Keeping up with the Joneses?

Midway through the first decade of the 21st century, economic growth is pulling millions out of poverty. Growth, so devoutly desired yet often so elusive for developing countries, is occurring in China and India on an heroic scale. Yet once affluence is achieved, its value is often questioned. In the 1960s and 1970s, economists started worrying about environmental and social limits to growth. Now Avner Offer, professor of economic history at Oxford University, has added a weighty new critique to this tradition.

"The Challenge of Affluence" accepts that the populations of poor countries gain from growth, but says that the main benefitsofprosperity are achieved at quite modest levels. Its central thesis is that rising living standards in Britain and America have engendered impatience, which undermines well-being. The fruits of affluence are bitter ones, and include addiction, obesity, family breakdown and mental disorders.

The claim is as ambitious as it is pessimistic. Professor Offer, gives short shrift to the rational decision-makers of economic models, arguing that consumers are myopic creatures easily tempted by the lures of immediate satisfaction. As societies become wealthier, traditions and institutions that bolster commitment and far-sighted behaviour are eroded. Individuals increasingly live for today rather than tomorrow. Prudence may have built up affluence, but affluence is no friend of prudence.

Professor Offer buttresses his theoretical challenge with a large casebook from America and Britain. Drugaddiction, which "shows how choice is fallible", is widespread. Obesity rates have risen alarmingly, in large measure because of the availability of fast food. The swift adoption of television in American homes after the second world war is contrasted with the slower spread of appliances like dishwashers. This, he says, shows consumers' preference for time-using devices of "sensual arousal" over time-saving investments around the home. Falling saving rates, rising divorce figures and much else besides are yoked to the argument.

The book fails to convince, however, both in its challenge to mainstream economics and in its interpretation of the historical evidence. Choices may multiply with the growth of affluence, but there is nothing new in the tension between impatience and prudence. Behavioural economics is now helping to explain the common tendency to procrastinate over decisions such as joining retirement – saving plans that would be in individuals' long-term interest.

Furthermore, there is little reason to believe—and scant evidence to support-the notion that behaviour becomes more myopic as societies get richer. Rather, individuals face new and difficult challenges that they succeed, by and large, in meeting. One example is rising enrolment in higher education. By choosing to study rather than to work, students are sacrificing short-term income and greater consumption in order to secure higher living standards in the future.

Another example of far-sighted behaviour and self-control is the investment that people make in their own health by adopting new lifestyles. Despite the addictiveness of nicotine, the prevalence of smoking has plunged as consumers have become better informed about its risks. Individuals are also investing in their health through more exercise and better diet. Fast-food chains have stumbled as more and more consumers reject unhealthy meals. Obesity rates among American women have stabilised, an early sign of a turning-point in the great fattening of society.

Many of Professor Offer's historical exhibits can readily be unyoked from his thesis. A more plausible explanation of the rapid spread of television is that it became a cultural and social necessity, binding nations together in the immediacy of news and in shared entertainment. Household-saving rates may have fallen, but this does not necessarily indicate imprudence since it has occurred at a time of steep rises in housing wealth. Reluctance to save for retirement may be quite rational if, as in Britain, prudence is quite likely to mean a loss of means-tested pension benefits. The upsurge of divorce in the 1970s was caused by new social mores and legislative changes rather than affluence. As the author himself points out, easier divorce alleviated great deal of misery: female suicide rates and domestic violence fell.

That said, Professor Offer presents some fascinating case-studies and makes some sensible points. It could be argued, for example, that public policy in already affluent economies should be focused on rectifying specific social maladies, such as mental illness, rather than striving to raise growth. For one thing, it is very difficult to influence the long-run growth rate. More importantly, the harm experienced by the mentally ill and those around them is so great that remedies deserve priority. And rich societies are better able to foot the bill for treatment and medical advances.

However, Professor Offer's broader message of gloom and foreboding is unwarranted. Measures indicating that well-being stalls beyond a certain modest level of affluence take no account of rising expectations, which are a virtue in themselves. Prosperity brings with it improved health care. It extends horizons and widens opportunities for more and more people.

(The Source: adapted from www.economist.com/node/6849948 )

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