I didn’t know what to make ofby James Livingston. Reading it was like being on the receiving end of an argument you don’t understand – there’s no mistaking the author’s passion and eloquence but not enough common terrain for a debate.
The subtitle and blurb make it clear that the book aims to be contrarian, and made me think I was getting a counter-blast against government austerity measures to cut the deficit. But it’s actually an argument with the author’s perception of economic growth theory. As far as I understand it (and I could have completely misunderstood), his argument is that the conventional wisdom is that investment in capital is what determines the economy’s rate of growth, that investment requires saving, and that people are therefore constantly urged to be thrifty. Moreover, this fits in with their natural “powerful psychological urge to put their desires on hold…. Because everyone knows how and why to defer gratification.” (page xi) However, growth depends actually on consumption not on investment, and in fact the net private investment in the US (as measured by net private capital formation in the National Income and Product Accounts) has been in decline for a century while massive economic growth has still occurred. Prof Livingston also has a cultural gripe about thriftiness: he sees the habit of thrift as a “soul-crushing emotional trap as well as an economic dead end”.
Part of my problem in assessing this is the author, a Professor of History at Rutgers University, draws on Marxist theory, which I’ve never studied. Some parts of the argument seem to make perfect sense. The purpose of economic growth is to enable people to improve their welfare by consuming goods and services in greater amounts and variety, as they desire. So I completely agree that consumption is all-important, and that much economic debate – and especially economic policy – has mercantilist instincts and focuses too much on producer interests. Besides, every economist knows GDP growth rests on consumption growth because that’s about two-thirds of the total. Henry Ford is celebrated for appreciating that the workforce needed to be paid enough to consume in order to create a mass market. It has also become a commonplace in many circles now to note that the profit share of income has increased to new peaks compared to the labour share and – pace Henry Ford – this is not a good thing at all.
But other parts of Prof Livingston’s argument are bewildering. For one thing, one of the many lessons of behavioural economics (and daily experience) is that frankly most people have no ability to defer gratification. Economists and psychologists have written extensively about this, and on the need for commitment devices if anyone is every to diet successfully or not over-spend on their credit card or save enough for their retirement.
And then there’s the claim that conventional theory says growth depends above all on investment. Just to make sure I wasn’t losing my mind, I turned back to the standard growth text, Aghion and Howitt on the, to confirm that as I thought innovation is seen as the key to growth, albeit embedded in either people’s minds (human capital) or delivered by innovating businesses (tangible and intangible capital). This was true empirically in the heyday of Solow’s neoclassical growth model – all the action was in the technical change term rather than the growth of labour or investment in capital. It’s also now true in standard modern growth theory. The textbook explores this broadly – there are chapters on competition and entry, on institutions, on education, on finance, on trade, on democracy, and on culture. The recent empirical work on growth accounts for it in terms of investment in both human and physical capital but also in terms of the productivity of each and multi-factor productivity. So where does the book’s emphasis on investment (especially as measured in the national accounts) come from? And how does Livingston square his dismissal of the supposed focus on investment with his demolition of the advertising industry which aims to make us spend rather than save?
Despite my bewilderment, I very much enjoyed the sections of the book where Livingston takes on the AdBuster, culture jamming types. This played to my prejudice that clever cultural disdain for consumerism is a rather snobbish attitude on the part of affluent people who are just as consumerist as the rest of us but spend their money on upmarket rather than mass market products and pastimes. The author here focuses on the culture of consumerism. describes the part played by the consumption of western rock music influences – in the shape of the magnificent Plastic People of the Universe – in Czechoslovakia’s Charter 77 and Velvet Revolution. He concludes: “Advertising sells freedom, expands consciousness, and heralds new values in another strange way, by sponsoring a critique of consumer culture from within the precincts of commodity fetishism.” (p131) Its self-references make consumers question their own preferences, he argues.
In the end, though, I had to stop reading the book. It exasperated me too much. I’d like somebody else to read it please, and explain what I’m missing. Meanwhile, it’s time to do some online sales shopping….
[amazon_image id=”0465021867″ link=”true” target=”_blank” size=”medium” ]Against Thrift[/amazon_image]