Consumers and Consumption: Follow the Money
Great Britain’s John Maynard Keynes was one of the most influential economists of all time—his most influential work, The General Theory of Employment, Interest and Money, published in 1935. A macroeconomist, he developed theories shaped by the major global events of the time, in particular the Great Depression, the rumblings leading up to World War II, then the war itself and the postwar period of exponential global productivity growth. In a 1930 essay titled, The Economic Possibilities for our Grandchildren, Keynes, reflecting on the nature of the twentieth century’s macroeconomic productivity surge, predicted that by the twenty-first century the average developed country workweek would be fifteen hours. We simply wouldn’t need more than that to satisfy our needs.
Indeed, pro-labor movements post–World War II won a forty-hour workweek. But efforts to cutback hours even further fizzled, even though the “free world” continued to make huge strides in productivity on a per capita basis—the surge slowed some in the 1970s and 1980s—more than enough to fulfill Keynes’ vision. Yet we persisted with our eight-hours-aday, five-days-a-week schedules. As opposed to less work, we demanded more goods and services.
More Work, More Income, More Products and Services
Advances in production and technology changed what we now think of as “basic” needs. Keynes couldn’t have foreseen that by the turn of the next century it would be nearly impossible to function in business and society without a smart phone. Our consumption standards far exceed what Keynes and his contemporaries thought they would be. Which is why we work, so we can make more goods and services and buy more goods and services. Many of our consumption decisions might not be in our best interests, but they are ours, and many people would like to consume more—many need more—if they could only have more income to spend.
What we do with what we earn is a matter of discussion that extends beyond economics to how marketing creates demand and new opportunities. Some complain that marketing has created a passion for unnecessary, even unhealthy products, like sugary drinks and fatty foods. But there are products like portable computers and mobile phones that had to be marketed because they were unfamiliar technology when introduced and that turned out to be remarkably useful. The Apple Watch, once the stuff of science fiction—think Dick Tracy and his 2-Way Wrist TV-Radio—is available and with many practical features, but people had to be marketed to in order to learn about it.
More than a century ago, U.S. economist Thorstein Veblen coined the term “conspicuous consumption.” In his The Theory of the Leisure Class, published in 1899, he proposed that a great deal of consumption by the wealthy is a way to display conspicuously that they are well off. By doing so they achieve some social advantage. Wildly expensive watches—Rolexes come to most minds—serve as a good example. They differ from an Apple Watch that also has an element of social cache, including its sports band, but is more useful in that it tracks how far you walk, lets you pay a bill, even replaces your car key. The Rolex might tell you the time if you remember to set it, while the Apple Watch adjusts its time automatically not only to when but where you are.
Consumption is also governed by availability, an issue that particularly affects consumers in low-income countries and low-income U.S. neighborhoods. Availability determines to a great degree the kind of food we eat, which in turn influences our need for healthcare products and services; if there’s nothing other than junk food available in your neighborhood, the cost of traveling to another neighborhood for healthier food can be prohibitively high. Broadening access to products and services is another reason for people to work more in order to earn more.
Consumption in Emerging Markets
Personal consumption of goods and services accounts for about 70 percent of U.S. GDP. In a relatively wealthy, capital-rich economy, personal consumption items can account for a high share of overall spending. But in an emerging market, more of the income is spent on adding to the capital stock and improving infrastructure. Spending is dedicated to enhancing productivity, which should ultimately give each worker an opportunity to earn more. We have an abundance of capital in the United States, enough to be comfortable that we will have access to drinkable water and drivable roads (although, sadly, we fall short of meeting such fundamental needs in some locations). We don’t need to devote as large a share of our economy to investment in capital or public goods as emerging economies.
The most advanced economies are also on the leading edge of technology investment. That’s what it means to be advanced. But there are plusses and minuses to taking the lead. Sometimes advances become obsolete before other slower economies even start to invest in the technology. The United States invested heavily in wire to bring telephone service and cable TV networks into homes across the country. Wire enabled a significant advance that delivered substantial benefits. But it has largely outlived its usefulness as a transmitter of audio, video, and digital signals. Emerging nations that had not invested in copper wire networks are going directly to wireless communication. The relative investment pay-off can change dramatically and the relative share of consumption versus what you’re investing in can change across time and space. Taking the lead sometimes means bearing costs followers can avoid.
Takeaways
• People work to be able to consume.
• In rich nations personal consumption represents the bulk of what is made, bought and sold.
• In the United States, consumers are responsible for 70 percent of the nation’s GDP, so monitoring U.S. consumption is key to understanding where the economy is in terms of growth.
Consumption is fundamentally why we work. We need income to buy food, shelter, virtually everything vital to our existence. We purchase other things as well, some more essential than others, some of which may not be for ourselves. We spend in altruistic ways for the betterment of society. We spend on things that aren’t good for us over time. We may also save some of our income to enjoy consumption at some later time.
Our income, at least for some segments of industrialized economies, has grown substantially over the last few centuries, though that income increase is often subject to deficiencies in how it is distributed. Our ability to find outlets for our additional income has grown too and kept pace with income growth.