Buying things vs. buying experiences (vs. buying nothing at all): Again, we see a stock-versus-flow confusion

Alex Tabarrok writes:

A nice, well-reasoned piece from Harold Lee pushing back on the idea that we should buy experiences not goods:

While I appreciate the Stoic-style appraisal of what really brings happiness, economically, this analysis seems precisely backward. It amounts to saying that in an age of industrialization and globalism, when material goods are cheaper than ever, we should avoid partaking of this abundance. Instead, we should consume services afflicted by Baumol’s cost disease, taking long vacations and getting expensive haircuts which are just as hard to produce as ever. . . .

. . . tools and possessions enable new experiences. A well-appointed kitchen allows you to cook healthy meals for yourself rather than ordering delivery night after night. A toolbox lets you fix things around the house and in the process learn to appreciate how our modern world was made. A spacious living room makes it easy for your friends to come over and catch up on one another’s lives. A hunting rifle can produce not only meat, but also camaraderie and a sense of connection with the natural world of our forefathers. . . .

The sectors of the economy that are becoming more expensive every year – which are preventing people from building durable wealth – include real estate and education, both items that are sold by the promise of irreplaceable “experiences.” Healthcare, too, is a modern experience that is best avoided. As a percent of GDP, these are the growing expenditures that are eating up people’s wallets, not durable goods. . . .

OK, first a few little things, then my main argument.

The little things

It’s fun to see someone pushing against the “buy experiences, not goods” thing, which has become a kind of counterintuitive orthodoxy. I wrote about this a few years ago, mocking descriptions of screensaver experiments and advice to go to bullfights. So, yeah, good to see this.

There are some weird bits in the quoted passage above. For one thing, that hunting rifle. What is it with happiness researchers and blood sports, anyway? Are they just all trying to show how rugged they are, or something? I eat meat, and I’m not offering any moral objection to hunting rifles—or bullfights, for that matter—but this seems like an odd example to use, given that you can get “camaraderie and a sense of connection with the natural world of our forefathers” by just taking a walk in the woods with your friends or family—no need to buy the expensive hunting rifle for that!

Also something’s off because in one place he’s using “a spacious living room” as an example of a material good that people should be spending on (it “makes it easy for your friends to come over and catch up on one another’s lives”), but then later he’s telling us to stop spending so much money on real estate. Huh? A spacious living room is real estate. Of course, real estate isn’t all about square footage, it’s also about location, location, and location—but, if your goal is to make it easy for your friends to come over, then it’s worth paying for location, no? Personally, I’d rather live around the corner from my friends and be able to walk over than to have a Lamborghini and have to shlep it through rush-hour traffic to get there. Anyway, my point is not that Lee should sell his Lambo and exchange it for a larger living room in a more convenient neighborhood; it just seems that his views are incoherent and indeed contradictory.

And then there are the slams against education and health care. I work in the education sector so I guess I have a conflict of interest in even discussing this one, but let me give Lee the benefit of the doubt and say that lots of education can be replaced by . . . books. And books are cheaper than ever! A lot of education is motivation, and maybe tricks of gamification can allow this to be done using less labor of instructors. Still, once you’ve bought the computer, these still are services (“experiences”), not durable goods. Indeed, if you’re reading your books online, then these are experiences too.

Talking about education gets people all riled up, so let’s try pushing the discussion sideways, to sports. Lee mentions “a functional kitchen and a home gym (or tennis rackets or cross-country skis).” You might want to pay someone to teach you how to use these things! I think we’re all familiar with the image of the yuppie who buys $100 sneakers and and a $200 tennis racket and goes out to the court, doesn’t know what he’s doing, and throws out his back.

A lot of this seems like what Tyler Cowen calls “mood affiliation.” For example, Lee writes, “If you have a space for entertaining and are intentional about building up a web of friendships, you can be independent from the social pull of expensive cities. Build that network to the point of introducing people to jobs, and you can take the edge off, a little, of the pressure for credentialism.” I don’t get it. If you want a lifestyle that “makes it easy for your friends to come over and catch up on one another’s lives,” you might naturally want to buy a house with a large living room in a neighborhood where many of your friends live. Sure, this may be expensive, but who needs the fancy new car, the ski equipment you’ll never use, the home gym that deprives you of social connections, etc. But nooooo. Lee doesn’t want you to do that! He’s cool with the large living room (somehow that doesn’t count as “real estate”), but he’s offended that you might want to live in an expensive city. Learn some economics, dude! Expensive places are expensive because people want to live there! People want to live there for a reason. Yes, I know that’s a simplification, and there are lots of distortions of the market, but that’s still the basic idea. Similarly, wassup with this “pressure for credentialism”? I introduce people to jobs all the time. People often are hirable because they’ve learned useful skills: is that this horrible “credentialism” thing?

The big thing

The big thing, though, is that I agree with Lee and Tabarrok—goods are cheap, and it does seem wise to buy a lot of them (environmental considerations aside)—but I think they’re missing the point, for a few reasons.

First, basic economics. To the extent that goods are getting cheaper and services aren’t, it makes sense that the trend would be (a) to be consuming relatively more goods and relatively fewer services than before, but (b) to be spending a relatively greater percentage of your money on services. Just think about that one for a moment.

Second, we consume lots more material goods than in the past. Most obviously, we substitute fuel for manual labor, both as individuals and as a society, for example using machines instead of laborers to dig ditches.

Third is the stock vs. flow thing mentioned in the title to this post. As noted, I agree with Lee and Tabarrok that it makes sense in our modern society to consume tons and tons of goods—and we do! We buy gas for our cars, we buy vacuum cleaners and washing machines and dishwashers and computers and home stereo systems and smartphones and toys for the kids and a zillion other things. The “buy experiences not things” advice is not starting from zero: it’s advice starting from the baseline that we buy lots and lots of things. We already have closets and garages and attics full of “thoughtfully chosen material goods can enable new activities can enrich your life, extend your capabilities, and deepen your understanding of the world” (to use Lee’s words).

To put it another way, we’re already in the Lee/Tabarrok world in which we’re surrounded by material possessions with more arriving in the post every week. But, as these goods become cheaper and cheaper, it make sense that a greater proportion of our dollars will be spend on experiences. To try to make the flow of possessions come in even faster and more luxuriously, to the extent of abandoning your education, not going to the doctor, and not living in a desirable neighborhood—that just seems perverse, more of a sign of ideological commitment than anything else.

One more thing

In an important way, all of this discussion, including mine, is in a bubble. If you’re choosing between a fancy kitchen and home gym, a dream vacation complete with bullfight tickets, and a Columbia University education, you’re already doing well financially.

So far we’ve been talking about two ways to spend your money: on things or experiences. But there’s a third goal: security. People buy the house in the nice neighborhood not just for the big living room (that’s a material good that Lee approves of) or to have a shorter commute (an experience, so he’s not so thrilled about that one, I guess), but also to avoid crime and to allow their kids to go to good schools. These are security concerns. Similarly we want reliable health care not for material gain or because it’s a fun experience but because we want some measure of security (while recognizing that none of us will live forever). Similarly for education too: we want the experience of learning and the shiny things we can buy with our future salaries but also future job and career security. So it’s complicated, but I don’t know that either of the solutions on offer—buying more home gym equipment or buying more bullfight tickets—is the answer.

18 thoughts on “Buying things vs. buying experiences (vs. buying nothing at all): Again, we see a stock-versus-flow confusion

  1. Maybe I’m just dumb, but does education not allow you the knowledge to produce experiences from goods? Or is Tabarrok subscribing to the “education is just signalling and nothing else” nonsense?

    • Manuel:

      Tabarrok’s endorsing the argument, but it’s coming from Lee. My guess is that Lee is mostly just being contrarian. Consider this bit from the beginning of Lee’s post:

      The advocates of the new minimalism are, by and large, urban dwellers, tied to stratospheric real estate markets in prime locations. (Prime locations are, tellingly, never considered material “things” to be shunned.)

      That second sentence indicates to me that Lee hasn’t thought through his own argument. The way it’s written implies that Lee does think that prime locations should be considered as “material things”—but, in that case, why is he so down on them? He points out that a “downtown studio” is small, but a car is even smaller! I think that when he’s dissing education or promoting hunting, it’s a culture war thing, what Cowen would call “mood affiliation.”

      To me, a more sensible and coherent approach is more economics-centered: Start by looking at the goods and services that people are willing to spend their time and money on, and from there you can get a first guess about their priorities and goals. Sometimes we can say that people are making bad decisions, whether that be impulsive car purchases or disappointing attempts at a dream vacation, or whatever, but let’s show some respect for the choices people make and understand where things go wrong.

      • > The advocates of the new minimalism are, by and large, urban dwellers

        Is this true? I am not nor have I ever been an urban dweller, and none of my non-urbane neighbors are advocating buying lots of stuff. That’s not to say they are advocating minimalism either, and of course one anecdote is just as bad as another, so I’m not making any real claims. My point is just that Lee is making a claim and I don’t see any reason to believe that it is true.

  2. It is lines of thought like this that make economics either worthless or worse. There are some underlying assumptions, none of which are clear. There are assumptions of rationality, stable preferences, substitutes vs complements, long term vs short term decisions (and time preferences), externalities, and what constitutes utility – none of these are simple nor universally agreed upon. So, the exercise of what a person “should” purchase as material goods get cheaper relative to experience goods, is fundamentally affected by all those things. But it is classic Tabarrok (and also Cowen, his co-conspirator) to endorse such provocative thoughts. The real question is whether pondering all these dimensions is a valuable exercise – for me, it is not – particularly because I think economists have little to contribute to meaningful thoughts on these questions.

    • Every time Tabarrok or Yglesias or their sphere of bloggers crawl their way into my attention I am filled with rage. There seems to be a demand for center-left cultural criticism that throws in some economics or technical jargon for its rhetorical heft without any economic or technical content. Taking this piece as an example, I find the thesis unobjectionable as cultural criticism. Durable goods are underrated, and can lead to new experiences. Sure.

      But what exactly is the point of this paragraph

      While I appreciate the Stoic-style appraisal of what really brings happiness, economically, this analysis seems precisely backward. It amounts to saying that in an age of industrialization and globalism, when material goods are cheaper than ever, we should avoid partaking of this abundance. Instead, we should consume services afflicted by Baumol’s cost disease, taking long vacations and getting expensive haircuts which are just as hard to produce as ever. . . .

      1. It’s orthogonal to the actual substantive argument
      2. It makes no economic sense, for the reasons that Andrew pointed out

      These people are center-left (by American standards) cultural critics, and that’s fine, but their unique selling point as bloggers seems to be the use of economics-style reasoning, meaning superficially inspired by the types of words that economists sometimes use rather than meaningfully quantitative, to make them seem more rational.

      • Somebody:

        I get what you’re saying, but:

        1. Tabarrok is center-right, not center-left.

        2. The paragraph you’re quoting is from Lee, not Tabarrok.

        3. I like when people blog because they have an opportunity to expand on their arguments. Even when I disagree with the blog, there’s something there to disagree with.

  3. I remember reading the MR / Harold Lee post months ago and thinking that it made no sense. Many of Lee’s arguments for buying “goods” are that these goods make experiences more enjoyable (kitchenware -> cooking, tools -> craftwork), so again, experiences are paramount. What, then, is Lee arguing against? That some people don’t realize that cooking can be pleasurable? That hobbies are fun? What could have been a fine essay restating the ancient wisdom that Doing Things is good for the soul is instead cast as some strange pseudo-economic argument.

    I like your “third reason” of security, Andrew. Though you probably don’t want this thread derailed by education, I think that a sense of security is a large part of why people spend a lot on higher education, despite having little interest in learning.

    • I think the fundamental issue is – why do you buy a good? Is it because it has some practical utility [e.g. cooks the healthy, nutritious food I eat, which adds to my health] or is it due to adding an experience [e.g. allows me the pleasure of cooking my own gruel and the feeling of independence and mastery]?

      In a large fraction of cases, the answer is that both are inextricably twined. I don’t really need to download the Whitney Houston 80s collection. Or buy that electric screwdriver. Getting both will arguably enhance my experiences in some way whilst doing those activities, and both [I think] will be classified as goods.

      So you buy [strictly] unnecessary goods because you will have satisfying experiences with them. Not to survive, but thrive. So it’s pointless to try to make the two [experience vs good] in some sort of dialectical opposition to one another when they are quite related. This is especially true quantitatively, when increases in one result in increases in the other [e.g. I buy stuff ↑ and increase my experiences ↑].

  4. “Goods vs experiences” has been discussed for decades, perhaps centuries (or millennia!), by hoi polloi and by academics; not just economists but also philosophers and anthropologists and others. There’s gotta be something worth thinking about, and worth discussing. But, as Andrew points out nicely here, when you try to pin anything down you find that it all gets very squishy and avoids pinning.

    [I’m going to go ahead and post this, even though, once I finished writing it, I realized I’m just rehashing points Andrew already made. You might want to just skip this comment, there’s not much new here.]

    Some experiences are just experiences — if I pay to see a movie, I leave at the end with nothing tangible that I didn’t have before. But few goods are _just_ goods. If I buy a pasta-maker and use it to make homemade pasta for dinners with my friends, have I paid for a material good or an experience? Well, both…but the motivating factor in buying the pasta-maker was the experiences that go with making pasta. If I buy a new shirt, I’m after the experiences I will have when I wear the shirt. It’s hard for me to think of any goods that don’t come with experiences attached, or at least that I don’t _expect_ to come with experiences attached when I buy them. (Many years ago, I bought a guitar, thinking I would want to learn to play a bit. It turns out I was not so interested in learning to play the guitar, so over the entire time I’ve owned it I don’t think I’ve used it for more than two hours total. Right now I don’t even know where it is. But of course I didn’t know that when I bought it; I thought I was buying an experience, but all I was buying was a good. I wouldn’t have bought it if I knew that). Everyone is trying to buy experiences.

    I think Andrew’s best point is the obvious one: when people recommend buying more experiences and fewer material goods, they are arguing that from the baseline of what most people are currently doing, which is to buy a lot of stuff. Moreover, that advice is not aimed at everyone in the world, including poor people in poor countries who are barely scraping by; it is aimed at the kind of people who are trying to decide whether to put their next $1000 into experiences or material goods. Great point!

    So, to summarize:
    1. When people buy material goods, they are usually really trying to buy the experiences implied by those goods. Everyone is after experiences.
    2. Any advice about whether to buy more goods or more experiences is implicitly assuming a baseline in which you are buying a lot of material goods already.

    • but the motivating factor in buying the pasta-maker was the experiences that go with making pasta

      What, really? Not, for example, in making the pasta exactly the way you want it, with the right texture, consistency and flavor [maybe I’m reaching on this one]. You might also have specific health concerns with various brands of pasta, and therefore opt to make your own. I mean, that’s the reason I would buy it. Screw my friends; if it was just for them, I’d buy whatever branded slop and they’d be eating it.

      I recognize you might say that the making of the pasta is still a personal “experience”, however that concern could be allayed by getting someone else to cook it [e.g. wife/husband, girlfriend/boyfriend, cat etc.]. With the person buying having no input into the cooking whatsoever [or not even being at the same location].

      I think discussions like this illustrate how few clear answers there are in the questions posed, without considering all the relevant factors in any given individuals case [I would agree this is probably impossible in practice]. Especially when the authors of papers start calling certain decisions “rational/irrational” based on a limited framework, I feel not enough caution is exercised in the conclusions.

  5. For many years I was preoccupied with tweaks to utility theory — behavioral econ stuff and strategies to restore true U-max. At some point I had an epiphany: utility theory, while it has heuristic value in a few specific contexts (like game theory), is not a good framework for thinking about well-being. In fact, *nothing* in the training of economists gives them any insight into well-being beyond what the average well-educated person should have. If you want to know more about particular aspects of well-being, talk to psychologists, philosophers, health practitioners, maybe anthropologists. Economists are trained in working through the ramifications of a very narrow sort of consistency, and nothing more.

    So I wouldn’t expect much insight into these questions from MR, although, like AG, I’m surprised they confuse average and marginal benefits, something economists should be good at distinguishing.

    • Peter:

      I don’t think of Tabarrok, or me, as having any particular insights regarding well-being. What Tabarrok offers, and what I offer, is a blog that allows this sort of topic to be discussed. So when I say I disagree with Tabarrok here, the point is not to air this particular disagreement—there’s no particular reason why he and I should agree, or why outsiders should follow his lead or my lead—; rather, I’m using this as an excuse to have a discussion of these interesting issues.

      Ideally I guess this discussion would be in the pages of some general-interest publication such as the New Yorker or some academic journal or quasi-academic journal of the sort that used to exist (Partisan Review, etc.), but blogging is pretty much all we’ve got right now. In the sense that, to turn this into an article for a magazine or journal would take a lot of work that it seems none of us currently have the patience for.

      I would kinda like to see Tabarrok’s and Lee’s response to my above post . . . we’ll see what happens.

      • I didn’t mean to imply that economists or political scientists (or statisticians or whoever) have no business blogging about well-being! Just that economists often *do* think they have something special to add because of their grounding in welfare theory, and I’ve come to think otherwise. But yes, it’s fine for everyone to have a go at it.

        • Sure, anyone should be able to blog about well-being, even economists. But the idea that I “should” buy things rather than experiences because their relative price has declined offers so little meaningful insight as to be worthless. Not only is it generally incorrect (or insufficiently grounded in any adequately supported theory), but it dangerously rules out a variety of preferences and production relationships that are at least plausible (if not superior to the particular utility approach that would support Lee’s simple conclusion). I do wonder what contribution Lee/Tabarrok are making to our understanding of human desires and their satisfaction.

    • +1000

      It is amazing that people can believe they are measuring a quantity about individuals by looking at aggregate behaviour when on the individual level, they know it can’t be measured. Yet, this powerful idea of utility theory has had such a grip on academics and policy makers. I think its like religion. So many academics spent so much time studying some and understanding it, admitting it doesn’t make that much sense is too risky to their psyche.

  6. Yeah I find musings by economists or choice theorists on these matters pretty worthless [even if the posts they make are fascinating topics by themselves and it’s always lovely to have a discussion about such issues with people from varying academic backgrounds all thrown into the mix, though I’m not an academic myself at all].

    The issue, I think, is something alluded to in an above comment. The aggregate [average] vs the individual. If I spend less on healthcare, is it irrational given Andrew’s argument above [that we will be spending a greater portion of our income on services such as these]? Or could it be because I have tons of knowledge about biology, pharmacology, physiology etc. and therefore have my own regimen of keeping healthy without seeing a “doctor” whom I feel I know more than anyway? If I am producing better health outcomes [say measured in very specific ways like weight, BP, pulse rate, blood-sugar, VO2 max etc.] than I would with “healthcare experts”, then I am getting a better experience [in at least one way] than I would by using services. And of course this goes across the board for haircuts [cut own hair], fixing your own car [vs mechanics] etc.

    No doubt an economist assessing me as part of a group would note that I’m basically a stubborn %^&* when it comes to using services – employing a much more limited range, and therefore I’m being “irrational” [if the theory was I should be spending more on these items proportionally]. However it’s clear the decisions I am making are based on what I know and my capabilities also – there is no point piling me in with Joe Bloggs when I am claiming [and can be measurably shown] I can do better.

    And I have no idea how to classify “education” in this sense. Is it truly an “experience”? I don’t have a tremendous amount of interest or get a lot of joy in specific things I study, but I study them to gain knowledge and abilities in them, for what I would call “useful” purposes. Could it then be called a “good”? But shouldn’t goods also be things that can [at least theoretically] break apart? I don’t see how that applies to my [developed] greater understanding of interquartile ranges.

    You could say that it’s ultimately an experience, but just a bad one, in the sense of being arduous and somewhat boring. But why would I pay for a “bad experience”? Surely to gain the knowledge and skills, not the sensory experience of having learned the thing! Guess I’m just tying myself in knots over this one.

    Ultimately I don’t think you can really examine any given person’s choice and decide whether it was rational without knowing all the inputs going into it, which will therefore include their personal experiences and knowledge. They may make decisions that are according to your [restrictive] model rather daft, however they could have good reasons for choosing as they do.

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