[Paleopsych] NYT: Virginia Postrel: The New Trend in Spending

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Virginia Postrel: The New Trend in Spending
New York Times, 4.9.9
http://www.nytimes.com/2004/09/09/business/09scene.html?position=&pagewanted=print&position=

     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 [1]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.

     Virginia Postrel (www.dynamist.com) is the author of "The Substance of
     Style: How the Rise of Aesthetic Value Is Remaking Commerce, Culture
     and Consciousness," just published in paperback by Perennial.