On the verge of a coming collapse

A modern phenomenon is the increasing cost and sophistication of events and mundane products. For example, before the existence of the now ubiquitous children’s “buffets” in Brazil (places where parents celebrate the birthday of their kids), birthday parties used to be a simple combination of best friends, a cake and homemade sweets. I do not remember at what time the “buffets” have become so prevalent in Brazilian cities. Maybe from fifteen years on. What I do know is that in affluent neighborhoods of the city of São Paulo a birthday party hosted at such place, lasting around 4 hours, easily exceeds the cost of R$ 10,000 (US$ 4,000) – a huge figure by Brazilian standards (compare it to the average of £ 300 in UK…). But there is more. Over the last years, new features have been progressively added to the product “children’s party”, in addition to traditional party bags, lunch for the guests (parents and children), indoor playground and specialty sweets. Nowadays a typical middle class party has professional photographers to capture the joyful moments of the children, and it is not rare to see professional magicians, caricaturists, face painters, young men in superhero costumes and other extravagances.

Another event that has incredibly sophisticated in recent decades is wedding. Brides hire companies to fly drones in order to film their arrival at the church. Best men take dance lessons to recreate classic movie scenes. Invitations, clothing, Bride’s Day, Groom’s Day, wedding bouquet, honeymoon trip, hall decoration, DJ, cake … the list is almost endless and always growing in sophistication. Depending on the budget, a wedding party easily reaches the figure of hundreds of thousands of dollars (again, huge figures – typical middle class weddings probably hover around US$ 20,000 – 30,000 in Brazil).

Two more examples. Cars models have increasingly shorter lifespans. Barely a new “generation” is out and three years later, it is over. Some brands have been launching next year’s models at the beginning of the previous year. Carmakers need to get ahead, innovating in design and in the emotional attributes of the vehicle. On the other hand, it is still common in the Brazilian market a greater focus on the beauty of the car while safety features common in developed countries are neglected. It is a country where cars are very expensive. Their price tags are more than twice the American figures.

Consider also the expansion of coffee machines based on pods or capsules, a product that is now part of the middle class kitchen. In Brazil, the prediction is that coffee for such machines will represent in the coming years almost 50% of the national coffee market. The problem is that we are paying for a kilogram of coffee at least R$ 350.00 (US$ 125.00). Of course, the price is a reflection of the convenience, embedded technology, and a fat margin. But this is not the point.

What is striking is that the sophistication of consumption habits over the last decades and the consequent rise on the costs of products and services seems to be a general trend.

The problem is that not only do all these consumer experiences have a higher cost (which implies a greater commitment of current income), but also the fact that they create serious externalities which we pass on to society and future generations. Especially the increasing use of finite resources of the planet, with dire potential consequences for global climate.

Some academic authors claim that the materialism of our society is a reflection of unmet psychological needs and low self-esteem. I think this is an insufficient explanation. Economist Robert Frank (Cornell University) claims that what is at stake is a Darwinian competition for status in society, which causes the highest social classes to spend increasingly more resources to keep up with the Joneses. Moreover, their consumption pattern trickles down to the lower classes, creating a feedback loop – the need to consume even more. On the other hand, Harvard psychologist Daniel Gilbert believes that consumer behavior is a reflection of some beliefs (such as that consuming makes us happier) that find a fertile soil in the consumer society which, in turn, depends on these beliefs to exist. In turn, University of Toronto professor Keith Stanovich points out that the consumer market is structured in modern societies to exploit basic human needs and innate aspects of our mental structure, such as the hyperbolic temporal discount that explains our preference for overspending.

Status-seeking and memetic influences surely are elements of the equation. Another element seems to be comfort. Products and services that simplify our lives, requiring less effort and with increasing quality levels, are very hard to resist.

From the individual point of view, the incentives to enter this spending spree are quite large. Social pressure – think about being the sole parent who does not celebrate parties at buffets. Market conditions that hide the actual interest rates in “free interest” installments to finance that brand new and more spacious family car. Sales that make new appliances seem irresistible.

The fact is that we are in a consumption spiral that increasingly demands that we work more (to have more “disposable” income) and spend less time with our families. We replicate patterns of consumption leading to less savings and fewer resources in the future – a critical condition considering that we are going to live longer lives. Human nature puts us in a position to seek more and more, because the judgments on the satisfaction with our lives are always relative. We measure our lives against our peers. Consequently, the spiral keeps spinning. As one recent Brazilian ad spelled out: we change your furniture as we change our clothes.

The variables – and their interaction – are complex and play out at a societal level. The world will not change if you decide to stay out of the rats race. It will not change if a group of “enlightened” politicians starts to dictate how we should behave. I do not point out these features of modern society to propose a socialist solution or any of the Bolivarian excrescences that unfortunately still populate Latin American minds. The change requires a clever use of market structure (and its rules) and a new thinking on population and economic growth.

Some proposals look promising, as the idea of Robert Frank of taxing consumption rather than income. I do not know if the proposal Frank is feasible considering its possible redistributive effects in terms of investment and considering the entrenched belief that economic growth is the ultimate goal of public managers. Another way to tackle the problem is framing it using a systems dynamics approach. A recent text written by the MIT professor John Sterman (here) points out to the impossibility of conciliating the current growth of human population (and its patterns of consumption) with the finite resources of the planet. It is essential to change how politicians see the problem. Given the systemic effects of ever-increasing consumption and the impossibility of technology to solve the problem, public decision makers have to change their mental models (including the downplay of GDP increases as the ultimate measure of progress) to avoid total collapse.

As in any wicked social problem, the solution will likely involve multiple and systemic approaches – but so far there seems to be only a sketch of them.