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on a plague of modern opulence:
I just finished John Kenneth Galbraith's The Affluent Society yesterday - RIP, of course, it's been on my shelf for far too long, nevermind the inducement to read something with "affluence" in the title during a weeklong vacation in Las Vegas: of all the lower hells of consumer based economies surely one of the lowest - and I think my overall lay reaction can be encapsulated by way of this observation (p102):
The massive reduction in risk that is inherent in the development of the modern corporation has been far from fully appreciated. This is partly because the corporation, unlike the worker, farmer, or other indvidual citizen, has been able to reduce its insecurity without overtly seeking the assistance of government. It has required elaborate organization, but this has been the product of continuous evolution from the original entrepreneurial enterprise.
One could quibble over whether it was "overt" or "covert" - Galbraith doesn't much discuss the latter - but it seems to me quite clear (certainly more so since TAS was published) that the corporation started the search for the assistance of government, not least by seeking federal assistance in regulating, controlling, and destroying the "continuous evolution from the original entrepreneurial enterprise" in the form of, by way of example, radical associations that had perhaps too much entrepreneurial spirit - at least when the corporation didn't simply ignore the state's monopoly on force and utilize private armies to perform that function, which might be thought of as usurping government assistance. This continues from the 1886 ruling in Santa Clara County v. Southern Pacific Railroad to the present era, by numerous and destructive means.
But Galbraith hardly sets out to make a radical critique, let alone explore anything more than a few reforms to economic 'science', not a few of which appear to remain outright heretical by the standard bearers of polite discourse. This may be why much if not all of it reads as relevant, as the problems identified, and the observations that accompany them with regards to the 1950s, remain in substance similar to many of the persistent concerns of the present.
An immediately interesting example is his extensive concerns over the growth of consumer debt, which were either premature or entirely prophetical. I suspect that no one could be expected to forsee in 1958 how such problems would be bypassed during the ensuing crises, but such details are way beyond my miniscule levels of comprehension.
Inequality has perhaps become more of an immediate concern that he made of it - or so recently concurred Alan Greenspan - rising as it is to levels not seen since the robber baron era, though it's perhaps relevant that TAS was written during the beginning of the trough in income inequality since that previous peak.
After all that the remaining concerns I have are few. Having invested so much of my time appreciating the work of the Work Less Institute there is Galbraith's lack of interest in a greater investment in leisure, for he dismisses Richard Nixon's suggestion of a four day work week (p305) asking "whether fewer hours are always to be preferred to more but more pleasant ones" Galbraith suggests (p337) that it "is not seriously argued that the shorter work week increases productivity - that men produce more in fewer hours than they would in more". We find it greatly confusing that he uses the measure of productivity in output per man rather than output per manhour - having just and at great length attacked the fixation on output over other concerns, but in any case if the latter measure is what counts - and in an affluent society I think it does - then certainly one could make a serious argument of it.
The proposed reforms - variable unemployment compensation, greater social investment, greater investment in human capital and promotion of its entry into that class of people who enjoy their work (the definition of the Galbraithan "New Class" are those who disparage the concept of working solely for financial renumeration, e.g. economists) - would hardly be a worse course of reform than the subject of our next read.
As to the premise, it is largely concerned with the implications of what Galbraith calls the "Dependence Effect":
As a society becomes increasingly affluent, wants are increasingly created by the process by which they are satisfied. This may operate passively. Increases in consumption, the counterpart of increases in production, act by suggestion or emulation to create wants. Or producers may proceed actively to create wants through advertising and salesmanship. Wants thus comes to depend on output. In technical terms it can no longer be assumed that welfare is greater at an all-round higher level of production than a lower one. It may be the same. The higher level of production has, merely, a higher level of want creation necessitating a higher level of want satisfaction.
Among the many models of the good society no one has urged the squirrel wheel.
Murray Rothbard criticized this in Man, Economy, & State as a "flimsy assertion that consumer wants are artificially created by business itself", but, as regards his de facto ("when wants are truly satiated ... everyone will cease working") argument regarding Galbraith's "passive creation of demand" I can never shake the feeling that there was some deep economic lesson in The Gods Must Be Crazy that I should make greater attempts to digest.
Rothbard goes on:
"the attack on wicked advertising as creating wants and degrading the consumer is surely the most conventional of the conventional wisdom in the anticapitalist’s arsenal ... Galbraith here assumes a naive form of determinism—of advertising upon the consumers, and, like all determinists, he leaves an implicit escape clause from the determination for people like himself, who are, unaccountably, not determined by advertising."
This "attack on advertising as creating wants" isn't so much the conventional wisdom of the anti-capitalist as it is the conventional wisdom of modern marketing and public relations theory, not least as promulgated and rather successfully demonstrated by its pioneers Ivy Lee and Edward Bernays, a point which, to quote Galbraith, "would be regarded as elementary by the most retarded student in the nation's most primitive school of business administration".
It would be naive to assume that people's desires are not manipulated when such great efforts are taken to manipulate them. Galbraith simply says there is a dependency without quantification, and elsewhere notes that consumer resistance to advertising will increase, causing the advertiser to redouble their efforts. This latter point folds nicely into Rothbard's "increasingly large quantities of money spent by business on marketing research", which one can make sense of adequately by observing the need to determine the most efficient manipulation. Hence bikini clad models drenched in cheap beer rather than a man in tails and a top hat hitting the beer bong.
It's clear from this that Galbraith saw no deterministic quality to the value of advertising but simply a causal relationship between this "active creation of demand" and production, and doesn't deny advertising's other purposes, p155:
Advertising is not a simple phenomenon. It is also important in competitive strategy and want creation is, ordinarily, a complementary result of efforts to shift the demand curve of the individual firm at the expense of others or (less importantly, I think) to change its shape by increasing the degree of product differentation. Some of the failure of economists to identify advertising with want creation may be attributed to the undue attention that its use in purely competetive strategy has attracted. It should be noted, however, that the competetive manipulation of consumer desire is only possible, at least on any appreciable scale, when such need is not strongly felt.
The value of the rest of the book would rest rather on the degree to which production produces its own demand, and while Galbraith's arguments depend on a rather strong correlation they need not be nearly so strong as Rothbard's deterministic strawman.
Carry forward this debate to modern times via Becker and Murphy, whatever one might make of it, and note that anyone arguing that consumers are either entirely independent or entirely dependent is arguing a false dichotomy, it's self-evident from daily experience that we all can be duped to differing degrees and on different matters, and this quality is the whole basis for the industry of mass marketing and public relations - interchangable as they are - and the basis for the sage observation that "You can fool some of the people all the time, and those are the ones you want to concentrate on".
In consideration of the fact that these methodologies originated within the public sector we might return to our first point and agree with Rothbard that Galbraith overlooks the public sector's manufacture of want - primarily in the realm of national security (hence it was weapons of mass destruction rather than the much-lower polling cause of democracy promotion, let alone whatever the actual point was), and by similar methods if not similar means: by, for example, associating frivelous product (aggressive intervention, brandname goods) with basic demand (security, sex). This observation is hardly of consequence to the Galbraith's argument concerning "social balance", it seems one need merely observe, say, the longstanding public preference for universal healthcare in the polls and the lack of its adequate supply.
Rothbard then argues that "At no time does Galbraith so much as consider the possibility of mending an ailing public sector by making that sector private." Galbraith addresses this by shrugging it off, essentially, by arguing that public sector goods became the pervue of the state simply because they couldn't be operated profitably under existing models of private enterprise. This observation seems to bear out adequately over and over again when public utilities are privatized under the auspices of IMF reform, or by comparing the efficiency with which certain services are provided when in the public sector, so we'll leave the point of contention to historical observation where we lack alternative models of "privatization", or for that matter its dichotomic opposite. Clearly the alternative examples where private enterprises have been handed over to democratic worker control in Latin America have faired better than the expropriation of Bolvian water or Russian electric utilities to the "private enterprise" of corporate management. Rothbard has his own views on such matters far more reaching than Galbraith's already noted limited scope that continue to deserve attention.
In the other corner of the Von Mises Institute we find Friedrick Hayek arguing in
The Non Sequitur of the "Dependence Effect" that all but a few innate wants are created by the process of production, conceding the point Rothbard called a "flimsy assertion", and concedes that "If the producer could in fact deliberately determine what the consumers will want, Professor Galbraith's conclusions would have some validity", which seems to me to give the better part of the whole plus the kitchen sink to Galbraith, as the basis of much of the book is just that, beyond some handful of innate demands it is production that creates demand (p152):
If the individual's wants are to be urgent they must be original with himself. They cannot be urgent if they must be contrived for him. And above all they must not be contrived by the process of production by which they are satisfied. For this means that the whole case for the urgency of production, based on the urgency of wants, falls to the ground. One cannot defend production as satisfying wants if that production creates the wants.
That some wants are created by their production Galbraith and Hayek apparently agree, but Hayek puts forward an argument in defense of the production of the want of some passable literature - "Clearly my taste for the novels of Jane Austen or Anthony Trollope or C. P. Snow is not 'original with myself.'" - and leaves the defense of the importance of tail fin production over public education to others. Then, committing to the above strawman, even while noting that Galbraith avoids "any terms as crude and definite as 'determine:'" Hayek persists in putting it in quotes, and proceeds to ignore the implications of the process he so convincingly argues exists. Galbraith on the other hand does defend the urgency of education over the production of tail fins:
[I]t would be barbarous to suggest that the only claim to be made on behalf of education is the increased production of goods. It has an independent and, one must suppose, its independent justification. ... The nontheological quality which most distinguishes men from horses is the desire, in addition to these attributes of material and psychic well-being, to know, understand, and reason. One may hope that investment in the things that differentiate man from his animals requires no further justification.
To Hayek's "[t]he innate wants are probably confined to food, shelter, and sex" Galbraith merely adds three more, and from this one might derive the source of disagreement, if not the innate driving human desires that allowed the first three to have been attained at all for an omniverous species beholden to such a limited range in vegetable diet and limited physical capacity to hunt its corresponding animal component. From out of a Garden of Eden they met a wasteland, and by their ingenuity and invention created Las Vegas.
It seems both ignore - they merely assert that he asserts - Galbraith's mountain of argument and detail throughout the book that attempts to demonstrate how little urgency our efforts with respect to production are granted in policy and in fact - the dependence effect is largely introduced, I think, only as part of an explanation for the continued growth of production in the face of this lack of urgency and self-contradicting policies whose energies might otherwise be directing towards meeting demonstrable public demand. I certainly see no proof either way and would have to prefer to cut the difference.
The vacation in Vegas would seem to have some bearing on this topic. On all counts this tourist haven is observably homogenuous, little is left to the choice of the consumer. Everything in its design is geared towards the production of excitement at the prospect of departing from one's income. The casinos have formulaic layouts, identical tourist nicknacks, programs of entertainment vary from mud wrestling to circuses (designed to appeal to the drooling six year olds inside those that qualify for the numerous senior citizen discounts) and as such offer much in the way of equivalence in this category of choice. Invariably the most predominate and most productive - for the casino owner - form of entertainment is the ubiquitous slot machine. These are also the most common, if not the only, places to rest one's weary feet. The others being far more expensive: one risks a significant greater bet at a friendly table, and there are no seats for the broken aside, that is, short pour bars where your Jameson comes out of a gun gunked up with an assortment of foul components that end up in your Jameson. The device devotes the consumer to the investment of the wage and pension at incredible risk. It's hard to imagine that blind speculation in volatile stocks would not offer a more favorable return than these mechanisms of investment. Certainly the slot player demonstrates his belief that the slot is something of a means to investment by the way he pumps his inadequacies into its thin, gruesome maw. The casinos invest greatly into these homogeneous products and exhort people to consume infinetly risky entertainments. By the product of superior branding some appear to afford a smaller rake at the card tables, the significantly better odds at roulette and craps tables remain underutilized, and the extensive persistance of vacant lots and perpetual reconstruction seems to attest to an industrial design by which casinos do not go out of business so much as recast their architectual enticements. How this system perpetuates itself if not for the production of demand is a mystery until one defines the irrational judgement of odds in the search of immediate reward as rational economic behavior. Surely some worthy entertainment value can assertained, but of dimishing quality and quantity as greater proportions of income are invested. For the compulsive player the positives are returned in generous portions of the negative entertainments of helplessness and despair, nevermind the cost of subsequent counseling. Thusly the free market of ideas exhonerates itself.
On the other hand I was able, after much effort and diffulty in finding a suitable bottle of bourbon and a flask capable of sustaining my demand of said bottle of suitable bourbon, to spend my afternoons by the necessary pool with a suitable book. Thusly at considerable cost are the most quaint, fabricated demands met.
Among other examples I could cite I think I find Galbraith's observations regarding the allocation of research investment might be most relevant to the fixations that this blog has otherwise devoted itself, for we've no shortage of posts here that might advance the point:
we are bound to observe that much of the research effort - as in the automobile industry - is devoted to discovering changes that can be advertised. The research program will be built around the need to devise "selling points", and "advertising pegs" or to accelerate "planned obsolescence." All this suggests that the incentive will be to allocate research resources to what, in some sense, are the least important things. The quantity is more impressive than the way it is allocated. Still one would not wish to suggest that the American economy is delinquint in the attention it devotes to change and improvement in consumer's goods. Clearly it is not.
These incentives, however, operate over but a small part of total scientific and research activity and, indeed, over but a small part that is potentially applicable to the production of goods. Thus a very large amount of highly useful research cannot be specialized to or be sustained by any marketable product. This is most obviously true of much so-called basic research. But it is also true of a large amount of applied effort. The modern air transport is the stepchild of the military airplane. It would never have sustained the underlying research and development endeavor on its own. The same is true in even greater degree of the nonmilitary uses of nuclear energy. There are numerous other cases.
It is because military considerations have induced a large allocation of resources to research that this problem is, on the whole, less striking than that of investment in personal resources. Although the research must be in the public domain, military urgency has helped to offset this blight.
But let's return to the question of some quantitative basis for the influence of the "dependence effect". There's much to be made of advertising expenditures and their rather parabolic growth rates during the past century (this value, as a percentage of GDP, has remained fairly constant, hovering around 2.5%, though this seems - if indeed it is a significant component of new demand - an inadequate measure: advertising expenditures over population growth would be more relevant, but would likewise fail to account for important factors: the cost of effective advertising has surely gone down with technological advances in reaching the senses). If we were systematic about our political economy, and to step beyond the scope of Galbraith's critique, we might further add the product of the public relations industry and those non-profit ad agencies known as "think tanks" that likewise serve to influence, for better or worse, the public demand. But our interest is merely in casting some remotely quantitative value for how much we spend on the active production of demand - without any discernable means by which to qualify how much of it does what it's intended we can only hope to ascertain how much is spent by firms in their respective hopes.
The relevant figure is the annual marketing costs, which totals almost one tenth of US economic activity as measured by the depraved calculations of GDP. In the realm of productive effort this seems an extrodinary amount, considering the other, many immidiate and many more obvious, demands that press upon our society. We could at least hope that the half million souls directly employed in this productive field enjoy their work, for those of us who remain perhaps we could afford more of their leisure.