxxxxx
>
>
> --
> Jim Devine / "Segui il tuo corso, e lascia dir le
> genti." (Go your own
> way and let people talk.) -- Karl, paraphrasing
> Dante.
>