Bryan Caplan  

What Would a Hedonistic Economy Look Like?

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In Stumbling on Happiness, Daniel Gilbert skewers the belief that money buys happiness - then defends this error as a Noble Lie:

If no one wants to be rich, then we have a significant economic problem, because flourishing economies require that people continually procure and consume one another's goods and services. Market economies require that we all have an insatiable hunger for stuff, and if everyone were content with the stuff they had, then the economy would grind to a halt.
Fortunately, market economies are far more robust than Gilbert realizes. What happens when people decide they don't want to be rich? Labor supply falls and production goes down. But that's hardly a "problem" - it's just the market's response to an increased desire for leisure. When people demand more pumpkins, the market produces more pumpkins and less of everything else. When people demand more leisure, similarly, the market produces more leisure, and less of everything else. As Arnold would say, that's a feature of the market economy - not a bug.

Won't the economy "grind to a halt"? Of course not. Once we're satisfied with our stock of goods, we still have to keep producing enough to keep the stock from shrinking. If that only requires one hour of labor per day, what's the problem?

An outside observer who looked at a country where people only worked an hour a day might hesitate to say it had a "flourishing economy." But properly measured, he could: He just has to remember to count the value of leisure. To defend misconceptions about happiness because they raises material output is make-work bias writ large: Working hard to produce a lot of stuff people don't want is bad economics.

Now a happiness researcher might respond: People like working; it makes them feel useful. The hour-a-day economy will make them feel miserable. But that's hardly a problem either: If people want to feel useful, but don't want to make much money, they can turn their hobbies into extremely low-paying jobs. (I'll be a professional Hero System game master). Too artificial? Fine: Then do enough "real" work to feel useful, and donate the surplus to charity. Either way, problem solved.


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COMMENTS (22 to date)
David J. Balan writes:

The big question is what will happen if the day ever comes (and I think it might be coming soon) when a significant fraction of people have a marginal product lower than the basic costs of providing a proper workplace for them (even leaving the minimum wage aside). I think we are going to have to be headed for a world of wage subsidies, or rules like they have in New Jersey where you're not allowed to pump your own gasoline, if we're not going to have a whole bunch of disaffected unemployable people running around.

General Specific writes:

This goes back to Kling's discussion of words over math. All your words sound good, but put this through an economic model and show me how the economy contracts gracefully--that there aren't any deflationary problems.

Not disagreeing. But not buying "problem solved" either.

Jury's still out in my mind.

Rimfax writes:

Balan, one word, "huh?"

General Specific, not "problem solved", but "no problem" to begin with.

If you want to see what such an economy might look like, look online. Look at open source software, free entertainment, free porn. I'm sure that you will see deflation in the value of certain things (like "7 Habits" reprints), but the overall wealth continues to grow at an ever increasing rate despite the fact that a tremendous number of people aren't hoarding it.

There is no reason that a leisure dominated economy can't be far more vibrant than a labor dominated one. This is not to argue that nobody makes anything anymore, just that people spend far less time on the making of the real goods that they desire and far more time on the intangibles of life that bring them and those around them joy. I'm talking about higher productivity, not self-deprivation.

This is that "pursuit of happiness" thing that those radical libertarians wrote about a ways back.

Ian writes:

General Specific,
Since every action has a value, the act of leisure creates a value of leisure. As long as this is greater than the value to work, the individual will choose to be leisurely.

Check out this link for a vast amount of examples and explanations about leisure http://www.quackgrass.com/leisure.html


or for something more technical check it out here.
http://www.ivt.ethz.ch/vpl/publications/reports/ab353.pdf

Jason Briggeman writes:

Leisure is not traded on a market, so in what terms would you "properly measure" it? Foregone material goods? Those, as they are never produced, are also never traded on a market.

More fundamentally, there is a blatant circularity in measuring the value of money in terms of the goods it can purchase, such goods being "valued" in terms of the effort it takes to produce them, such effort being "measured" in terms of foregone leisure time, and such leisure time being "equivalent" to foregone wages. As Prof. Klein mentioned today, there is a sort of monism underlying this brand of sloppiness; the ultimate philosophical issue at play is whether leisure and physical goods are distinct entities.

What would you say to a Soviet economist who "properly measured" the success of his country's economy by adding in the value of the People's Romance? Prof. Klein would have no problem with this matter: he would say, "Yes, you have the Romance, but you also have fewer goods and less liberty. I, Dan Klein, personally believe that tradeoff is not worth making." You are certainly capable of understanding this statement, Prof. Caplan, but I think the logic of your position requires you to claim that there is an objective truth to the question of which economy is "larger": you would have to say that the Romance is objectively either worth it or not worth it, and you would have to claim that the computation can be made and the value can be calculated in terms of the one substance (dollars?). But that claim is not correct, is it? It suffers from the sort of circularity I outlined above, does it not?

What do we mean by "work"? What do we mean by "leisure?" My father is a coal miner -- that's certainly work. But my father has talked about panning for gold for vacation -- is that leisure? And then, is writing a poem work or leisure? And if you are a poet, is reading a poem work or leisure? Is doing scholarship work if I enjoy it and it relaxes me?

Unfortunately, right now all my scholarly work would technically have to be considered leisure, as nobody is yet paying me to do it. Turns out interdisciplinary scholars have a hard time finding work.

General Specific writes:

Like I said: nice words. Might be a sound argument. But words are slippery. So I'm not buying it. I'm familiar with the deflationary aspects of the economy. But run a model. Show me an economy in which production is only focused on the maintenance of our stock of goods, how it plays out.

This is one of the problems I have with words and pedagogical charts (e.g. supply demand charts). They are (a) convincing and (b) often dead wrong.

I'd like to see someone run a model.

Kimmitt writes:

Yes extremely on all counts.

Implication: we should count leisure as part of GDP.

General Specific writes:

Let me clarify: I agree with Caplan in principle. In practice, I think the economy would have hiccups. Lurches. Recessions.

Similarly, I think there is life on the other side of peak energy, which I think may happen soon. In practice, I think the economy is going to lurch and stumble as it adapts. Recession. Depression. I'm not sure.

I just wouldn't characterize decreased consumption as no problem. No problem means sailing at a nice constant altitude. Problem that can be corrected means a stall at 5,000 feet and an engine sputtering. Stability will be found at a lower altitude, but I still see a problem when the stall occurs.

Maybe I'm wrong. Someone should run a model with a random set of consumers across multiple income groups cutting back on consumption and production. But to do so, they'd have to model the segments of the economy and the friction or restructing costs associated with the changes in production and consumption patterns.

I suppose. I'm not an economist.

neal hockley writes:

Bryan
In your book, you say economists understand economics better than non-economists. Yet most economists accept GDP (excluding leisure) as the sole measure of welfare, and use it in their research. I don't hear a big clamour from economists to include leisure in GDP calculations (or non-traded domestic production either).

Surely in using un-adjusted GDP figures, most economists are guilty of make-work bias, and their bias is at least a serious (since it influences policy) as the general public's?

Cheers

Neal

neal hockley writes:

Bryan
It occurs to me that the solution you offer to those who want to work but don't want to earn:

do enough "real" work to feel useful, and donate the surplus to charity.

might already have been adopted across the western world - the charity in question being tax-hungry governments elected by popular demand!

Chuck writes:

Yes, to take the "GDP doesn't include leisure" another step further, when some one compares US and EU per capita productivity/GDP and says, "see how great our economy is!", are we going to see an objection on this blog to the notion that they aren't including leisure in their analysis?

(I recognize that you'd still object to the way they go about arranging for extra leisure, but in theory you should never the less point out that leisure belongs in the GDP analysis as well.)

Chuck writes:

By the way, I think you could value leisure based on the value of income lost by the person(s) taking the leisure. But, of course, good luck with calculating that.

Rimfax writes:

General Specific,

Not decreased consumption, but different consumption. Do we consider the reduced consumption of rubber and CFCs to be a problem? A future leisure economy would have correspondingly higher consumption than today, only that which is consumed would be far different and a lot of it would be shared rather than traded. I'm not envisioning some Marxist lala-land in which people aren't allowed to sell leisure goods, but one in which goods like music, art, and software, and even some useful real goods are shared by people who don't feel the need or desire to exact a price. Not out of charity, but out of fun or whatever you want to call it.

A large number of people provide free video games online. Many of them generate revenue from it by displaying advertising. A large number of them started providing the games for free before they considered making any money from it. A large number don't bother with ads. They just want to make games and share them. This is a micro leisure economy.

Rimfax writes:

This forum itself is a form of leisure economy. We are all sharing, for free, our personally valued opinions and knowledge (or ignorance). There is real effort being expended here and none of us are getting paid to do it. The value is entirely subjective (though perhaps it can be calculated as a aggregate in some way). To some, my words are a waste of time and energy to read. To others, maybe a net gain.

Daublin writes:

Balan, the trend is that the market rate for unskilled labor is higher in more developed countries. While that rate pale in comparison to what an educated person can get, it is steadily increasing.

That's the observation. As for why it happens, one issue is that as soon as some people are very wealthy, they are interested in hiring less-skilled people to do some work for them. That force alone will tend to keep up demand for unskilled and low-skill services.


Jason, I think the structure of your argument is the same, but do not think most people would value the Romance as high as the leisure time. People seem pretty good at finding Romance when they feel like it, in any circumstance, so it is not worth paying a lot to achieve it.

Scott Scheule writes:

There are a lot of good objections in the comments here. I hope to see them addressed.

Matt writes:

To rephrase, do goods producers continually fear losing market share?

Why do we have a Solow Residual? Why isn't a square integrable, return to equilibrium model enough to explain the economy?

The answer lies in the probability disribution tails in conjuction with quantum effects. We never get smooth investments in inventory, in the combinatorial model of inventory technology, no solution gets you exactly the use of capital reserve you intended, we error on the side of caution and there is an unintended push toward advancing inventory technology.

So, isn't the combinitorial market model, the finite non-smooth model what the mechanism design theorists talk about? Game theory? They are the new quantum economists.

Troy Camplin writes:

While it's true that this is in a real sense a leisure economy -- and so is my own blog, for that matter -- it doesn't seem to be the kind of economy that can pay the bills. :-)

General Specific writes:

Rimfax: I agree that decreased consumption is not absolutely a requirement, that different consumption is a possibility. We're looking at the flow of good and services. And in a way, that is what has happened in the US in the last 20 to 30 years, with manufacturing moving offshore in some cases and services taking its place.

But...

I think part of the so called rat races (do rats actually race) is the drive to earn credits (money) in order to purchase goods and services. And that stepping back from that race implies consuming less, not consuming differently.

Imagine a society of people staring into space meditating on the meaning of life.

Ok, that's a stretch. People want to consume something.

Matt writes:

Reading the comments, I get the feeling that Arnold is misinterpreted.

To restate, there is always a return to equilibrium model for whatever an aggregate group of mammals do. If some group of mammals do wierd things, well, the economists can still construct the model as long as they use linear markets.

If some people choose to barter and ignore money technology, not a problem, economists can factor out the uncertainty of money in their markets.

Arnolds robustness of the market becomes a weaker assumption when he tries to explain markets that are not linear (government?).

Linear markets do not produce the Solow growth residual, in my theory. In my theory, we invest to make sure we keep up with the herd, not to outrun it.

Why do we overinvest in capacity using new technology that yields better production efficiency then the market average. This is the Solow growth residual, its called a residual because his growth model does not encompass innovation, he has no force function for it. Over long integration periods, Solow linear growth dissappears absent an innovation theory.

Economists can measure innovation, and predict it withing some large error bounds, and that is the best hey can do.

The agriculture bankers here live in two worlds, world one is the global, linear aggregate ag markets, world two is a small, finite number of ag producers and ag technology providers here locally. The ag bankers force marsh this internal market, they arm twist, they engage in mechanism design with the goal of improing inventory technology so we appear as a stronger competitor in the linear markets.

The key to understand residual growth is to understand how investors operate in a combinatorial world to meet market conditions in a linear world. Why do investors overinvest?

Matt writes:

Let us examine the "state" in the world economy.

Economists like world trade because over the globe, governments are in linear competition, they hope.

The world state consists of the U.N, the WTO, the IMF, and bunches of NGOs and regional world banks. This "state" is relatively small and does not sit on the far right of the world income distribution, it gives hope to libertarians.

We have two theories on why the world state is small. The first would be Arnold's theory that the benign world state is optimum, and our pervassive state is a bad design.

Then there is my theory of quantum exclusion. My theory states that the current world state is in its small phase, that under long integration times we will find the world state to be the farthest thing on the right, it will occupy the standard "pervasive" position..

The beauty of my theory is that I will be long dead before it is disproven.

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