An Economist Said That?

Some people identify economics, particularly the more libertarian, laissez-faire economics, with unbridled capitalism and consumerism. Russ Roberts gives a nice demonstration of how wrong that is in Shopping is not patriotic:

The retail sales numbers are important if you're a retailer. Or a stockholder of a retailer's shares. But our well-being doesn't depend on shoppers piling up their carts in advance of the holidays. What are the roots of this strange belief that for our economy to be healthy, we need people to buy stuff?

Keynesian, probably. Something to do with the idea of the multiplier. That somehow, the more we buy, the more the money races around and the richer we all get. The biggest error in that way of thinking is thinking that the economy is separate from all of us.

Suppose every American decided that life is too fast-paced, that the pleasure we get from material things is fleeting and that we all need to spend more time with our families. Suppose every American decided to look for part-time jobs with half of the hours we currently work.

The result would be an economy that was half as large as the current one. But that transformation would be good, not bad. Assuming that we indeed found that additional family time to be as satisfying as we had expected, then our economy would be healthier. We would be happier and better off.

The only footnote to this point is that if we all made this decision overnight, the transition to a smaller economy would be traumatic. But if it happens gradually, it would be fine. Having an economy half of the current size would be good if each of chooses to spend more time at home and less time in the commercial side of life.

Too many stories about holiday spending imply that spending has some sort of positive externality, that the benefits extend far beyond the buyer and the seller and that to stay home by the fire in the fireplace playing the guitar or reading to your children is somehow unpatriotic. This is foolish. Spend, if it gives you satisfaction. Otherwise, stay home and spend more time with your wife, your children and your guitar.

Economics is about how people make decisions, how we allocate scarce resources, and how we can use our resources efficiently - not about a particular set of preferences or consumption choices. To an economist, if buying things is what makes you happy - hey, more power to you. If not buying things is what makes you happy, hey go for that too. Economists tend to measure things like GDP because they are more easily measurable, and because people do seem to spend a lot of their effort on consuming GDP-related goods and services, not because they think that's all there is to life.

Since Russell's conclusion is so good, all I can do is echo it here. Buy things for people if that's what makes you happy. Make things for people if you like that better (I know I do). And if getting drunk on spiked egg-nog and dancing naked on the piano is your bag, hey, go for it. Just not on my piano.

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And if getting drunk on

And if getting drunk on spiked egg-nog and dancing naked on the piano is your bag, hey, go for it. Just not on my piano.

You can use mine.

Bring friends. Good-looking ones.