Sunday, September 30, 2007

Marginal Utility of What?!

In 1930, Keynes predicted that economic growth would lead to a tremendous increase in leisure time. I recently had my principles students read a NY Times column by Bob Frank where he examined the failure of this prediction. Frank says "decisions to spend are also driven by perceptions of quality, the desire for which knows no bounds. But quality is an inherently relative concept." So, although productivity growth and capital accumulation mean that we could have had rising standards of living and more leisure, we find ourselves working to produce (and be able to afford) goods of ever-higher perceived quality. That came to mind when I read this in the Cincinnati Enquirer:
P&G Launches Smart Toothbrush

Oral-B, the toothbrush brand from the Procter & Gamble Co., announced on Friday it is launching Oral-B Triumph with SmartGuide, a wireless display that allows users to time their brushing....

The company says SmartGuide combines the brushhead, handle and visual display so users receive prompts from microchips. These prompts tell users when they are brushing too hard, when to move to the next quadrant of the mouth and when brushing has lasted two minutes. It also indicates when it is time to replace the brushhead.

One of the weaknesses of mainstream economic theory is the way that we think of preferences. In particular, we typically assume that preferences for particular goods or attributes are an intrinsic, or primitive, aspect of the individual. However, the example above reminds us of something that John Kenneth Galbraith pointed out: businesses are constantly working to create preferences for goods we never imagined we might want. (Here's Brad De Long's review of Richard Parker's fine biography of Galbraith, who passed away last year).

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