This view has much to recommend it. After all, who would relish the idea of sumptuary legislation, rationing, or government controls on what can be produced or purchased? The liberal approach to consumption combines a deep respect for the consumer’s ability to act in her own best interest and an emphasis on the efficiency gains of unregulated consumer markets: a commitment to liberty and the general welfare.
Cogent as it is, however, this view is vulnerable on a number of grounds. Structural biases and market failures in the operation of consumer markets undermine its general validity; consumer markets are neither so free nor so efficient as the conventional story suggests. The basis of a new consumer policy should be an understanding of the presence of structural distortions in consumers’ choices, the importance of social inequalities and power in consumption practices, a more sophisticated understanding of consumer motivations, and serious analysis of the processes that form our preferences. To appreciate the force of these criticisms, we need a sharper statement of the position they reject.
The Conventional View
The liberal view on markets for consumer goods has adherents in many disciplines, but its core analytic argument comes from standard economic theory, which begins from some well-known assumptions about consumers and the markets in which they operate.
1. Consumers are rational. They act to maximize their own well-being. They know what they prefer, and make decisions accordingly. Their “preferences” are taken as given, as relatively unchanging, and as unproblematic in a normative sense. They do not act capriciously, impulsively, or self-destructively.
2. Consumers are well-informed. They have perfect information about the products offered in the market. They know about all relevant (to the consumer) characteristics pertaining to the production and use of the product.
3. Consumer preferences are consistent (both at a point in time and over time). Consistency at a point in time means transitivity: If A is preferred to B and B to C then A will be preferred to C. (In other words, if roast beef is preferred to hamburgers and hamburgers to hot-dogs, then roast beef is preferred to hot dogs.) Consistency over time can be thought of as a “no regrets” assumption. If the consumer is faced with a choice of a product that yields satisfaction in the present, but has adverse consequences in the future-eat chocolate today and feel great, but gain five unwanted pounds by next week-and the consumer chooses that product today, he or she will not regret the choice when the future arrives. (This does not mean the extra pounds are welcomed, only that the pleasure of the chocolate continues to outweigh the pain of the pounds.)
4. Each consumer’s preferences are independent of other consumers’ preferences. We are self-contained in a social sense. If I want a sport utility vehicle, it is because I like them, not because my neighbor does. The trendiness of a product does not affect my desire to have it, either positively or negatively.
5. The production and consumption of goods have no “external” effects. There are no consequences for the welfare of others that are unreflected in product prices. (A well-known example of external effects is pollution, which imposes costs on others that are not reflected in the price of the good that produces the pollution.)
6. There are complete and competitive markets in alternatives to consumption. Alternatives to consumption include savings, public goods, and the “purchase” of leisure. Unless these alternatives are available, the choice of consumption-over other uses of economic resources-may not be the optimal outcome.
TAKEN TOGETHER, and combined with conditions of free entry and exit of firms providing consumer goods, these assumptions imply that no consumer policy is the best consumer policy. Individual consumers know best and will act in their own interest. Firms will provide what the consumers want; those that don’t will not survive a competitive marketplace. Competition and rationality together ensure that consumers will be sovereign-that is, that their interests will “rule.” And the results will be better than any we could achieve through government regulation or political action.
To be sure, conventional theory and policy have always admitted some deviations from these highly idealized conditions. In some areas interventionist policy has been long-standing. First, some consumers are not considered to be fully rational-for example, children or, in an earlier era, women. Because kids are not thought to be capable of acting in their own interest, the state justifies protective policies, such as the restricting advertising aimed at them. Second, the state has traditionally regulated highly addictive or harmful commodities, such as drugs, alcohol, and explosives. (As the debates surrounding the legalization of drugs make clear, the analytical basis for this policy is by no means universally accepted.) A third class of highly regulated commodities involve sex: pornography, contraceptives, sexual paraphernalia, and so forth. Here the rationale is more puritanical. American society has always been uncomfortable about sex and willing to override its bias against consumer regulation because of that. Finally, the government has for much of this century-though less forcefully since the Reagan administration-attempted to ensure minimum standards of product safety and quality.
These exceptions aside, the standard model holds strongly to the idea that unfettered markets yield the optimal outcomes, a conclusion that follows logically and inexorably from the initial assumptions. Obviously, the assumptions of the standard model are extreme, and the real world deviates from them. On that everyone agrees. The question is by how much, how often, and under what conditions? Is the world sufficiently different from this model that its conclusions are misguided?
Serious empirical investigations suggest that these assumptions do not adequately describe a wide range of consumer behaviors. The simple rational-economic model is reasonable for predicting some fraction of choice behavior for some class of goods-apples versus oranges, milk versus orange juice-but it is inadequate when we are led to more consequential issues: consumption versus leisure, products with high symbolic content, fashion, consumer credit, and so on. In particular, it exaggerates how rational, informed, and consistent people are. It overstates their independence. And it fails to address the pressures that consumerism imposes on individuals with respect to available choices and the consequences of various consumption decisions. Understand those pressures, and you may well arrive at very different conclusions about politics and policy.
Rational, deliberative, and in control?
The economic model presents the typical consumer as deliberative and highly forward-looking, not subject to impulsive behavior. Shopping is seen as an information-gathering exercise in which the buyer looks for the best possible deal for product she has decided to purchase. Consumption choices represent optimizing within an environment of deliberation, control, and long-term planning.
Were such a picture accurate it would be news (and news of a very bad sort) to a whole industry of advertisers, marketers, and consultants whose research on consumer behavior tells a very different story. Indeed, their findings are difficult to reconcile with the picture of the consumer as highly deliberative and purposive.
Consider some of the stylized facts of modern marketing. For example, the “law of the invariant right”: shoppers overwhelmingly turn right, rather than left, upon entering a store. This is only consistent with the rational search model if products are disproportionately to be found on the right side of the aisle. Or consider the fact that products placed in the so-called “decompression zone” at the entrance to a store are 30 percent less likely to be purchased than those placed beyond it. Or that the number of feet into a store the customer walks is correlated with the number of items purchased. It’s far harder to square these findings with “rational” behavior than with an unplanned and contingent action. Finally, the standard model has a very hard time explaining the fact that if, while shopping, a woman is accidentally brushed from behind, her propensity to purchase falls precipitously.
Credit cards present another set of anomalies for the reigning assumptions. Surveys suggest that most people who acquire credit cards say that they do not intend to borrow on them; yet roughly two-thirds do. The use of credit cards leads to higher expenditures. Psychological research suggests that even the visual cue of a credit card logo spurs spending. Survey data shows that many people are in denial about the level of credit card debt that they hold, on average underestimating by a factor of two. And the explosion of personal bankruptcies, now running at roughly 1.5 million a year, can be taken as evidence of a lack of foresight, planning, and control for at least some consumers.
More generally, credit card habits are one example of what economists call “hyperbolic discounting,” that is, an extreme tendency to discount the future. Such a perspective calls into question the idea of time consistency-the ability of individuals to plan spending optimally throughout their lifetimes, to save enough for the future, or to delay gratification. If people are constitutionally inclined to be hyperbolic discounters, as some are now arguing, then forced-saving programs such as Social Security and government-sponsored retirement accounts, restriction on access to credit, waiting periods for major purchases, and a variety of other approaches might improve well-being. Compulsive buying, as well as the milder and far more pervasive control problems that many consumers manifest, can also be incorporated into this framework.
The model of deliberative and informed rationality is also ill-adapted to account for the phenomenon of brand-preference, perhaps the backbone of the modern consumer market. As any beginning student of advertising knows, much of what advertising does is take functionally identical or similar goods and differentiate them on the basis of a variety of non-operational traits. The consumer is urged to buy Pepsi because it represents the future, or Reebok shoes because the company stands for strong women. The consumer develops a brand preference, and believes that his brand is superior in quality. The difficulty for the standard model arises because, absent the labels, consumers are often unable to distinguish among brands, or fail to choose their favorites. From the famous beer taste test of the 1960s (brand loyalists misidentified their beers), to cosmetics, garments, and other tests of more recent vintage, it seems that we love our brands, but we often can’t tell which brands are which.
What can we conclude from consumers’ inability to tell one washing powder, lipstick, sweater, or toothpaste from another? Not necessarily that they are foolishly paying a brand premium for goods. (Although there are some consumers who do fall into this category-they wouldn’t pay the brand premium, as distinct from a true quality premium, if they knew it existed.) What is more generally true, I believe, is that many consumers do not understand why they prefer one brand over another, or desire particular products. This is because there is a significant dimension of consumer desire which operates at the non-rational level. Consumers believe their brand loyalties are driven by functional dimensions, but a whole host of other motivators are at work-for example, social meanings as constructed by advertisers; personal fantasies projected onto goods; competitive pressures. While this behavior is not properly termed “irrational,” neither is it conscious, deliberative, and narrowly purposive. Consumers are not deluded, duped, or completely manipulated. But neither do they act like profit-maximizing entrepreneurs or scientific management experts. The realm of consumption, as a rich historical literature has taught us, has long been a “dream world,” where fantasy, play, inner desire, escape, and emotion loom large. This is a significant part of what draws us to it.
Consumption is Social
Within economics, the major alternative to the assumption that individuals’ preferences are independent-that people do not want things because others want them-is the “relative” income, positional, or “competitive consumption” perspective noted above. In this model, a person’s well-being depends on his or her relative consumption-how it compares to some selected group of others. Such positioning is one of the hallmarks of the new consumerism.
Of course, social comparison predates the 1980s. In 1984, French sociologist Pierre Bourdieu explored the social patterning of consumption and taste in Distinction: A Social Critique of the Judgment of Taste. Bourdieu found that family socialization processes and educational experiences are the primary determinants of taste for a wide range of cultural goods, including food, dress, and home decor. In contrast to the liberal approach, in which consumption choices are both personal and trivialized-that is, socially inconsequential-Bourdieu argues that class status is gained, lost, and reproduced in part through everyday acts of consumer behavior. Being dressed incorrectly or displaying “vulgar” manners can cost a person a management or professional job. Conversely, one can gain entry into social circles, or build lucrative business contacts, by revealing appropriate tastes, manners, and culture. Thus, consumption practices become important in maintaining the basic structures of power and inequality which characterize our world. Such a perspective helps to illuminate why we invest so much meaning in consumer goods-for the middle class its very existence is at stake. And it suggests that people who care about inequality should talk explicitly about the stratification of consumption practices.
If we accept that what we buy is deeply implicated in the structures of social inequality, then the idea that unregulated consumption promotes the general welfare collapses. When people care only about relative position, then general increases in income and consumption do not yield gains in well-being. If my ultimate consumer goal is to maintain parity with my sister, or my neighbor, or Frasier, and our consumption moves in tandem, my well-being is not improved. I am on a “positional treadmill.” Indeed, because consuming has costs (in terms of time, effort, and natural resources), positional treadmills can have serious negative effects on well-being. The “working harder to stay in place” mantra of the early 1990s expresses some of this sentiment. In a pure reversal of the standard prescription, collective interventions which stabilize norms, through government policy or other mechanisms, raise rather than lower welfare. People should welcome initiatives that reduce the pressure to keep up with a rising standard.
Free and structurally unbiased?
The dynamic of positionally driven spending suggests that Americans are “overconsuming” at least those private goods that figure in our consumption comparisons. There is another reason we may be overconsuming, which has to do with the problems in markets for alternatives to status or positional goods. In particular, I am referring to non-positional private consumption, household savings, public goods, and leisure. Generally speaking, if the markets for these alternatives are incomplete, non-competitive, or do not fully account for social benefits and costs, then overconsumption with respect to private consumption may result. I do not believe this is the case with household savings: financial markets are highly competitive and offer households a wide range of ways to save. (The deceptive and aggressive tactics of consumer credit companies might be reckoned a distortion in this market, but I’ll leave that aside.) Similarly, I do not argue that the markets for private consumer goods which we tend not to compete about are terribly flawed. Still, there are two markets in which the standard assumptions do not apply: the market for public goods and the market for time. Here I believe the deviations from the assumptions are large, and extremely significant.
In the case of public goods there are at least two big problems. The first is the underproduction of a clean environment. Because environmental damage is typically not included in the price of the product which causes it (e.g., cars, toxic chemicals, pesticides), we overconsume environmentally damaging commodities. Indeed, because all production has an impact on the environment, we overconsume virtually all commodities. This means that we consume too much in toto, in comparison to non-environmentally damaging human activities.
The second problem arises from the fact that business interests-the interests of the producers of private goods-have privileged access to the government and disproportionately influence policy. Because they are typically opposed to public provision, the “market” for public goods is structurally biased against provision. In comparison to what a truly democratic state might provide, we find that a business-dominated government skews outcomes in the direction of private production. We don’t get enough, or good enough, education, arts, recreation, mass transport, and other conventional public goods. We get too many cars, too many clothes, too many collectibles.