It is highly ironic that Pope Francis Apostolic Exhortation on the proclamation of the Gospel came out in the same week that U.S. retailers kicked off their holiday campaign of consumption by starting even earlier than in previous years.
Francis opens his musings on evangelization with the assertion that, The great danger in todays world, pervaded as it is by consumerism, is the desolation and anguish born of a complacent yet covetous heart, the feverish pursuit of frivolous pleasure . But such a warning against consumerism probably wont deter many Christians from sallying out once more and slapping down the plastic in still more stores and restaurants.
Wouldnt it be bad for the U.S. economy if people took the pope to heart? a reader questioned. Dont we need consumers to want to spend a lot for our economy to function? Isnt that what economics teaches? Wouldnt the economy go into the tank if people gave up wanting to have more stuff?
Well, yes and no.
Start with the assumptions of conventional economic theory. This is based on the premise that people choose how to use the resources at their disposal to best satisfy their needs and wants. It also assumes that humans are insatiable. That is, they are never fully satisfied and always are tempted by the possibility of having more of something.
That does not mean, however, that human society necessarily is dominated by greed. Economic theory also assumes that humans are guided by their preferences and values as they allocate scarce resources. People may want to have more, but that doesnt mean that they will all lie, cheat, steal or murder to do so.
Moreover, everyone derives some satisfaction from things that have no monetary value. These include relationships with family, friends and neighbors. Again, the importance of such relationships varies from one person to another, but we all are willing to limit our time spent earning money to enjoy them.
So when the pope calls for reduced consumerism, he isnt calling for an end to humans wanting to satisfy their needs and wants or for an end to consumption of goods and services sold in markets. He merely asks people to change the balance of the importance they place on market goods versus non-marketable sources of human satisfaction.
Would a rebalancing of priorities make our economy shrink because people would put less energy into efforts to earn money to buy things?
Perhaps it might, but that would not be inevitable. Consumption is not the only component of output. There also is investment in new long-term equipment, facilities and infrastructure, both public and private. There is government production of goods and services. And there are net exports, the amount by which sales to other countries exceed imports from them. Any of these might increase and offset any decline in consumption.
In fact, it would be good for our economy if we used fewer resources to satisfy immediate needs and more to increase the long-term productivity of our economy. That is another way of saying we should reduce consumption and increase investment. This would merely return our economy to a situation that prevailed for most of its history, during which private and government savings were higher and therefore consumption lower. This was coupled with a higher level of investment both by business and government. And unlike recent years, such investment was financed by domestic savings rather than by borrowing capital from other countries. Changing that would merely reverse a slide in domestic savings that began three decades ago, ironically around the very time we altered our tax code to increase savings.
Our economy is in a three-decade trend against savings and toward consumption, especially compared with many Asian or northern European countries. China has an opposite imbalance, in which savings and investment are too high and consumption too low. It would be better off if it poured less concrete and produced more consumable goods and services to meet its peoples current needs.
However, there are limits to the degree that these other components could grow. And if consumption really did fall significantly in response to papal urging, total output might fall.
That does not necessarily mean that our society would be worse off, that there would be less total happiness or human satisfaction. There is a general phenomenon of diminishing marginal utility in which the additional satisfaction people get from additional consumption of something tends to decline as we consume more of it. And that probably applies to consumption in general. As we have more and more things, the increase in our happiness can be small indeed.
There are some caveats.
First, we cannot measure happiness in objective terms. So, there is no quantitative measure of how well off a society is. The value of output, or Gross Domestic Product, is only a very, very rough proxy.
Second, there always are adjustment costs. One can imagine a steady-state economy where consumption makes up a smaller fraction of total output and the value of consumption is lower than now, but yet where we would have full employment. But getting from where we are with an economy oriented toward high consumption to one where consumption is lower would entail large adjustments in some sectors. These inevitably would involve pain for the families and communities that had to make the biggest adjustments. It would hurt, and the process might take a long time.
There is much more to examine in the popes missive, but that must be left for future columns.
Write Ed Lotterman at firstname.lastname@example.org.