Utility: It’s (increasingly) all in your mind

We are long past the days of “fat cats”, when rich people could afford to eat more food than poor people.  And I’d argue that this is increasingly true almost everywhere you look.  When I was young, a Cadillac Eldorado was a vastly different car from a VW Beetle or Datsun.  Especially if cruising down the highway at 80 mph.  Today Datsun is called Nissan (one of the stupidest name changes in US history).  And while an Infiniti is a bit more luxurious than a Nissan, and the BMW handles somewhat better, I no longer think the experience of driving the Nissan is much different from a typical luxury car.  Even the size is similar.  Here’s the interior of their economy model (Sentra):

screen-shot-2016-10-21-at-3-49-23-pm

I went to Zillow, and randomly pulled off an ad for a 2800 sq foot condo in Chelsea—this one priced at $11 million.  And here’s a random 2600 sq. foot condo in Oklahoma City, priced at $260,000.  The NYC unit is more tastefully designed by NYC standards, but the OKC unit is more luxurious by OKC standards. In the Chelsea unit, you might want to have a $4000 midcentury-modern Poäng chair designed by Alvar Aalto:

screen-shot-2016-10-21-at-3-08-06-pm

In the OKC home you could install the Ikea version of the chair (shown above) for $79, down from a (inflation-adjusted price of) $350 in 1990.  How much utility does one get from the $4000 chair?  How much from the $79 chair?  It’s depends how you think about it–it’s the same chair.

Over at Econlog, I recently did a post about our post-stuff economy.  I grew up in the “stuff economy”, and I don’t think I’ll ever adapt to this new one.  But I suppose the millennials are right, it’s stupid to accumulate lots of stuff, for all the reasons that philosophers have emphasized down through the ages.  The upshot of all this is that the concept of “economic inequality” will become increasingly amorphous.  It won’t disappear by any means, indeed it might get “worse” in some sense.  But it will be harder to measure.  As an analogy, both cancer patients and hypochondriacs feel lots of pain. In both cases, the pain is “all in their heads”. That’s where you feel pain.  And that’s also where you register utility. What’s new is that it’s increasingly difficult to connect utility with physical objects (tumors in my medical analogy). (By the standards of peasant life in the Middle Ages, we are all a bunch of hypochondriacs—every one of us.) This has implications for everything from measuring the “Great Stagnation” to adjusting Social Security for “cost of living” (what does that even mean?) increases.

PS.  OK, maybe it’s not all in your head. I can’t really deny that this guy is better off than I am.  I’m jealous:screen-shot-2016-10-21-at-3-30-07-pm

PPS.  Did Donald leave a window open?  Look at Melania’s dress.

PPPS.  Seriously, this is more my style.

PPPPS.  Off topic.  The rich plan to vote Democratic this time.


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39 Responses to “Utility: It’s (increasingly) all in your mind”

  1. Gravatar of E. Harding E. Harding
    23. October 2016 at 18:18

    “OK, maybe it’s not all in your head. I can’t really deny that this guy is better off than I am. I’m jealous:”

    -Ah, so that’s why you oppose the greatest GOP nominee since Reagan. It is a better explanation than anything you’ve provided before.

    “The rich plan to vote Democratic this time.”

    -Finally. I hated Mitt Romney. I don’t even feel the same level of hate toward Hillary Clinton (though my disgust towards Her rises exponentially whenever she mentions Hamilton), though I fear Her much more:

    https://www.youtube.com/watch?v=ANT_ZBhpvtw#t=28m10s

    https://www.youtube.com/watch?v=ThPslAHaLmA

    https://www.youtube.com/watch?v=0agBtEEYTaY

    The GOP has at last become the party of the people.

    BTW, remember 2008, when Hillary Clinton would have won the Democratic primary by a landslide if only non-college-educated could vote in it? I supported Clinton then, BTW. Fast times.

  2. Gravatar of Steve Steve
    23. October 2016 at 19:06

    “PPPPS. Off topic. The rich plan to vote Democratic this time.”

    Remember when the Democrats cared about Citizen’s United?

    Now the NYT is embracing the idea that the wealthy and educated know best, and everyone else should just shut it.

  3. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    23. October 2016 at 19:24

    I feel better utility if CBs adopt better policy.

  4. Gravatar of Mike Mike
    23. October 2016 at 21:04

    While stuff is getting cheaper, location is getting more and more expensive. Living in a city like New York, London, SF, Stockholm is getting increasingly more expensive. I can only hope new technology (ride sharing and self driving cars) and sensible zoning reform can reverse that.

  5. Gravatar of Tom Brown Tom Brown
    23. October 2016 at 21:52

    That’s my favorite picture of the totally not self obsessed “man of the people” … Mr. anti-elitist himself, “Dear Leader” Donald J. “Daddy” Trump. ?

  6. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    24. October 2016 at 03:27

    Subjective Utility?
    Austrians have argued that utility has always been subjective, even in the times of the “stuff economy”.

  7. Gravatar of B Cole B Cole
    24. October 2016 at 06:05

    I think commenter Mike hit on it: status and location becoming linked…yes property zoning plays a role. And not just in the Bay Area…how about those minimum acreage requirements in Connecticut?

    Trophy wives becoming required as well.

    Art too. I suspect Trump does not have a fine art collection, however.

  8. Gravatar of sean sean
    24. October 2016 at 09:35

    Age of Stuff over.

    Age of status whoring taking off.

    The only reason to really want to live in those “rich locals” is status whore. The very reason people want to live their is because of the regulations/zoning that keep poor people out.

  9. Gravatar of Effem Effem
    24. October 2016 at 11:33

    @sean

    Agree. “Stuff” became too commonplace. Now people strive for “status” that is unobtainable by others. Wealth provides more status in your bank account than it does converted into “stuff.”

  10. Gravatar of Mike Mike
    24. October 2016 at 12:04

    Part of it is status.

    But many of my friends who grew up in the Bay Area want to stay here not for status but because their friends and family are here, because of the great weather, and interesting industry jobs. Many can’t and have to leave.

    Also, people pay a lot extra for safe neighborhoods, fun/interesting urban environments, good schools, and shorter commutes—those can’t just be reduced to status. Even though I agree that many of those are highly related to rich/poor segregation.

  11. Gravatar of engineer engineer
    24. October 2016 at 12:10

    I’ve always told my wife…I would be perfectly happy living in a cabin in the woods. As long as I have indoor plumbing in the winter time..I’m good…the rest is all to make her happy…

  12. Gravatar of Jason Smith Jason Smith
    24. October 2016 at 12:11

    It is these kinds of micro examples that I increasingly emphasize in my argument that utility is an emergent concept. Individuals and individual transactions do not have well-defined utility functions or utility values in a similar way that individual atoms do not have a well-defined pressure or temperature.

    From the properties of the opportunity set, we can end up with an effective description in terms of utility and rational agents where the actual agents are completely “irrational” (random, or as I like to say so complicated they appear random) …

    http://informationtransfereconomics.blogspot.com/2015/09/the-emergent-representative-agent-1.html

    Awhile back, David Glasner directed me to a paper by Gary Becker that makes essentially the same arguments and captures the basic idea:

    Becker, Gary S. Irrational Behavior and Economic Theory. Journal of Political Economy Vol. 70, No. 1 (Feb., 1962), pp. 1-13

    Where Becker says you end up with downward sloping demand curves because regardless of how “irrational” agents are, they still are constrained by the opportunity set, I say the downward sloping demand curves are a rational emergent property of the system that isn’t true for individual agents.

  13. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    24. October 2016 at 13:53

    In today’s WSJ–Heard on the Street–the 100 trillion dollar Zimbabwe note that is no longer legal tender, and was trading for $ .70 when it was last circulating, is now selling on eBay for $65 USD.

    Nice example of the QTM.

  14. Gravatar of Lorenzo from Oz Lorenzo from Oz
    24. October 2016 at 14:11

    As simple stuff-ness loses its economic salience, any chance that a sense of beauty will make a comeback?

  15. Gravatar of B Cole B Cole
    24. October 2016 at 16:27

    Lorenzo: I think that already happens in those cities that begin to emphasize amenities. Cleaner air, better parks. I had a weak spot for Trump’s infrastructure spending ideas in the hopes we might see more beautiful airports or landscaped highways.

    The great cities of the future will have to be nice places to live. Places that are unpleasant to live are doomed to shrink.

  16. Gravatar of Rajat Rajat
    24. October 2016 at 18:00

    Perhaps this is why the Left’s attempts to stir up interest in income inequality is falling flat. Virtually no-one in Australia is going hungry and just about everyone with their mental faculties in order has a roof over their heads, clothes to wear, education for their kids and free healthcare.

  17. Gravatar of Scott Freelander Scott Freelander
    24. October 2016 at 18:27

    Jason Smith,

    That’s a very interesting idea. Perhaps that helps explain the disconnect between microfoundations and macroeconomics. I should read a book on information theory to understand your approach better.

  18. Gravatar of Tom Brown Tom Brown
    24. October 2016 at 19:52

    Scott Freelander,

    I don’t think it’s necessary to read a book on information theory to understand his approach better. And in regards the concept he discusses here, it’s mostly sufficient to look at his (or Becker’s) diagrams.

  19. Gravatar of Tom Brown Tom Brown
    24. October 2016 at 19:56

    O/T: Scott S,
    Enjoy:
    http://theresurgent.com/in-a-just-discovered-video-trump-talks-about-hillary-clinton-and-it-is-brutal-to-watch/
    —–
    ???

  20. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    24. October 2016 at 19:57

    ‘As simple stuff-ness loses its economic salience, any chance that a sense of beauty will make a comeback?’

    As Paulie said in The Pope of Greenwich Village; ‘Knowin’ how to spend it. I never ordered a Brandy in my life that wasn’t Cordon Bleu… I took two-hundred from shylocks, pop, to see Sinatra at the Garden? Sat two seats away from Tony Bennett. That’s success!’

  21. Gravatar of Major.Freedom Major.Freedom
    24. October 2016 at 21:01

    But I suppose the millennials are right, it’s stupid to accumulate lots of stuff, for all the reasons that philosophers have emphasized down through the ages.

    Not all philosophers. Mostly the philosophers down the line in the tradition of Plato, who emphasized abstract forms and ideals as superior to physical reality. Mostly irrationalists, like the self-contradictory theory of Rorty.

    For the tradition of philosophy down the line from Aristotle, the Rationalists, there is and always will be a direct, strong, inviolable link between utility and material wealth.

    The world of man is not becoming less and less dependent on material wealth, what is changing is your mind as you age. Justifying your lack of penthouses and luxury cars.

  22. Gravatar of Anand Anand
    25. October 2016 at 00:52

    Here are a couple of older posts about the rich voting Democratic. It is not just a personal aversion to Trump, though that definitely plays a role.

    http://www.nytimes.com/2015/10/07/opinion/how-did-the-democrats-become-favorites-of-the-rich.html

    http://www.vox.com/polyarchy/2016/6/3/11843780/democrats-wealthy-party

  23. Gravatar of david david
    25. October 2016 at 03:56

    “13.1 million children lived in food-insecure households in 2015.[i]

    Twenty percent or more of the child population in 30 states and D.C. lived in food-insecure households in 2014, according to the most recent data available. Mississippi (27%) and New Mexico (27%) had the highest rates of children in households without consistent access to food.[ii]”

    http://www.feedingamerica.org/hunger-in-america/impact-of-hunger/child-hunger/child-hunger-fact-sheet.html

  24. Gravatar of Christian List Christian List
    25. October 2016 at 04:24

    As an upper class guy I would vote for the Democrats, too. You need somebody you can mail to when your kid needs a
    well-paying easy-peasy public service job in DC.

    I’m all for equal opportunities as long as it means that I can call “my guys” when my kid needs to “fairly win” the job interview.

  25. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    25. October 2016 at 05:04

    A speech by Stanley Fischer gives a clue to the reasoning behind The Feds obsession with raising interest rates;

    https://www.federalreserve.gov/newsevents/speech/fischer20161017a.htm

    ‘And the third concern is that low interest rates may also threaten financial stability as some investors reach for yield and compressed net interest margins make it harder for some financial institutions to build up capital buffers. I should say that while this is a reason for concern and bears continual monitoring, the evidence so far does not suggest a heightened threat of financial instability in the post-financial-crisis United States stemming from ultralow interest rates. However, I note that a year ago the Fed did issue warnings–successful warnings–about the dangers of excessive leveraged lending, and concerns about financial stability are clearly on the minds of some members of the Federal Open Market Committee, FOMC.’

    So, they think they have to destroy the village in order to save it.

  26. Gravatar of ssumner ssumner
    25. October 2016 at 05:45

    Ben, You said:

    “I had a weak spot for Trump’s infrastructure spending ideas in the hopes we might see more beautiful airports or landscaped highways.”

    The key to better infrastructure is structural reforms. Reform the process and the spending will come naturally.

    1. Reform environmental laws.
    2. Get rid of David-Bacon
    3. Allow tolls on interstate highways
    4. Privatize and deregulate airports
    5. Allow foreign firms and foreign workers to build subways.

    That’s how you get infrastructure—not “more government money”

    Tom, Trump is not a Republican, as we’ve known from day one.

    Anand, Ironically, the Alt-right thinks the non-rich are genetically inferior (that’s why they oppose immigration from poor countries), and yet those “inferior” people seem to be Trump’s base. I suppose the Nazis faced the same dilemma—if the Jews are “inferior” why are they relatively successful?

    David, You find extremely high rates of obesity in that group.

    Patrick, I hope he knows that easy money is the best way to get higher interest rates (in the long run).

  27. Gravatar of Philo Philo
    25. October 2016 at 06:27

    “I hope he knows”? No–*I wish he knew*.

  28. Gravatar of msgkings msgkings
    25. October 2016 at 07:52

    @ssumner:

    No, the alt right thinks the non-white non-rich are genetically inferior. The white non-rich are genetically superior but have bad outcomes because the left and the minorities are keeping them down.

  29. Gravatar of E. Harding E. Harding
    25. October 2016 at 08:01

    “Anand, Ironically, the Alt-right thinks the non-rich are genetically inferior (that’s why they oppose immigration from poor countries), and yet those “inferior” people seem to be Trump’s base.”

    -No, they’re not. Trump’s base isn’t poor Blacks and Hispanics, it’s middle-class non-college Whites in places like Luzerne County, PA and Staten Island.

    “That’s how you get infrastructure—not “more government money””

    -Wow; Sumner actually sez something correct in the comments.

  30. Gravatar of E. Harding E. Harding
    25. October 2016 at 08:12

    “The white non-rich are genetically superior but have bad outcomes because the left and the minorities are keeping them down.”

    -That might be the case for earnings (White men have the largest college education premium gap between those born of high-income and low-income parents, suggesting the existence of Jewish and perhaps other White elite structural favoritism), but not overall well-being. And even in earnings, it seems Asians are being kept down worse than Whites, and Hispanics worse than both.

    In any case, it’s an interesting fact that, adjusted for level of education, Non-Hispanic Whites have the highest test scores of any major racial grouping. Non-Hispanic Whites are also far less likely to point to college education as a path to the middle class than minorities. I doubt this is entirely due to anti-White affirmative action.

  31. Gravatar of Student Student
    25. October 2016 at 08:57

    Scott,

    There is a lot I agree with about this post. However, I disagree with the position that povery is over in these here United States.

    I wonder, have you ever been homeless shelter, stopped and talked to the bums (either the drug addicted or mentally I’ll variety… Most fall into one of these two camps if not both), visited a “welfare office”, or had any exposure to title I schools?

    I don’t mean this in a rude way… I am honestly asking. Sometimes people in comfortable situations simply lose contact with these people and so don’t realize they exist.

    There are many people that are literally homeless and live in temporary shelters or in tents in the woods. There are also a sizable number of kids in title I schools that live in 2 bedroom apartments with extended families. Their beds are mattresses in the common room.

    While this is an anecdote I admit, my wife yhe other day about a girl that had to be sent to the clinic because she had a rash all over her body and couldn’t stop scratching it. After talking with the girl, turns out she sleeps on a matress in the common room that is infested with bed bugs (the source of her rash).

    There are people (maybe less than 5% but so what) that havent much stuff.

  32. Gravatar of ssumner ssumner
    25. October 2016 at 11:10

    Student, You said:

    “However, I disagree with the position that poverty is over in these here United States.”

    So do I. Indeed it would be ridiculous to claim that poverty is over in the US.

  33. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    25. October 2016 at 12:34

    ‘Patrick, I hope he knows that easy money is the best way to get higher interest rates (in the long run).’

    If he does, he (and about a gazillion others) does a good job concealing it.

    Oh, and about beautiful roads, highways and bridges; we could emulate French Communists and let the market provide;

    http://www.leviaducdemillau.com/fr/carte-interactive#

  34. Gravatar of mbka mbka
    26. October 2016 at 06:13

    Scott,

    ” I suppose the Nazis faced the same dilemma—if the Jews are “inferior” why are they relatively successful?”

    Actually, I have read quite the opposite. People like Goebbels and his ilk, the upper Nazi leadership, were apparently convinced that Jews were a threat to the other Germans precisely because of their success. The Nazis were convinced they acted in legitimate self defense or the “German race” would be doomed. Their anti semitism started as a fear of superior competition and a feeling of injustice, “undeserved” wealth, on “exploitation” of “ordinary hard working Germans” etc. … kinda like the 99% movement if you think about it, the irony. The “inferior people” line of thought was more directed at Eastern Europeans, the Roma etc. although eventually the Jews were also subjected to it. Of course none of this was intellectually consistent, that much is clear.

  35. Gravatar of Scott Sumner Scott Sumner
    26. October 2016 at 09:00

    Patrick, Was that a private bridge?

    mbka, Perhaps I’ve misinterpreted the phrase “master race”. Did they mean master in the sense of superior? Or in the sense of “in control”.

  36. Gravatar of Christian List Christian List
    26. October 2016 at 09:02


    I suppose the Nazis faced the same dilemma—if the Jews are “inferior” why are they relatively successful?

    It’s mostly like mbka said: The Nazis “explained” this dilemma with parasitism and the Jewish word conspiracy and “Jewish character traits” like greed and ruthlessness

    Like mbka I also think the similarities to socialist movements (like the 1% movement) are astonishing: A little group of greedy (mostly) capitalists sucking out 99% of the “honest” population, that’s the basic ideology then and now. Around 1% of the Germans back then were Jewish. National Socialism is a pretty accurate term for this ideology. It’s socialism based on race. Today socialism is still okay, as long as you don’t solely build it on race and mass murder (or genocide) again.


    The white non-rich are genetically superior but have bad outcomes because the left and the minorities are keeping them down.

    I got your point but then what is keeping the Blacks down?

  37. Gravatar of Christian List Christian List
    26. October 2016 at 09:15

    “Master race” was not about intelligence only but to my knowledge also about character traits. Aryans were supposed to be more intelligent but also so much more considerate, kind, gracious and even naive. Jews according to Nazi theory were supposed to be less intelligent but also extremely inhuman, greedy, merciless and dishonest. That’s one “reason” why the inferior race was able to “control” the Aryan master race (according to Nazi theory).

  38. Gravatar of Christian List Christian List
    26. October 2016 at 09:25

    Greg Mankiw wrote that he gladly paid $2,500 for one single ticket to “Hamilton” just recently. And he bought not just one but a few. I’d say this in an example for “non-stuff” and “utility” as welll.

    And a presidential candidate of the conservative pary in France was asked how much a chocolate croissant would most like cost in a bakery. He answered “10 to 15 cents”.

    Reminds me a bit of: “There’s no bread? Then let them eat cake!”

  39. Gravatar of mbka mbka
    26. October 2016 at 18:21

    To add on to what Christian List said: “Herrenrasse” should be properly translated as “race of Lords” then it all becomes a bit clearer.

    That being said, Scott: one should not read too much intellectual consistency into Nazi ideology. The was a lot of bricolage going on there, bits and pieces from wherever, from Nietzsche’s master and slave dichotomy to the Indian connection – the Aryan idea – to socialism. And the Nazi party NSDAP was created initially through the hostile takeover of the DAP party, the “German Workers Party”. Jews were seen as dangerous competition to the destiny of world Lordship, and slavs were the ones seen as sub-humans. The first victims of the extermination camps were Russian prisoners of war, according to research.

    On “stuff”: I don’t really believe it either, that it’s all going to “non stuff”. Often, it’s smaller stuff that’s just as expensive. Who would have casually carried around a $1000 artefact in their jeans back pockets, as most people now do with their iPhones? But signalling does matter, so some of that signalling is now done with experiences (food, travel) rather than with stuff. That’s because a lot of stuff is cheap compared to housing and transportation. And large stuff is a burden to store and maintain. With small stuff you are more flexible.

    When I observe myself, I drift in that direction too. In the 90s I would have been pining for the best camera, no matter the price or size. Now I usually use the phone. I don’t even dream of a larger camera which now I could actually afford. The phone has 80% of the quality, which is ok, and a fraction of the size.

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