New York Times Article…
The New Trend in Spending
By VIRGINIA POSTREL
LISTEN to the jobs debate carefully, and you might get the idea that the problem with the economy is that Americans just are not materialistic enough.
We spend too much of our income on restaurant meals, entertainment, travel and health care and not enough on refrigerators, ball bearings, blue jeans and cars.
Manufacturing employment is sluggish because of rising productivity – making more with fewer people – and foreign competition. But that’s not the whole story, especially over the long term. Production is changing, but so is consumption.
As incomes go up, Americans spend a greater proportion on intangibles and relatively less on goods. One result is more new jobs in hotels, health clubs and hospitals, and fewer in factories.
In 1959, Americans spent about 40 percent of their incomes on services, compared with 58 percent in 2000. That figure understates the trend, because in many cases goods and services come bundled together.
Consider food, classified by the government’s spending survey as a “nondurable good.”
In 1959, consumers spent 25 percent of their income on food, compared with 14 percent in 2000. Today food spending looks much smaller if you exclude restaurant meals. Meals at home took 19 percent of income in 1959, compared with only 8 percent in 2000.
Another way to look at the same trend: In 2000, we spent 41 cents of each food dollar on restaurant meals, up from only 29 cents as recently as 1987.
Restaurant meals have changed, too. More and more of their value comes not from the nutrition and dishwashing services – function – but from the experience the restaurant provides. We don’t go out to eat just to avoid cooking. We go to enjoy different cuisines in pleasant environments.
For successful restaurants, aesthetics is no longer an afterthought. Customers are paying for memories, not just fuel.
What’s true for restaurants is true across the economy. New economic value increasingly comes from experiences.
Americans have not stopped buying stuff, of course. (Indeed, there’s a whole industry devoted to organizing our pantry-like closets.) But the marginal value of tangibles versus intangibles has shifted. That many manufactured goods are also getting cheaper only intensifies the trend.
Products as well as services increasingly distinguish themselves through aesthetics, adding emotional value to practical use. This trend confounds those who equate “quality” with function.
Hence a recent Dilbert comic strip satirizes a product designer who declares: “Quality is yesterday’s news. Today we focus on the emotional impact of the product.”
In fact, the trend toward emotional value is exactly what psychological research would predict. Particularly as incomes rise, people find that additional experiences give them more pleasure than additional possessions.
In research reported last year in the Journal of Personality and Social Psychology, Leaf Van Boven of the University of Colorado, Boulder, and Thomas D. Gilovich of Cornell University used two surveys and a lab experiment to test whether people reported greater happiness from “experiential purchases” or “material purchases.” In almost all cases, they found that subjects preferred experiences to goods. (The psychologists did not consider relative prices, except to specify that survey respondents consider purchases they’d made for more than $100.)
That does not mean nobody wants more things. The issue is one of relative benefits. The economic question is, Given limited resources, what is the best trade-off? What do you want next?
The two psychologists’ research found that the less people already had, the more benefits they reported from additional goods as opposed to experiences.
“Respondents’ level of income was positively associated with their endorsement of experiential over material possessions,” the psychologists wrote, noting that “respondents with the lowest levels of income were equally likely to indicate that material or experiential purchases made them happier.”
As an economist would put it, this research found diminishing marginal utility – less enjoyment from an additional purchase – from new possessions, compared with experiences like travel and restaurant meals. “The good life,” the authors wrote, “may be better lived by doing things than by having things.”
This result sounds both logical and humanistic. It’s consistent with economic theory. But translated into economic life, it disrupts cherished assumptions.
In the popular imagination and the political debate, making things is “real” work. Providing experiences is not. Analysts assume that working in a factory is a good job and working in a hotel is not.
This perception is not just a question of relative wages. Even at the top, it’s more prestigious to create stuff than experiences.
Carleton S. Fiorina, the chief executive of Hewlett-Packard, ranks 10th on the new Forbes list of “the world’s most powerful women.” (She’s the top-ranked business executive on the list.) Oprah Winfrey ranks a mere 62nd, and isn’t even classified as an executive.
Similarly, the election-year news suggests that the economy is bad all over. But in fact, states like Florida and Nevada, whose economies produce experiences, are booming. States like Ohio and Michigan, whose economies produce stuff, are hurting.
The shift toward intangibles creates geographic winners and losers, redistributing economic and political clout.
Over the last eight years, the demographer Peter Francese reports, “people have been moving out of the Northeast and Midwest at a net rate of just over 30,000 a month.” In the July/August issue of American Demographics magazine, he documents the story of “young people pulling up stakes in the Northeast and Midwest and dispersing to better jobs and more affordable places to live, where the weather often happens to be a lot better.”
Americans are pouring out of the Northeast and Midwest, where water and rail transportation and convenient raw materials once provided an economic advantage. They’re going to the more hospitable physical and economic climates of the South and West.
There, catering to emotion and imagination is “real” work and pleasure is a form of quality.