Tuesday, February 15, 2011

The Experience Economy - NYTimes.com

The Experience Economy - NYTimes.com

OP-ED COLUMNIST

The Experience Economy

Tyler Cowen’s e-book, “The Great Stagnation,” has become the most debated nonfiction book so far this year. Cowen’s core point is that up until sometime around 1974, the American economy was able to experience awesome growth by harvesting low-hanging fruit. There was cheap land to be exploited. There was the tremendous increase in education levels during the postwar world. There were technological revolutions occasioned by the spread of electricity, plastics and the car.

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But that low-hanging fruit is exhausted, Cowen continues, and since 1974, the United States has experienced slower growth, slower increases in median income, slower job creation, slower productivity gains, slower life-expectancy improvements and slower rates of technological change.

Cowen’s data on these slowdowns are compelling and have withstood the scrutiny of the online reviewers. He argues that our society, for the moment, has hit a technological plateau.

But his evidence can also be used to tell a related story. It could be that the nature of technological change isn’t causing the slowdown but a shift in values. It could be that in an industrial economy people develop a materialist mind-set and believe that improving their income is the same thing as improving their quality of life. But in an affluent information-driven world, people embrace the postmaterialist mind-set. They realize they can improve their quality of life without actually producing more wealth.

For example, imagine a man we’ll call Sam, who was born in 1900 and died in 1974. Sam entered a world of iceboxes, horse-drawn buggies and, commonly, outhouses. He died in a world of air-conditioning, Chevy Camaros and Moon landings. His life was defined by dramatic material changes, and Sam worked feverishly hard to build a company that sold brake systems. Sam wasn’t the most refined person, but he understood that if he wanted to create a secure life for his family he had to create wealth.

Sam’s grandson, Jared, was born in 1978. Jared wasn’t really drawn to the brake-systems business, which was withering in America. He works at a company that organizes conferences. He brings together fascinating speakers for lifelong learning. He writes a blog on modern art and takes his family on vacations that are more daring and exciting than any Sam experienced.

Jared lives a much more intellectually diverse life than Sam. He loves Facebook, YouTube, Wikipedia and his iPhone apps. But many of these things are produced outside the conventional monetized economy. Most of the products are produced by people working for free. They cost nothing to consume.

They don’t even create many jobs. As Cowen notes in his book, the automobile industry produced millions of jobs, but Facebook employs about 2,000, Twitter 300 and eBay about 17,000. It takes only 14,000 employees to make and sell iPods, but that device also eliminates jobs for those people who make and distribute CDs, potentially leading to net job losses.

In other words, as Cowen makes clear, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity.

Jared’s other priorities also produce high quality-of-life gains without huge material and productivity improvements. He practically defines himself by what university he went to. Universities now have nicer dorms, gyms and dining facilities. These improvements have not led to huge increases in educational output.

Jared is very health conscious and part of a generation that has spent much more on health care. This may help Jared lead a vibrant life in retirement. But these investments have had surprisingly little effect on productivity or even longevity.

For Sam, income and living standards were synonymous. But for Jared, wealth and living standards have diverged. He is more interested in the latter than the former. This means that Jared has some rich and meaningful experiences, but it has also led to problems. Every few months, new gizmos come out. Jared feels his life is getting better. Because he doesn’t fully grasp the increasingly important distinction between wealth and standard of living, he has the impression that he is also getting richer. As a result, he lives beyond his means. As Cowen notes, many of our recent difficulties stem from the fact that many Americans think they are richer than they are.

Jared is also providing much less opportunity for those down the income scale than his grandfather did. Sam was more hardhearted, yet his feverish materialism created more jobs.

Jared worries about that. He also worries that the Chinese and others have a material drive that he and his cohort lacks. But he’s not changing. For the past few decades, Americans have devoted more of their energies to postmaterial arenas and less and less, for better and worse, to the sheer production of wealth.

During these years, commencement speakers have urged students to seek meaning and not money. Many people, it turns out, were listening.

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