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I'm glad to see that this book review is by Cass R. Sunstein, who has devoted much of his research to related issues. Human psychology works in ways not complet

I'm glad to see that this book review is by Cass R. Sunstein, who has devoted much of his research to related issues. Human psychology works in ways not completely anticipated by classical liberal economists like Adam Smith (although Smith deserves more credit than he gets for a deep understanding of human psychology). One interesting paragraph in the review tells the tale: "To support this claim, Akerlof and Shiller point to an uncanny prediction by John Maynard Keynes in 1930. Keynes expected that by 2030, the standard of living would be eight times higher. We are on track to get in that vicinity. At the same time, Keynes made a profound mistake. He predicted that the workweek would plummet to fifteen hours and that people would struggle not with financial problems, but with a surfeit of leisure. That isn’t going to happen. What Keynes missed is that free markets generate new desires. In Akerlof and Shiller’s words, markets 'do not just produce what we really want; they also produce what we want according to our monkey-on-the-shoulder tastes.'" In other words, producers can act jointly more effectively than consumers can in exploiting weaknesses of human psychology. This seems to be a fair statement with a lot of empirical support. I think the reviewer does a good job at the end of his review of critiquing the book's view of behavioral economics by asking for more specificity about which mechanisms most lead to "phishing" (dishonest marketplace behavior to fool consumers). To say that free markets take advantage of consumers does not guarantee that making markets less free is any better for consumers, unless some new form of regulation is based on careful research and an affirmation of commonly held human values.

afarrell 11y ago
> What Keynes missed is that free markets generate new desires I've been curious if, as a result of the attitude toward aggregate demand that grew as a response to the Great Depression and Keynes work, we have deliberately designed our society to try to generate more and more desires.
- notahacker 11y ago
  Most of the driving of new desires is done by individual companies in the private sector though. Apple aren't trying to stimulate aggregate demand each time they release a new phone, they're trying to increase their future profits, just like every other company before them. Keynesianism ensures these companies can borrow more cheaply in an economic downturn, as can the less-likely-to-lose-their-job consumers. But it's lubricating the process of creating new markets rather than powering it.
deleted 11y ago
[deleted]
jessriedel 11y ago
> "What Keynes missed is that free markets generate new desires. In Akerlof and Shiller’s words, markets 'do not just produce what we really want; they also produce what we want according to our monkey-on-the-shoulder tastes." In other words, producers can act jointly more effectively than consumers can in exploiting weaknesses of human psychology. This seems to be a fair statement with a lot of empirical support. An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. But what is the evidence that free markets generate these desires rather than merely fulfill them? Yes of course marketing will have a hand in determining which goods are high-status, but I don't know much reason to believe that people would stop consuming for status in the absence of marketing. (To wit, there was plenty of conspicuous consumption historically by the rich before there was any sort of marketing industry.) They would just consume a different arbitrary basket of good.
- kauffj 11y ago
  You are spot on. It is all about relative status and that was Keynes' big mistake (Russell makes same mistake). Relative status is also the hidden driver behind most of income inequality debate.
- tomp 11y ago
  > An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. I have a different explanation: that progress is uneven. (1) There has been amazing progress with electronics, where computers have increased our productivity practically unmeasurably, and in manufacturing, where new technologies and materials have made products better and cheaper. (2) On the other hand, in areas like human services (e.g. medicine, law), housing (the price of land isn't falling with technological progress), and transport (e.g. bus drivers, garbage collectors, everyone who needs to drive around) there has been very little progress from free markets, rising GDP, or technological advancement. Since people need things in (2), they need to work. And since (1) affects most of us (rising productivity => falling wages), we need to work more and more to afford (2).
bufordsharkley 11y ago
I think it's certainly true that human desire for more will never be sated, but I think this overlooks the fact that there are also finite resources (like land) that won't grow to match productivity, and thus a substantial part of our productivity is captured as rent. And this isn't something that we can grow our way out of...
- oldmanjay 11y ago
  People are very definitely working to increase the available land by getting us to other planets. That means we can grow our way out of it, although it remains to be seen if we actually will.
- AnimalMuppet 11y ago
  But productivity of land can grow. Consider the Green Revolution, for instance.
  - bufordsharkley 11y ago
    Yes, productivity of land can grow (in all sorts of ways), but if the ownership of the land is unequal, all this does is increase the rent on the land for those lucky enough to have it...
    - AnimalMuppet 11y ago
      Not so fast. If I double the productivity of my farmland, I increase the rent on my land (but typically I have to invest in it to get that, so it's not just rent in the economic sense of the word). But if everybody doubles the productivity of their farmland, the price of wheat falls through the floor, and the landowner may be even worse off than before, while consumers get a windfall.

afarrell 11y ago

> What Keynes missed is that free markets generate new desires I've been curious if, as a result of the attitude toward aggregate demand that grew as a response to the Great Depression and Keynes work, we have deliberately designed our society to try to generate more and more desires.

notahacker 11y ago
Most of the driving of new desires is done by individual companies in the private sector though. Apple aren't trying to stimulate aggregate demand each time they release a new phone, they're trying to increase their future profits, just like every other company before them. Keynesianism ensures these companies can borrow more cheaply in an economic downturn, as can the less-likely-to-lose-their-job consumers. But it's lubricating the process of creating new markets rather than powering it.

deleted 11y ago

[deleted]

jessriedel 11y ago

> "What Keynes missed is that free markets generate new desires. In Akerlof and Shiller’s words, markets 'do not just produce what we really want; they also produce what we want according to our monkey-on-the-shoulder tastes." In other words, producers can act jointly more effectively than consumers can in exploiting weaknesses of human psychology. This seems to be a fair statement with a lot of empirical support. An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. But what is the evidence that free markets generate these desires rather than merely fulfill them? Yes of course marketing will have a hand in determining which goods are high-status, but I don't know much reason to believe that people would stop consuming for status in the absence of marketing. (To wit, there was plenty of conspicuous consumption historically by the rich before there was any sort of marketing industry.) They would just consume a different arbitrary basket of good.

kauffj 11y ago
You are spot on. It is all about relative status and that was Keynes' big mistake (Russell makes same mistake). Relative status is also the hidden driver behind most of income inequality debate.
tomp 11y ago
> An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. I have a different explanation: that progress is uneven. (1) There has been amazing progress with electronics, where computers have increased our productivity practically unmeasurably, and in manufacturing, where new technologies and materials have made products better and cheaper. (2) On the other hand, in areas like human services (e.g. medicine, law), housing (the price of land isn't falling with technological progress), and transport (e.g. bus drivers, garbage collectors, everyone who needs to drive around) there has been very little progress from free markets, rising GDP, or technological advancement. Since people need things in (2), they need to work. And since (1) affects most of us (rising productivity => falling wages), we need to work more and more to afford (2).

bufordsharkley 11y ago

I think it's certainly true that human desire for more will never be sated, but I think this overlooks the fact that there are also finite resources (like land) that won't grow to match productivity, and thus a substantial part of our productivity is captured as rent. And this isn't something that we can grow our way out of...

oldmanjay 11y ago
People are very definitely working to increase the available land by getting us to other planets. That means we can grow our way out of it, although it remains to be seen if we actually will.
AnimalMuppet 11y ago
But productivity of land can grow. Consider the Green Revolution, for instance.
- bufordsharkley 11y ago
  Yes, productivity of land can grow (in all sorts of ways), but if the ownership of the land is unequal, all this does is increase the rent on the land for those lucky enough to have it...
  - AnimalMuppet 11y ago
    Not so fast. If I double the productivity of my farmland, I increase the rent on my land (but typically I have to invest in it to get that, so it's not just rent in the economic sense of the word). But if everybody doubles the productivity of their farmland, the price of wheat falls through the floor, and the landowner may be even worse off than before, while consumers get a windfall.