The Future of Prosperity - When More is Less

A fascinating post at http://virtualeconomics.typepad.com/virtualeconomics/ leads with this:

"Jeff Jarvis is blogging from the Davos world leaders conference, finding (amongst other things) that 53% of Western Europeans think that the next generation will be less prosperous than this one. That's compared to 37% in the US, and just 14% in China."

Why the optimism gap? It could be that the West has an intuitive sense that the model we've been using for more than a century may be appropriate for a place like China but is increasingly less so in the West. China's per capita income is about 5% what it is in Western Europe or the US and Canada, making their perspective very different.

A single scoop of ice cream is nice - two can be fine ... but at some point (3? 6?) the enjoyment turns to nausea. More is nice for those who have little but after a while more becomes less desirable. Many Chinese are only now beginning to enjoy the benefits of prosperity - getting bikes, cars, stereos, and fashionable clothes for the first time. But once they have that, what is the next stage of prosperity? What happens when more is no longer better?

For decades we have confused quantity of goods with quality of life. Given that the prosperity of the last couple of centuries was the equivalent of our first scoop or two of ice cream, this confusion has not been particularly important. But now that we're facing our third or fourth scoop, it is important to make the distinction.

Our economies are still largely geared towards more, towards quantity of goods. Walk through a Costco or a landfill to see how voluminous our appetite for "goods" is. Yet these goods to have are not the only kind of goods. In fact, philosophers distinguish between goods to have and goods to do - considering the goods to do a higher good than those we have. Quality of life is related to goods to have - it is hard to imagine aspiring to a quality of life that didn't include at least some modicum of shelter, clothing, and food - much less those delightful bits of technology like laptops, mp3 players, or cell phones. Yet the marginal utility - the additional joy we get - from more goods (to have) does gradually drop. Eventually, goods (to have) simply do less to increase our quality of life.

Those in the West may well see that we're geared for getting more even as getting more has less and less impact on our quality of life. This may be the reason for the optimism gap between the West and China. Until the West has shifted its economies to more directly go after improvements in quality of life, this sense of pessimism in the West may only get worse.