Arnold Kling  

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A Problem With Minimum Require... Desert Defended...

The videos are here. When you follow the link, you can watch Tyler and/or scroll down to choose other speakers.

In terms of recommendations for videos to watch, I thought that Bryan and Megan gave the must-see presentations. Tyler's presentation helps explain the tack I took--I basically was trying to re-tell his story with a different spin.

Here is my talk. About 2/3 of the way into it, I try to illustrate a point by dancing. One critic pointed out, "It didn't look like dancing. It looked like you were just jumping around." That same critic said she had no idea that I was trying to do the same dance as this chap. Unfortunately, looking at the video of by talk, I would say that my wife's remarks were on target.

What I was trying to illustrate is that it is possible to have an enjoyable life without earning and spending a whole lot of money. If health care and education are the areas where costs are growing, and if their marginal benefits are in doubt, then if you just get your basic needs met and focus on the enjoyment you get from the stuff that is not so expensive, you can do pretty well without a ton of money.

This means that people might get to be fairly picky about working. If you don't need the money so much, then it is easy to rule out taking jobs that you see as low-status or unpleasant. But as people make those choices, that will cause social tensions. Here in Missouri, the big story is that the state is refusing to extend unemployment benefits, even though that means turning down Federal money. If work becomes somewhat optional, then the question of how willing the steady workers are to be taxed to support less-steady workers is going to become increasingly important.

Michael Mandel pointed out that the large increase in household debt is not consistent with the basic necessities becoming easier to afford. I have to agree. Something to chew on.

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CATEGORIES: Growth: Consequences

COMMENTS (9 to date)
kebko writes:

I think there are problems with taking aggregates like household debt and turning them into narratives about working class families. But, even accepting that, it seems pretty easy to me to explain how debt could rise while necessities become more affordable.
1) You take on debt because you think you'll be able to pay it back. We have a lot more household debt than Bangladesh does because we're wealthy, and because we expect tomorrow to be better than today.

2) There is a heck of a lot of consumer surplus in today's world. We're living in revolutionary times. Fifty years ago, if I was working decent hours in a hard job & was just paying my basic expenses, what else was there to do? But, today, if I'm in that situation and for a few thousand bucks in debt, I can watch football on a 55" TV and I can video chat with Russian strippers 24/7, without leaving my couch for either? I'll figure out how to pay for it later!

Sorry. I'm being flippant. That story commits the same problem I have with a lot of these narratives. Our biases lead to us assume that debt is arising from profligacy. But, I think the economically reasonable bias should be that the debt is arising from positive and useful developments. More schooling is an obvious reason, but I don't think we should overlook the idea that consumer surplus should also be leading to more debt, and that we are awash in consumer surplus.

GU writes:

Re: increase in household debt,

My gut reaction is that much of this debt is spent on luxuries, not "basic necessities." People often go to more expensive colleges than they have to*, they have really nice TVs or cars, they "buy" a bigger house than necessary.

I think it is true that the basic necessities are much cheaper now and work is more optional. But the middle class still wants a lot more than the basic necessities.

*I don't mean to assert that all colleges are undifferentiated assets. If your goal is to work on Wall Street, become a professor, or something else where prestige matters, then of course you'll have to go to the expensive private school. But a lot of folks go to middling but expensive private schools instead of their local public university, and the difference in cost is best described as consumption.

Philo writes:

What kebko and GU said. Willingness to go into debt can have many causes other than more expensive necessities.

Tom West writes:

I think Arnold is right, sort of.

That extra money isn't being spent on "necessities" in the classical sense. It is, however, being spent on "necessities" required for moderate, middle-of-the-road status in our modern society.

You *can* live on a lower middle-class income without going in to debt. But prepared to be rejected by most of society. Prepare for your children to be rejected as well.

It's easy enough to talk as if we should behave as if what the rest of society thinks of you doesn't matter. But, if we're actually dealing with human beings, as opposed to homo economus, it *does*.

If you want a society where the noticeably well-off are relatively common - fine, but understand that in almost every way that counts among humans, you are forcing everybody else into pretending they're winners as well, no matter what the long-term cost.

Daniel Klein writes:

Arnold was cute and adorable.

Bryan's presentation was excellent and important.

GU writes:

I think there are two potential explanations for most people wishing to consume more than the necessities (and go into debt to do so). First would be the status competition explanation. Second would be that they truly benefit—or at least think they will benefit—from the extra consumption.

Libertarians like to downplay the status competition aspect*, but especially for the upper-middle-class it seems to explain a lot. At the lower end of the middle class, where the folks know they won't be be mistaken for high status, it seems the extra consumption = greater utility explanation might hold more water.

But this is pure, not-very-carefully considered speculation.

*There is a difference between asserting that status competition exists, and arguing that policy should cater to the status-conscious. The former does not necessarily imply the latter

Drew writes:

Is the PowerPoint file used in the video available?

hsearles writes:

Another important thing to keep into mind when talking about debt is that the vast majority of the debt spoken about was accumulated during the 2002-08 boom. Due to the easy money and the loose housing policies of the Federal Reserve and Federal government, there is much reason to doubt that this was how the markets would have evolved, but that the accumulation of debt would not have happened if it were not for those policies. For instance, one popular means of accumulating debt was by taking advantage of the value of property (e.g. by taking a second mortgage). Ergo, I do not think that high household debt is necessarily a sound counterexample to Kling's theory. Instead, I think that it is a phenomenon that can be explained away by other factors that do not affect the theory's soundnes.

Arnold Kling writes:

All of the powerpoint slides with data were taken from our book, From Poverty to Prosperity.

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