The paradox of plenty

Tyler Cowen is asked a good question: are there any goods someone on a median income can afford which are the very best of their kind? The answer, as Tyler shows, is plenty – including some important ones such as books and recorded music. To this we might add that even where the very best goods are unaffordable, the median income earner can afford pretty decent ones, such as cars, TVs and sound systems.

Which poses the question: if someone on a median income can afford such a luxurious cornucopia, what can’t he buy?

The obvious answer, in the UK, is a decent house. The average house costs over £208,000, equivalent to 7.5 times median annual earnings. Given that the best schools tend to be in the most expensive areas, this means that our median earner can’t afford the best education for his kids either.

However, I suspect that most of the best things that the median income-earner can’t buy are non-material goods.

One is financial security. 49% of people, and most 35-44 year-olds live in households with less than £5000 of net financial wealth (pdf). They are only a pay cheque or two away from trouble.

Another is status. Our wages are related to our sense of worth – which is one reason why most people would prefer (pdf) a lower but above-average income to a higher but below-average one. A median income, by definition doesn’t provide much status.

You might reply that this problem would be solved if we could shake off envy. Not entirely. Status is one mechanism whereby income leads to political power:  as Adam Smith said, “we frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous*.” Partly for this reason, therefore, a median income doesn’t buy a proportionate share of political power. As Martin Gilens and Benjamin Page say (pdf):

economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.

Pablo Jimenez shows that a similar thing is true in other countries.

Another thing our median earner can’t buy is workplace autonomy: she is more likely to be the victim of workplace coercion than the beneficiary of it. And even if she isn’t, she probably lacks the satisfying work which the better-paid sometimes enjoy.  And she is tied to work for years, because she lacks the savings to retire early. Warren Buffett might dance to work every day, but most people on £25,000 a year do not.

Now, none of this is to deny that things have improved; workers today enjoy better conditions and shorter hours than their 19^th century ancestors. But it seems to me that what median earners lack are the goods which are higher up the hierarchy of needs.

Which brings me to a paradox. The people who should be most concerned by this should be those who most value real freedom and self-actualization – that is, those who claim to be libertarians. And yet it is these who seem keen to celebrate capitalism’s material success whilst overlooking its inabilities (so far?) to provide higher, non-material goods for all. As I’ve said, most “libertarians” are hypocrites and it is we Marxists who are the true lovers of freedom.

 * Theory of Moral Sentiments, I.III.29

Comments

[Paul Staines]

Capitalism has indeed brought material benefits to the common man that would have been beyond the dreams of kings a couple of generations ago.

Autonomy is only ever really available to those who strike out for it. If you want autonomy, go for it. Autonomy is not something that can be given to you in any meaningful sense, you have to achieve it.

[Luis Enrique]

good post, minor asides:

I really think envy is often the wrong way of seeing inter-personal comparisons - rather I think people ask themselves, how am I doing? how have I done, relative to what I could have expected to do? The only way to answer that sort of question is to make inter-personal comparisons. If you want to say, all things considered, I am doing OK, that is inherently a comparative sort of judgement.

I am not sure about the link between income and work place autonomy - sure, there are awful low income jobs where you are monitored heavily, but then my lawyer buddy might get paid well but seems to me when asked to jump he has to respond how high? (and he works all hours). Whereas in some cases people might "buy" more autonomy by accepting lower wages. Many self-employed people are low earners. I know people that took a big pay cut to become academics for more autonomy. But I am not sure how representative these example are, would be interested to see research on indicators of workplace autonomy and salaries.

[Ben]

Envy is the word normally used by rentiers who attribute complains of unfair inequality as "envious". Are we not allowed to complain when our landlords live off our backs? Why should we *not* complain?

Lack of autonomy is by design. The aim is to take as many hours of labour as possible. If enough were to break free (for example if rents dropped due to LVT) then the rentier would starve. Can't have that.

[James Oswald]

Financial security is a personal choice in capitalism. You decide whether or not to save your income. I guess you could say the government should force savings, and most capitalist countries in fact do exactly that.

Regarding housing, yes, prices are higher, but people can afford more because their incomes are higher. The only fair way to compare various systems is the average quality of housing the average person experiences. Square meters/person, quality of water, reliability of electricity, quality of heating/cooling, stuff like that.

Status is almost purely relative. I don't think any law or government could possibly affect "average status". If you have something in mind, I'd be interested to hear it.

[Dave Timoney]

Oi, Staines, you muppet.

"Capitalism has indeed brought material benefits to the common man that would have been beyond the dreams of kings a couple of generations ago".

No. Technological advance has brought material benefits. This is not the same thing as capitalism, unless you think Guttenberg was inspired by Adam Smith. As for the dreams of kings, I suspect that sex on tap for a couple of decades still beats antibiotics curing your pox.

"Autonomy is only ever really available to those who strike out for it. If you want autonomy, go for it. Autonomy is not something that can be given to you in any meaningful sense, you have to achieve it".

I remember this was a popular mantra on Mississippi plantations I worked on in the 1850s. Autonomy is simply the absence of coercion, i.e. the exercise of power by others. Naturally, those not subject to this power are always baffled why others don't "carpe diem" (is that the right gibber?)

[rogerh]

Just suppose you were head honcho of some smallish island, how would you end up running the show? Would you gather together a band of relatives/friends and parcel out the land and allow them to kick shit out of the rest in return for a palace or two. Of course you would - because if you didn't you would come to a nasty end and someone else would be head honcho.

Capitalism is merely a by-product, not the driving force behind the control of people. At the root is 'how to control the people' - techniques include brutality, divide-and-conquer, reward/punishment. To kick against this requires everyone to rebel against those who would impose their will - which leaves me having to sleep with a shotgun under the bed and an armed guard to escort me to my capitalist business.

[Richard]

There are a number of things I can afford in the sense of having access to the cash or credit to acquire them. But the effect of doing this might be that I can't afford to eat.

Surely, to determine what is "affordable" you need to look at a persons income relative to the amount they have to spend on essentials like food, housing, heating etc.

The problem in the UK seems to be that the cost of these essentials is rising, leaving less disposable income at the end and making many things unaffordable to people on a median income.

"Financial security is a personal choice in capitalism. You decide whether or not to save your income"

Even this relies on you having any money left over to spend once you have paid for all the essentials.

[Anarcho]

'As I’ve said, most “libertarians” are hypocrites and it is we Marxists who are the true lovers of freedom.'

Given the track record of Marxists in power, that is simply not true. Lenin and Trotsky, most obviously, were not "true lovers of freedom" for if they were they would not have implemented -- and defended ideologically -- such things as party dictatorship, one-man management, breaking strikes, and so on.

As anarchists predicted, the dictatorship of the proletarian became the dictatorship over the proletariat.

I am sure that you do consider yourselves a true lover of freedom but Marxism and its dogmas do not produce freedom. Its support of centralisation in both politics and economics defeats its own stated goals (as the Bolsheviks showed). For more discussion:

http://anarchism.pageabode.com/afaq/secHcon.html

But, of course, Marxism is not the only school of socialism -- there is anarchism as well. With its support for workers control (something Marx never mentions, unlike Proudhon, Bakunin and Kropotkin) as well as decentralisation, federalism, mandates (something Marx only supported after the Paris Commune, years after Proudhon and Bakunin had raised it) it can ensure that socialism will be based on freedom.

Yes, there are some Marxists who are close to anarchism (libertarian Marxists like the council communists, for example). However, these are the exception -- sadly, most Marxists (like Marx) are wed to notions which ensure their rhetoric on liberty is not produced in reality.

[rogerh]

So which job gets you a better than median income. Looking at the time integral of money I would say an early start in business followed by a move into the establishment would be good - the most and longest reward for the least risk. Not everyone can get in but the ranks do seem to be swelling as everyone catches on.

[Procyon Mukherjee]

One pay-check away from trouble with plenty to celebrate life is like living at the edge, with assets balancing liabilities.

Life's true purpose cannot however be measured by the net worth we add in our lives, but by the contributions we make to the cause of humanity, in the self-less deeds of sacrifice for the community and people in need. Some would call this pedantic attempt to trivialize utopia, but it is in these trials and tribulations that human progression has happened which wealth regresses otherwise.

[gastro george]

"Financial security is a personal choice in capitalism. You decide whether or not to save your income."

This is just idiotic. As Richard points out. there is no choice if saving means that you don't eat.

[Dain]

Libertarian Will Wilkinson once attempted to claim that status is too diverse in a pluralistic, capitalist nation to bother much worrying about. A broke punk rocker is competing for status in a very different way than a banker. The collapse of a cultural narrative dictating what high status is or isn't in realms such as music and literature have made this even more relevant than it would be in say, 1985.

What do Marxists say to the above? I find it fairly compelling. There are lots of people who don't care about joining the rat race. It's as if Marxists want them to think more about office perks and income more than they care too, judging by their behavior.

[Kaleberg]

"Capitalism has indeed brought material benefits to the common man that would have been beyond the dreams of kings a couple of generations ago".

Actually it was political violence that brought the material benefits to the common man. Shorter hours, minimum pay, days off and the like were all won by violent struggle. Surely we haven't all forgotten the entire 19th and 20th centuries.

[Dain]

"Actually it was political violence that brought the material benefits to the common man. Shorter hours, minimum pay, days off and the like were all won by violent struggle. Surely we haven't all forgotten the entire 19th and 20th centuries."

If threatening or stealing from the boss man were responsible for material plenty, we'd have all been much better off way, way before the 19th or 20th centuries.

[UnlearningEcon]

"Autonomy is not something that can be given to you in any meaningful sense, you have to achieve it."

But it can be taken away from you by coercion by e.g. your employer. That's one of Chris' points.

[Bob]

"we'd have all been much better off way, way before the 19th or 20th centuries."
As said before, the wealth is due to technological advance.
And the point was that it improved the condition of *working* people.

[Deviation From The Mean]

"No. Technological advance has brought material benefits."

But capitalism has been the shell where that advance has dwarfed all previous epochs. So you have to give capitalism due credit for uncovering the potential within Labour productivity.

However, human progress has never been about patting itself on the back and resting on its laurels. Things never stay the same.

And the reason I am a Marxist is the exact opposite to our city boy Marxist, i.e. I hate the market but I love my tablet!

[Antoni Jaume]

A nitpick, it is not Pablo Jiménez, but Pablo Torija Jiménez, while sometime people in Spanish speaking countries use the last name they get from their mother, it usually is because it is more rare that the first. Jiménez is a common name (some 390000 instances in Spain), so Torija would almost always be preferred as there some 200 instances.

[Antoni Jaume]

Correction, it is not 200 but 1200.

[reason]

"But capitalism has been the shell where that advance has dwarfed all previous epochs. So you have to give capitalism due credit for uncovering the potential within Labour productivity."

Was the advance in labour productivity enabled by capitalism, or is capitalism enabled by the advance in labour productivity? It is not at all clear to me.

[ad]

"Now, none of this is to deny that things have improved; workers today enjoy better conditions and shorter hours than their 19th century ancestors."

The exact opposite of the central prediction of Marxism. I don't suppose anyone sees a problem with that.

[Harun]

Low wage job holders have a lot of autonomy. They can quit and get another similar job quite quickly.

If they are fired, they even have unemployment insurance to cushion them.

How is this not autonomy?

[Luis Enrique]

Harun

it's true, if you work on the grocery checkout, you can choose between checking out groceries, checking out groceries and some days you get to check out groceries

[jono]

"Which poses the question: if someone on a median income can afford such a luxurious cornucopia, what can’t he buy? The obvious answer, in the UK, is a decent house."

Really? I would have said exactly the opposite – or at least that if it was true, it was only within certain locations.

One of the features of inequality data is in the UK is how much it is driven by house prices. But if you’re focusing on consumption inequality (as this post does), most of this falls away. I live in an area of London where people pay 7 figure sums for 2000ft2 of Victorian terraced housing. Almost exactly the same properties are available in the north of the country at a fraction of this price. Thus, when it comes to housing, all the bankers and lawyers who surround me have exactly the same consumption experience as teachers and civil servants in, say, Leeds.

[Luis Enrique]

jono - the consumption value of a house is not just the house itself, it's the local amenities, employment opportunities etc.

[Björn]

By making goods cheaper, capitalism alleviates the need to have a high paying job. And capitalism itself creates jobs - in fact if you look up the history, in the early days of capitalism people were fleeing the countryside to find work in the factories (because there was none in the countryside, the feudal system just having been abolished). And expensive housing often seems to be the fault of regulation. At least I hear that complaint in several expensive cities, that administration won't allow enough houses to be built.

[jono]

"jono - the consumption value of a house is not just the house itself, it's the local amenities, employment opportunities etc"

None of those things are dependent on the size or value of the property so they actually fit squarely within Cowen's thesis. You can live in a bedsit on Gloucester road or in the Boltons and experience them equally.

[Luis Enrique]

jono - no, I don't think so. If you regard a house as a bundle of attributes that includes its size, quality, local amenities and other neighbourhood characteristics, proximity to employment opportunities, etc. then I do not think the median earner in the UK can afford a decent house.

Of course people differ and for some people a house in Hull will be perfect, but if you look at average preferences for location, as revealed by house prices, most people want to be in the South East and the median earner cannot buy a good housing bundle there.