Blogspot

Overemphasizing consumption and economic growth is fundamentally misguided and ignores data collected over the past half-century which redefines the relation between consumption and well-being, and argues for a more dynamic approach to raising the well-being of all. Relative comparison Research has shown that since the mid-1900’s income has considerably risen in the West while well-being, however it is measure or named, has not seen a relative change similar to that of income as a result of these increases (Easterlin 1974; Layard 2005). The results are what came to be known as the Easterlin Paradox which states that within a given population higher income people are generally happier than lower income people; however richer countries are not necessarily happier than poorer countries; and that overtime as income levels increase happiness does not experience a concomitant increase (Easterlin 1974).Layard as well has found that since the 1950’s while income has greatly increased in the USA, England, Japan, and most European countries that happiness has remained relatively unchanged, while unhappiness has not significantly decreased either (2005). These findings are based on an assumption on the importance of relative income over absolute income– how much an individual earns and consumes compared to those around them matters. This raises the question of the prudence of development policy contingent on forever increasing income and consumption. Indeed, once basic needs are taken care of, however they are defined locally, increases in well-being could be just as well achieved through supporting civil society and education as could developing manufacturing and production. The findings on income and well-being being relatively unrelated are not without detractors, as other researchers such as Stevenson and Wolfers (2008) and Hagerty and Veenhoven (2003) find that increasing national income does increase national well-being though by a much smaller degree proportionate to the change in income. Well-being has risen in some countries along with income, while in others it hasn’t; in other words income can increase individual and national well-being, but it definitely does not guarantee it. Or as Hagerty and Veenhoven succinctly put it “some may be disappointed by the small size of income’s effect” on well-being (2003, 14). Hagerty and Veenhoven analyzed in detail the results of other research and find that in the short term the increase in well-being from an increase in income is greater than in the long term, suggesting adaptation and increasing aspirations as income and consumption increase. In addition they conclude that there is a relationship between increases in national income and national happiness, indicating that relative and absolute income both matter, but they also remind us that correlation does not prove causation - other factors such as democracy and human rights can play just as important of a role as GDP in well-being. In addition Diener and Oishi observed that richer countries report higher levels of well-being than poorer countries, but it is very difficult to explain why, mainly due to the high multicollinearity between relevant variables such as income, health, education, age, and so on (2000, 193). They suggest that satisfaction with income depends more on comparison than simply having more money, and that other life and personal factors indicate an individual’s satisfaction with their income than the level of income itself. Diener and Oishi conclude that the policy recommendation is not to abandon the pursuit of wealth and increased consumption, rather to give greater consideration to how that wealth will be spent, such as public spending in education and parks or by the individual on arts and services. Hagerty and Veenhoven also come to the same conclusion, rather than the amount of expenditure and consumption they suggest focusing on the type of expenditure to which income is put (2003). Essentially in relative comparison individuals compare themselves to others, to their previous selves, and to the life they expected to lead. In effect, we derive much of our well-being as measured in comparison to those around us, and “keeping up with the Joneses” drives us to aspire to higher income and conspicuous consumption. Traditionally this comparison was done against our neighbours and friends, now with the advent of the Internet and global marketing campaigns our neighbourhood has widened immensely. Social comparison of our relative income and consumption can lead to an unending pursuit of material goods. The effect is rather a zero-sum game, though it doesn’t have to be so as well-being can be improved through other economic and political variables than GDP and individual income. When the income of all rises, thereby raising the consumption and short-term well-being of all, our human nature is to adapt to these new levels of consumption and aspire to more, stimulating a pathway of unsustainable consumption due in no small part to our limited natural resources. A society where everyone is seen as a competitor and another’s possessions are seen as an obstacle to one’s own well-being is unlikely to result in much happiness and satisfaction, regardless of the amount of output and consumption. Adaptation An increase in income and material consumption may have a short term effect on well-being, so-called retail therapy, but adaptation to these accumulations of wealth and belongings and limited natural resources makes sustained increases in well-being based on this type of conspicuous consumption impossible. People tend to overvalue the increase in well-being they think they will get following an increase in income and consumption, leaving them less satisfied than expected which in turn perpetuates the cycle as they pursue material goals. In addition to the lower than expected increase in well-being, that increase is soon reduced near to previous levels through the adaptive response human beings have to changing circumstances. Adaptation does not necessarily imply a complete return to previous levels of well-being, the extent of the adaptation depends greatly on life circumstances, in particular culture, education, and age and how we value factors in life other than more goods such as more education, services, and even our leisure time. If the pursuit of material goods interferes with other improvements to an individual’s life through education, personal relationships, and leisure time, then this pursuit of increased consumption may be a hindrance rather than an enhancement of well-being. In fact, there is no evidence to suggest that people adapt to good personal relationship as they would income and consumption nor that they compare their quantity of leisure time as they do material goods (Layard 2005). Having experienced the sense of gain from a new TV or vehicle as a result of higher income, an individual cannot easily revert back to previous levels of consumption; the sense of loss of something once had is much greater than the actual gain. Education and life experiences in arts and civil society cannot so easily be reduced or taken away. Individuals may always aspire to greater education or more time spent with neighbours and friends, but the benefits are clearly shared among the individual, the community and the nation. Aspirations As income and consumption increase, individual’s aspirations also change, what Kahneman refers to as the “sad tale of the aspiration treadmill” (2008). If adaptation to changing circumstances was complete individuals would not aspire to earn or consumer more. However it is quite true that material aspirations increase along with income, resulting in individuals getting no nearer to or farther from the attainment of their material goals (Easterlin 2003). In the end, well-being is relatively unchanged by pursing conspicuous consumption patterns. It has also been shown that there is a cumulative effect of aspirations and consumption – as we consume more our aspirations for more also expand to encompass a larger basket of goods. A person with low income might only aspire to purchase basic necessities, and reasonably so. As their income grows so too does their aspiration to consumer far beyond the basics. The idea of a “good life” expands as material possessions and consumption increase. An obvious example of a major driver of expanding aspirations for material goods is advertising and the global reach of the individual through mass media and the Internet. Rather than being compared to their peers in the local community or even the national level, through multinational advertising and widespread access to the Internet we are being compared on a global level (Maniates 2002). The problem of conspicuous consumption is that it grows as more people can afford to consume excessively, or in other words, consume to compete with their neighbours as beyond basic needs consumption is dependent more on relative than absolute measures. Comparison and aspirations are not only subject to external influences and personal relations with others. The Diderot effect drives the “upward creep of desire” towards the acquisition of more and more consumer goods (Schor 1998). Essentially, for a given set of consumer goods, household furniture for example, as new items are bought the remaining items appear less attractive in comparison to the new purchases, often compelling additional purchases based on this relative comparison between personal possessions. An increase in income (or available credit…) leads to a new house which leads to new furniture and so on; the drivers of aspiration in this case are the pressures of unity and conformity and are a difficult pattern to break once begun. Conclusion The simple answer is that consumption and income are not alone in their importance to individual wellbeing, not in the long nor short run. For example other factors of life have a synergistic and variably significant role – education, health, unemployment, civic engagement, and marital status for example. And not to forget the negatives so often associated with economic growth to the nation – crime rates, pollution, urbanization and a decrease in the quality of life in general; and to the individual through more time spent in traffic and at work, to less leisure and family time. Where the discussion becomes complicated however is when the effects of reduced consumption rebound to other areas of life, especially in the short term as the economy and society make fundamental adjustments. As Anand and Sen point out, there is no basic conflict between considering economic growth as important and at the same time considering economic growth to be an insufficient basis for human development (2000). The “maximization of opulence” as they put it (p 2031) has no intrinsic value to improving quality of life, rather it is the instrumental role income can play in supporting public policy and action in social and environmental realms and on alleviating poverty and the constraints and consequences therein. In a nutshell, economic growth and the raising of per capita income as a development strategy should therefore be based on an equitable distribution of wealth and public policy which could be taken from Anand and Sen to be at the very least to be support for health and education. Indeed, many other researchers on quality of life and well-being have found these areas to be instrumental, regardless of the lack of consensus on income and well-being. Increases in income and consumption lead only to short term benefits to well-being. In order to sustain short term increases in well-being consumption must continually increase. Clearly, this has multiple issues. This is where the environmental problems occur as the individual is faced with an unending pursuit, essentially going in a direction with no limits yet requiring resources which clearly have limits. It also provides an extremely limited view on other factors which can influence well-being and our quality of life. Healthy and better educated people consistently report sustained higher levels of well-being, regardless of income. The result is that public policy aimed at increasing consumption is limited in scope and duration as it will have only a temporary effect on well-being. There is a danger for discussions on how changing consumption patterns and even reducing income could lead to greater well-being to be marginalized and romanticized as being idealistic but “fundamentally irrelevant” to practical policies, least of all sustainability (Maniates 2002, 202). Contemporary literature on well-being indicates that beyond a certain threshold level of income that further increases in income and the subsequent increase in consumption do not significantly raise well-being, if at all (Conceicao and Bandura 2008). The implication of these findings for the developing world is that policies which seek mainly to raise incomes, individual and national, to levels equal to that of developed countries are on the one hand incomplete in their excessive focus on GDP and income, and on the other far overreaching in the expectations of the level of well-being that could be attained simply with economic growth. After that threshold has been reached then further emphasis on growth is tinkering at the margins while greater returns could be had by developing other areas.