Lifestyles of the rich and famous

In Posts on May 9, 2011 at 3:11 pm

Diminishing marginal utility is the declining power of a good to satisfy us as we consume more of it. It is what drives us to make tradeoffs between goods; as such, it’s one of the most basic principles in classical economics, without which the notion of demand, as we’re used to thinking of it, would make little sense. It’s also, I think, one of the discipline’s most intuitive ideas: I’ve actually felt diminishing marginal utility in the course of a single helping of macaroni and cheese. (It seems to be most pronounced with heavy, cream-based foods eaten too quickly.)

Unless I’m mistaken, diminishing marginal utility also seems to automatically indict high levels of personal wealth as an inefficient allocation of resources, at least in a society that also has impoverished people. Shouldn’t economists be tearing their hair out when they hear that a wealthy woman owns 50 pairs of shoes? Utility is subjective, sure, but it’s hard to argue that anyone enjoys her hundredth flat as much as someone else might enjoy the ability to be properly clothed in the first place. Mainstream economists have rarely been shy about demanding efficiency over other niceties, such as minimum wages, social programs, or famine-ending fertilizer subsidies. Shouldn’t the logic of efficiency drive them to the extremes of Marxist egalitarianism?

To be clear, I think rich people are vitally important to society. For example, many of the philosophical and scientific innovations that made the modern world possible were developed by rich Europeans, or by people with rich European patrons. If Europe had chosen to sacrifice the privilege and leisure of its rich for a slightly less immiserated general population, we might still be in the late Middle Ages. I also don’t believe that massive wealth redistribution programs work, at least not when practiced with the zeal that some sort of reverse World Bank would probably bring to the job. Rather, I mention this example to suggest that the direction taken by mainstream economics might often reflect the shared biases and bourgeois aspirations of its creators—and that the maths underlying the field might be made to match almost any worldview.


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