Is GDP growth a good thing? Most governments around the world appear to think so.
Are certain types of the economic activities that make up GDP unwanted in the sense that the production and consumption of the good does not yield a positive utility (let's use that term throughout this tantrum) to society as a whole?
Take the United States: the most heated debate of the day is that of the health care system which spends twice as much per person as the average European system. That is because Americans eat corn starch. $147bio is spent annually to treat obesity. $116bio each year to treat Type 2 diabetes. At the same time, the government subsidizes the corn industry - is that ironic? In the words of Michael Pollan: One of the leading products of the American food industry has become patients for the American health care industry. And this growth has created jobs while contributing to GDP growth. Not perhaps the greatest victory for GDP growth as a measure of society's utility.
Growth in the creation and treatment of war veterans is another subject along that line of thought, and a very unpleasant one.
Furthermore, does the satisfaction of 'manufactured needs' increase utility of the society?
Companies have largely free access to peoples' mindspace and use that access to shift the demand curve upwards, or in layman's terms, create a need which may be satisfied by the consumption of a good. Those who consume that good pays the price for the creation of the need, and probably net has a positive experience (consumer's surplus). Let me spell it out in detail: by allowing the advert to shift your preference from a willingness to pay $800 for a pair of $875 sneakers to a willingness to pay $900, it has created - free as far as you're concerned - $25 of value to you since you now go ahead and buy them. So far so good.
But every time an image of Maria Sharapova sporting a new pair of rubber shoes is flashed across some screen, a small desire is created in everybody's mindspace (that is, the whole demand curve is shifted, not just those belonging to the consumers that end up buying it). An incremental additional measure of need is created for everybody - but only one in 100 will actually go and buy the pair of rubber shoes. The remaining mindspace now has a small increase in the desire for those shoes, but it remains unsatisfied, creating a non-positive impact on utility. Please call me if you don't get this. The upwards shift of the demand curve means everybody is more miserable. I would say this again, in bold, italic letters, but you're too intelligent to react to that, and you already get my drift. Let's say, for the purposes of annoying the proponents of that industry, that spending $100 to shift the consumers' demand curve $2 to the right creates $300 of misery, and you'll definitely see my point. This is not a digression, it's called labouring the point.
Add the externalities of disposing of the rubber shoes when a new model is created, and a new sexy tennis star is wearing them, and you'll see that the net effect of this type of activity cannot possibly add to the society's utility. Let's not get into the disconnect between how satisfied people anticipate they'll be when buying that pair, how long they believe such satisfaction lasts, as opposed to the experienced reality of such a purchase, but suffice it to say that this imbalance exacerbates the negative net effect on the utility as a whole.
Here's an idea for a self-regulating system, which will definitely bring down consumption of manufactured needs: society should charge for infringing individuals' mindspace, just like a society has the right to auction the 3G and radio bandwiths. Faced with a real charge for mindspace pollution raising the cost for advertising may deter much consumption.
Would media business collapse because of additional cost of advertising? OH NO, that wouldn't do! No more Cosmopolitan telling you what a freak you are. No more FT How To Spend It showing you that what you consider a pretty lavish lifestyle is best compared to life in a cave in 10,000 BC. And most importantly, no more treating my children as trainee consumers.
But I am perhaps a little unfair. In many cases a transaction is concluded: I offer up my mindspace and consent to having my demand curve shifted as a result of advertising, and in return I get to watch for free the Masters, or Caroline Wozniacky at the US Open (she's playing the semi-finals here in NYC in about an hour, and my pontifications are more a reflection of impatience and jetlag that a real urge to change the world. But I digress.) Hey, people buy glossy magazines in essentially the same transaction: give me some celebrity gossip, and you can have my subconscious attention on every odd numbered page. Is it a fair price? Is one article about Jennifer Aniston's weight change worth ten seconds' subconscious exposure to Procter & Gamble's new light gloss hair conditioner? Is watching Tiger Woods' chip on 16th on Sunday at the 2007 Masters sufficient compensation for shifting my desire for Nike golf balls by 45 cents per sleeve? (The answer to that, if anybody wonders, is yes. I wouldn't want my demand curve shifted by 45 cents to see another Korean win a ladies open, though. But I digress again.)
Those transactions are acceptable, although it would be preferable if advertising hadn't usurped sports events: suppose you are more susceptible to subconscious advertising than the average - then you're in effect paying more to watch Nadal whooping Gonzalez (your demand curve is more elastic), and you should have an option to pay, say, $10 to watch the match without advertising. Society should however impose a tax on things like billboards, telemarketing, big screen advertising on Times Square, and other infractions on mindspace where no such transaction is offered. Quantifying the Mindspace Tax is not a huge obstacle, given the vast data available on the value of such mindspace through other media.
Since the intention of the tax is not to fatten the government's balance sheet, the resulting tax revenues must be directed to repair the environmental damage of satisfying these manufactured needs, and give treatment to the many whose mindspace has paid for the positive experience of the few. This is Economics of Externalities 1-0-1.
But let's end on a positive note (now twenty minutes to the match). In spite of the environmental destruction left in its path, in spite of the vast hordes of people who feel too skinny, too fat, too tall, too short, too sexually unfulfilled, and whose manufactured desires are left unsatisfied, GDP growth at least yields social mobility. Without GDP growth, a smart kid would have no chance to advance herself over and above her social station. That hope is perhaps more valuable than all the stolen mindspace acreage in the world. But let this be a call to all the newly unemployed financial analysts and derivatives structurers to work out a model that analyses society's utility properly. And let's not confuse the creation of blubber in America with growth in utility.
Are certain types of the economic activities that make up GDP unwanted in the sense that the production and consumption of the good does not yield a positive utility (let's use that term throughout this tantrum) to society as a whole?
Take the United States: the most heated debate of the day is that of the health care system which spends twice as much per person as the average European system. That is because Americans eat corn starch. $147bio is spent annually to treat obesity. $116bio each year to treat Type 2 diabetes. At the same time, the government subsidizes the corn industry - is that ironic? In the words of Michael Pollan: One of the leading products of the American food industry has become patients for the American health care industry. And this growth has created jobs while contributing to GDP growth. Not perhaps the greatest victory for GDP growth as a measure of society's utility.
Growth in the creation and treatment of war veterans is another subject along that line of thought, and a very unpleasant one.
Furthermore, does the satisfaction of 'manufactured needs' increase utility of the society?
Companies have largely free access to peoples' mindspace and use that access to shift the demand curve upwards, or in layman's terms, create a need which may be satisfied by the consumption of a good. Those who consume that good pays the price for the creation of the need, and probably net has a positive experience (consumer's surplus). Let me spell it out in detail: by allowing the advert to shift your preference from a willingness to pay $800 for a pair of $875 sneakers to a willingness to pay $900, it has created - free as far as you're concerned - $25 of value to you since you now go ahead and buy them. So far so good.
But every time an image of Maria Sharapova sporting a new pair of rubber shoes is flashed across some screen, a small desire is created in everybody's mindspace (that is, the whole demand curve is shifted, not just those belonging to the consumers that end up buying it). An incremental additional measure of need is created for everybody - but only one in 100 will actually go and buy the pair of rubber shoes. The remaining mindspace now has a small increase in the desire for those shoes, but it remains unsatisfied, creating a non-positive impact on utility. Please call me if you don't get this. The upwards shift of the demand curve means everybody is more miserable. I would say this again, in bold, italic letters, but you're too intelligent to react to that, and you already get my drift. Let's say, for the purposes of annoying the proponents of that industry, that spending $100 to shift the consumers' demand curve $2 to the right creates $300 of misery, and you'll definitely see my point. This is not a digression, it's called labouring the point.
Add the externalities of disposing of the rubber shoes when a new model is created, and a new sexy tennis star is wearing them, and you'll see that the net effect of this type of activity cannot possibly add to the society's utility. Let's not get into the disconnect between how satisfied people anticipate they'll be when buying that pair, how long they believe such satisfaction lasts, as opposed to the experienced reality of such a purchase, but suffice it to say that this imbalance exacerbates the negative net effect on the utility as a whole.
Here's an idea for a self-regulating system, which will definitely bring down consumption of manufactured needs: society should charge for infringing individuals' mindspace, just like a society has the right to auction the 3G and radio bandwiths. Faced with a real charge for mindspace pollution raising the cost for advertising may deter much consumption.
Would media business collapse because of additional cost of advertising? OH NO, that wouldn't do! No more Cosmopolitan telling you what a freak you are. No more FT How To Spend It showing you that what you consider a pretty lavish lifestyle is best compared to life in a cave in 10,000 BC. And most importantly, no more treating my children as trainee consumers.
But I am perhaps a little unfair. In many cases a transaction is concluded: I offer up my mindspace and consent to having my demand curve shifted as a result of advertising, and in return I get to watch for free the Masters, or Caroline Wozniacky at the US Open (she's playing the semi-finals here in NYC in about an hour, and my pontifications are more a reflection of impatience and jetlag that a real urge to change the world. But I digress.) Hey, people buy glossy magazines in essentially the same transaction: give me some celebrity gossip, and you can have my subconscious attention on every odd numbered page. Is it a fair price? Is one article about Jennifer Aniston's weight change worth ten seconds' subconscious exposure to Procter & Gamble's new light gloss hair conditioner? Is watching Tiger Woods' chip on 16th on Sunday at the 2007 Masters sufficient compensation for shifting my desire for Nike golf balls by 45 cents per sleeve? (The answer to that, if anybody wonders, is yes. I wouldn't want my demand curve shifted by 45 cents to see another Korean win a ladies open, though. But I digress again.)
Those transactions are acceptable, although it would be preferable if advertising hadn't usurped sports events: suppose you are more susceptible to subconscious advertising than the average - then you're in effect paying more to watch Nadal whooping Gonzalez (your demand curve is more elastic), and you should have an option to pay, say, $10 to watch the match without advertising. Society should however impose a tax on things like billboards, telemarketing, big screen advertising on Times Square, and other infractions on mindspace where no such transaction is offered. Quantifying the Mindspace Tax is not a huge obstacle, given the vast data available on the value of such mindspace through other media.
Since the intention of the tax is not to fatten the government's balance sheet, the resulting tax revenues must be directed to repair the environmental damage of satisfying these manufactured needs, and give treatment to the many whose mindspace has paid for the positive experience of the few. This is Economics of Externalities 1-0-1.
But let's end on a positive note (now twenty minutes to the match). In spite of the environmental destruction left in its path, in spite of the vast hordes of people who feel too skinny, too fat, too tall, too short, too sexually unfulfilled, and whose manufactured desires are left unsatisfied, GDP growth at least yields social mobility. Without GDP growth, a smart kid would have no chance to advance herself over and above her social station. That hope is perhaps more valuable than all the stolen mindspace acreage in the world. But let this be a call to all the newly unemployed financial analysts and derivatives structurers to work out a model that analyses society's utility properly. And let's not confuse the creation of blubber in America with growth in utility.
It is time. Go, girl!
