rationalskepticism.org

Jakov wrote:

Chrisw wrote:I don't see how it [elasticity of demand] needs to have anything to do with waste. It may be that people who couldn't afford overcoats can now afford them. Or they will be able to afford better ones. And if overcoats get cheaper many people will spend the money saved on other things that they couldn't afford previously.

I wonder what they did before overcoats were cheap, maybe they toiled the land naked?

Depending on the climate or how poor you are you might manage without an overcoat. I have three, different weights and sizes depending on the weather. If they were more expensive or I had less money I might make do with two or just one. Back when I was a student I only owned one coat. It wasn't really warm enough for the middle of winter and it was too warm for spring and autumn but I made do, because I had other things to spend my limited money on that were more important to me. But clearly, if the price of coats fell, there was some price level at which I would have bought another one.

But it's not about overcoats. The writer just picked that at random to illustrate a more general point - products will sell more if they are cheaper. For example, you will have noticed that rich people own much more stuff than poor people. Give poorer people more money and they will buy more stuff. Or (equivalently) make suff cheaper they will buy more of it (you have effectively made them richer). This can mean buying more of the same thing or buying things that thay couldn't previously afford at all. Is that "waste"? Only when you get the the level that you have pretty much everything you want and you are spending money just for the hell of it, but how many of us are in that fortunate position?

I'm not saying there is no wasteful spending but it is a misunderstanding of the concept of elasticity of demand to assume that it is driven entirely or even mainly by wasteful expenditure.

People still had clothes, but they took much better care of them because they were very expensive. If they ripped they would mend them, once clothes became cheap torn clothing would be thrown in the bin.

That may be true but it's not very general. I don't scrap my car if I get a dent in it, I don't throw out my computer if it gets a virus. And this idea isn't applicable to consumables or services of any sort.

Besides, clothes used to be designed to be durable and repairable. This in turn made them more expensive, which limited the amount you could own and constrained the styles, materials and colours. People don't just own clothes for warmth, they care about how they look and being fashionable. Compared to fifty years ago people own more cheaper clothes in many different styles and colours and they don't wear them as much before throwing them away. That is a change but I wouldn't simply characterise it as "waste", except maybe from an ecological perspective. From an economic point of view the clothing industry is satisfying demands of it's consumers. You can still buy expensive, durable clothes if you want to, they just aren't as popular.

Jakov wrote:

Chrisw wrote:A better question might be, why wouldn't the saved $50 (achieved by reducing labour costs) create the same amount of labour if spent on different products? What do you have to assume for this not to happen?

That's actually the same question but rephrased in a way to make the burden of proof fall onto me.

I'm not asking anyone to prove anything, just trying to understand your objection here.

A $50 good or service doesn't always require the same amount of labour. If we spend it at a restaurant most of it will go to labour costs because restaurant work is very labour intensive. But if we spend it buying oil, most of the costs will go to the actual cost of oil, labour costs being a smaller proporton.

But there is nothing special about this $50, it's just one instance of the money that consumers save by purchasing goods that have been made cheaper due to automation. So wouldn't we have to assume that this money is spent by those consumers in the same way that they spend the rest of their money? We have no reason to assume that it will tend to be spent on goods or services whose production is less labour-intensive than normal, have we?