The very smart Robert Schiller:
In 1958, the economist John Kenneth Galbraith wrote the best-selling book The Affluent Society , in which he argued that the advanced world as typified by the United States had by that year finally emerged from “grim scarcity,” when dire necessity dictated our lives, to a “world of affluence.” He wrote: “So great has been the change [in standards of living] that many of the desires of the individual are no longer even evident to him. They become so only as they are synthesized, elaborated and nurtured by advertising and salesmanship, and these, in turn, have become among our most important and talented professions.”
But real per capita GDP in the US is now three times higher than it was in 1958. What have people been spending all that extra money on? Is it all dictated by advertisers and salesmen who are inventing needs?
According to my calculations comparing 1958 and 2005 data from the US Department of Commerce, Americans spent 27% of the huge increase in income between 1958 and 2005 on medical care, 23% on their homes, 12% on transportation, 10% on recreation, and 9% on personal business activities.
The kinds of things that advertisers and salesmen typically promote were relatively unimportant. Food got only 8% of the extra money, clothing only 3%, and personal care 1%. Unfortunately, idealistic activities also received little of the extra money: 3% for welfare and religious activities, and a similar share for education.
That's a weird conception of advertising. Pharmaceutical advertising, for instance, is a pretty damn big sector, and the drug companies spend 250% as much on it as they do on research and development. Car and travel advertising aren't minor expenditures either. That's not to say Galbraith was right on where the increases would go, or even that the advertised goods are "bad," but it certainly wasn't clear in 1958 that Americans were crying out for Hummer SUVs, DVDs in their cars, the widespread use of antidepressants and betablockers, and granite countertops. Obviously, some people do need big cars, and many more need medicine. But very few need as much medicine as they get, and even fewer need the massive autos that they have. The difference between what we need and what we want may make us happy, or have a social utility, or whatever. But just because we've judged the product types "necessary," doesn't mean our desires aren't driven, in some degree, by advertising.
