The Revenge of the Real on the Weightless Economy

Though I’ve been critical of some recent popularizations of economic thought, Dan Ariely’s Predictably Irrational looks like a quality addition to the genre. As NPR relates, the book “explains how the reasoning behind [common economic] decisions is often flawed because of the invisible forces at work in people’s brains: emotions, expectations and social norms.” Ariely’s research shows that a series of random numbers can heavily influence estimates of the worth of various options. Elizabeth Kolbert’s review in the New Yorker gives some striking examples (drawing on both Ariely’s work and the new Sunstein & Thaler book, Nudge).

[The] effect is called “anchoring,” and, as Ariely points out, it punches a pretty big hole in microeconomics. When you walk into Starbucks, the prices on the board are supposed to have been determined by the supply of, say, Double Chocolaty Frappuccinos, on the one hand, and the demand for them, on the other. But what if the numbers on the board are influencing your sense of what a Double Chocolaty Frappuccino is worth? In that case, price is not being determined by the interplay of supply and demand; price is, in a sense, determining itself.


When it comes to public-policy decisions, people exhibit curious—but, once again, predictable—biases. . . . [T]hey tend to ignore whole orders of magnitude. In an experiment demonstrating this last effect, sometimes called “scope insensitivity,” subjects were told that migrating birds were drowning in ponds of oil. They were then asked how much they would pay to prevent the deaths by erecting nets. To save two thousand birds, the subjects were willing to pay, on average, eighty dollars. To save twenty thousand birds, they were willing to pay only seventy-eight dollars, and to save two hundred thousand birds they were willing to pay eighty-eight dollars.

These effects are curious, and if taken too seriously, can lead one to question the viability of the two major organizers of our common life–the market, and democratic government. Nevertheless, I have a sense that our “weightless economy” is now facing some trends that will lead to a real “anchoring” of prices.

As the US appears to be entering a stagflationary period, investing in basic commodities has come back into vogue. The US’s low rate of saving and investment is leading it to, in Parag Khanna’s words, “wave goodbye to hegemony.” Even writers at conservative newsweeklies like the Weekly Standard are tentatively questioning the bases of US economic power. Describing a new class of “fun consultants” (or “funsultants”) who are paid to bring levity to the workforce, Matt Labash asks:

So who’s to say the funsultants are worse than anything else that’s happened to the American [corporation] over the decades? After all the paradigm-shifting and diversity-training and outsourcing and TQM’ing and synergizing and empowering and value-adding and globalizing and downsizing and full-frontal lobotomizing, maybe finger puppets are just the logical terminus.

As for the funsultants themselves, they’re truly living the American dream. They’ve beat the system. As Lord of the Deal Mark Doughty explains, “I work very hard not to have a real job.” Is that the work ethic that made America great? Probably not. But who am I to judge? I make a living writing about funsultants.

I turn to another old friend of mine, much more steeped in business culture than I am. He’s my college buddy Don McKinney, a creative director/advertising hotshot responsible for campaigns like Nissan’s “Shift.” When I ask him what all this means, he strikes an optimistic note: “When you and I were born, there were 2 billion people in the world. Today there 6 billion. Maybe there are only 2 billion real jobs and all the rest of us are being relegated to [nonreal] jobs, like fun coaches and creative directors. If we took away all the [nonreal] jobs, our economy would collapse.”

In the face of optimism about a “weightless economy,” I see two groups essentially reminding us of the real price of goods. First we have military warnings about the “resource wars” that could erupt if there is a general failure of conservation of resources (or development of more efficient technology). As one review of Michael Klare’s work notes,

Distancing himself from ruminators like Samuel Huntington, whose Clash of Civilizations and the Remaking of World Order (1996) maintained that cultural differences, such as between Muslim and Christian, will drive post-cold war international politics, Klare contends that power struggles over petroleum, water, gems, and timber will be the engines. Indeed, where oil and water are concentrated in Asia and Africa–the Persian Gulf, the Caspian Sea, and the South China Sea in the former; the Nile, Jordan, Tigris-Euphrates, and Indus River regions in the latter–Klare notes marked increases in military activity. Saber sharpening, rattling, and use have their provocations in increasing worldwide demand, driven by economic and population growth, for oil and clean water.

Second, an environmental movement persistently tries to ensure that externalities are reflected in prices.

Both of these groups might be alarmed by this statistic from Kolbert’s review:

A few weeks ago, the Bureau of Economic Analysis released its figures for 2007. They showed that Americans had collectively amassed ten trillion one hundred and eighty-four billion dollars in disposable income and spent very nearly all of it—ten trillion one hundred and thirty-two billion dollars. This rate of spending was somewhat lower than the rate in 2006, when Americans spent all but thirty-nine billion dollars of their total disposable income.

We can only hope that this “predictable irrationality” eventually provokes the “nudges” toward fiscal responsibility that Sunstein and Thaler prescribe. . . before stagflationary pressures shove us toward a path of forcibly decreased consumption.

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