David Bowie & consumption capital

David Bowie's new single raises an important economic point - that perhaps young people who aren't saving for their retirement are behaving more rationally than the so-called experts claim.

For many of us, I suspect, this release corroborates David Hepworth's point that we don't love new music by our favourite artists as much as we loved their older work, even if the two are indistinguishable to a neutral listener.

What's going on here is partly a framing effect; the pre-Tin Machine era Bowie was so brilliant (including the Deram years) that anything short of one of the greatest pop singles of all time would be disappointing.

But there's something else going on. It lies in the concept of consumption capital (pdf), described by Gary Becker and George Stigler.

When we bought and listened to Bowie records in the 70s and 80s we accumulated a stock of consumption capital. And the utility we derive from this is so great that a new addition to it naturally has low marginal utility.

In other words, what we think of as consumption is, in many cases, a form of saving - something that gives us utility in future years.Just as saving builds financial capital which we can draw on in future, so spending builds up a stock of satisfaction which we can draw upon in the future.

Does anyone really think the money they spent on Hunky Dory would have been better invested in the stock market? (If you do, leave now; you're not the sort of reader I want.)

And herein lies a reason why it might be rational for young people not to save in the conventional sense of the word. In spending money, they are building consumption capital.

Now, I appreciate that youngsters today don't believe in spending money on records. But there are many types of consumption capital.Spending on holidays and nights out accumulates a stock of happy memories. Spending on guitars and music lessons gives us a stock of leisure skills which give us future satisfaction. And so on.

Of course, not all spending is a building up of useful capital. Some of it, such as an addiction to heroin or fine wine is the acquisition of the liability of expensive tastes. But my point is that high spending and low (financial) saving does not necessarily mean that people aren't preparing for the future. Our well-being today isn't increased merely by our past saving, but sometimes by our past spending.

When the financial "services" industry claims we are saving too little, it is expressing not merely crude vested interests, but perhaps bad economics too.

Comments

[Philip Walker]

"Does anyone really think the money they spent on Hunky Dory would have been better invested in the stock market?"

C'mon, some of us weren't even alive when Bowie was in his prime! (Actually, some of us dispute whether Bowie ever *had* a prime. If it were Bach CDs you were talking about, on the other hand...)

Being more serious, isn't (some of) this just the idea of consumer durables but a little bit blurred? And Wikipedia, ever-reliable, tells me economists count durables under investment not consumption... Oh, hang on, so *this* is why I'm the wrong kind of reader. ;-)

[Phil]

What's the difference between "a stock of consumption capital" and "a record collection"?

[Anton]

Very well said. There is a real opportunity cost of saving as we approach the age of abundance due to technological improvements - it simply makes absolutely no sense to save if a lot of the things we require we will get for free and if, in case, there are still things we desire (after the basics) we will not be able to get regardless of how much we saved.

[Online University for Nonprofits]

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[David Denton]

Owning Hunky Dory for 40 years in all the various formats has been a great investment. I am sure Kooks will resonate with the next generation of parents as it did with us and the generation before us.

[Emma]

It is a perfect theory for our age, marred only by the idea that unless you photograph your happy memories, you are in danger of forgetting them....

[Will Richardson]

In adolescence up to 25 the brain is super-plastic and tuned to new things, then settles down based on the stock acquired in the teen/earlytwenties(tets;tweenties?).

Later experiences don't have the intensity of emotion/newness that those in the tets do.

[Steve]

I thought this was an interesting argument. But anyone who has to constantly *use* asterii and inverted commas to emote is a lost cause. Read his faux intellectual argument and be convinced. Irritating man.

[Paul Claireaux]

$300 in the first i pod would be worth c$30,000 if invested in Apple shares now. The ipod is now worthless (though maybe it'll be worth something in 20 years from now)
I think that understanding what's trending amongst our fellow humans can help us make the occassional "risky" bet type investment alongside more diversified savings.

And yes, let's have some fun in our youth too and mis spend a little. I still have my old records. I wonder if my kids will have their pirated files in 30 years from now?

[jon]

I have kept my 78 speed clockwork record player but never find any new releases for it. Am I an economic dinosaur?

[Ricky Pannowitz]

You do know about Bowie bonds? He floated his entire back catalog including Hunky Dory on the London Stock Exchange

http://en.wikipedia.org/wiki/Bowie_Bonds

[Praxis22]

I have three people on my phone, Bowie, floyd and Sinatra, (the wee small hours of the morning) the thing is, I have no idea how Bowie, (greatest hits double album) got there, even though I listen to it often.

But I digress, what I wanted to say was that Danny Kaneman said something similar in a ted talk, about the difference between the two selves, the experiencing self and the remembering self. He says that we should live live more for the experiencing self, as consumption of memories, (souveniers, pictures of things) is much smaller as as percentage of time spent, than is the experience itself.

good post though :-)

[Doly Garcia]

There are all sorts of rational reasons for a young person not to save. These are a few:
1. If you expect (not unreasonable) to have more disposable income when you are older, it's quite possible that X dollars now have more utility to you now than X dollars plus interest will have in Y years time.
2. The probability of a young person reaching retirement is less than the probability of somebody who is one year away from retirement. A lot more years in the middle when one might die. Therefore, there is a higher risk that those retirement dollars are never enjoyed.
3. A person who is only one year away from retirement knows a lot better what to expect when they retire, and they have far more control over their situation when they retire. A young person has little or no idea of what things will be like when they retire, and wouldn't be wrong to reason that most of the factors are outside their present control. The dollars they save today are much more likely to make an insignificant difference to their situation when they retire.
4. As this article well points out, money can be used to purchase useful experiences. We may disagree on what constitutes a useful experience, but in any case useful experiences can pay heavy dividends in the future. The earlier you have those useful experiences, the bigger the payout. After all, that's why we educate children and young adults and don't care so much for educating the elderly.

[BenSix]

"...even if the two are indistinguishable to a neutral listener..."

In fairness - the new song IS really boring.

[electricray]

The new song is boring, sure - but Heathen isn't. That is an awesome record. As good as any he did. this new song sounds like an outtake, actually.

[tankboy]

You're right, youngsters today aren't buying the new stuff:
http://mashable.com/2013/01/09/david-bowie-itunes-new-album-next-day/

[Chris Purnell]

I've just re- listened to Bowie. I wont be repeating exercise any time soon.

[Matt]

An interesting post, and generally right in the sense that music (chumbawumba albums aside) and skills should be considered "consumer durables" rather than consumption.

However, when it comes to holiday spending and nights out, the logic becomes problematic. People are prone to hednoic adaptation, so today's consumption on "good memories" becomes tomorrow's desire to top (or at least sustain) yesterday's outing.

http://en.wikipedia.org/wiki/Hedonic_treadmill

[Marko Krneta]

http://vimeo.com/53207758

[thenewcomer]

I remember reading in an Iris Murdoch novel about how a happy childhood gives you a shining strong inner kernel (she expressed it much better, but you get the idea)- I have made it a point not to be miserly about spending for my children. I don't mean toys and crap- but I do spend an awful amount on various activities just because they enjoy them, and I justify it by thinking I am making happy memories for them and keeping them out of my hair at the same time.

[Soles4Souls]

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[Faz]

The other side of the coin perhaps:
http://youtu.be/PPQhj6ktYSo
Dan Ariely on how he had been willing to suffer the immediate consequences of three interferon injections a week for almost two years, to try to gain a life free of liver cirrhosis thirty years down the line.

[binary options]

Sorry for David Bowie, but what we loved once is not sytematically what we love now. Everything has his time and every time has his thing !

[Nonprofit Leadership Development]

However, when it comes to holiday spending and nights out, the logic becomes problematic.

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