Aaaaaargh!

Economic cretin alert!

A handbag? For £500? Get real Whether it\’s our own crazy consumerism or the billions spent on bail-outs, the world is still in denial about the limits of growth.

Jeepers. Economic growth is defined as the value added in the economy. A £500 handbag adds more value than a £35 one (crazy though that thought might seem it is in fact the way that we measure economic growth).

Since when did it become acceptable to pay £500 for a handbag? This is now the going rate for a must-have bag, I am told by my younger colleagues. That is way over the top for me. I recently demurred at paying £35 for one from a market near work.

Thus if we all buy £500 ones we get more exonomic growth than if we all buy £35 ones….and we don\’t increase the resource use either.

Yes, I know, this all seems rather odd and I\’m not trying to claim that handbags are the centrepiece of a modern economy. Just that the limit to economic growth is the limit of the value we can add, not a limit imposed by the resources available.

19 comments on “Aaaaaargh!

  1. Is this strictly true? If you are arguing that no more resources go into a £500 handbag than a £35 one, i.e. no more labout time, no more expensive, no more materials, no more branding etc, then the additional cost looks more like inflation than value-added, doesn’t it? I guess your point is that it’s something intangible such as ‘must-have-ness’ or ‘exclusivity’? But are these concepts not to some extent fixed, i.e. if one bag is now a must-have, another isn’t, and it will subsequently fall in value?

  2. Matthew, creating ‘must-have-ness’ or ‘exclusivity’ also creates jobs; in marketing, advertising, communications, strategy, sales, etc. These jobs are by the way often much more qualified (and well paid) than manufacturing jobs.

  3. But you’d get 14 handbags instead of one, for the same money, so, by buying the expensive one, you get less utility, but still use the same resources (assuming that the price is reflecting true value rather than vanity bonus).

    The argument that it’s obscene to buy such a handbag is just way beside the point — those people should get out more and check the prices of things in other places in the world. Because you’d quickly find that even the paltry dole handout is enough to feed an entire village for a week (which in turn is the fault of the insane tax take here). But would they argue that it’s obscene to pay dole (or tax)?

  4. I’m not sure that’s right Emil. Tim said no more resources were used in its creation, so I don’t think this is an example of marketing, advertising, communications etc, as they are all real resources.

  5. A £500 handbag adds more value than a £35 one

    Only to fucking idiots. And anyone who spends that much on a handbag should have the rest of their money taken away.

    Yes, a £500 handbag adds more to GDP than a £35 one. But GDP isn’t a measure of wealth, it’s a measure of economic activity.

  6. Surely the value of something is in the opinion of the buyer? The article is indeed right that we have many misplaced priorities and therefor missallocated resources- though I’m extremely doubtful about the re-allocation advocated. The various state interventions all distort priorities in one way or another, so they all hinder long term recovery (though of course they may well ease short term pain). As to the true value of handbags we can safely let the market decide.

  7. Cinnamon, I don’t think that’s right. In terms of the neoclassical model at least, the judge of utility is the economic agent who is making the decision of whether to buy 14 handbags versus a single 500 pound handbag.

  8. Someone who buys a cheap handbag (assuming that it’s as serviceable as the dear one) has enough money left to then buy other stuff, so no loss to the economy in the end, in fact, variance is smoothed, so ever better, no?

    And the punter gets more handbag’n’stuff for his £500 if he chooses wisely, so maybe this economic growth thing is misnamed, it should perhaps be called purchase power shrinkage?

  9. Pingback: Saturday’s First Class posts | Letters From A Tory

  10. If Timmy’s argument were true enormous inflationary increases in house prices would have led to economic utopia.Fact is if you pay way over for one thing you decrease your ability to pay for others and spread the wealth .This is how we ended up in a country with overpriced houses and no industry.

  11. “Only to fucking idiots. And anyone who spends that much on a handbag should have the rest of their money taken away.”

    What business is it of yours or anyone elses if someone chooses to spend 500 quid on a handbag (or indeed anything else). You are proposing theft of people’s property if they dare to spend it how they wish rather than in a manner you approve. How about you spend your own 500 quid on things you like and leave other people to spend THEIR money on things they like.

  12. GDP isn’t a “measure” of anything, whether wealth or economic activity. At very best, it’s a very rough indicator. At worst, it’s simply a form of nonsense.

    Market prices are data useful for the individual members in a market society for calculation of their prospective intended actions; they are the only useful data for that purpose but, beyond such purpose, provide little to which the term “meaningful” could be applied.

    Ponder. In 1955, the eight states of the U.S. that border the Great Lakes (NY, PA, OH, IL, IN, MI,
    WI, MN) produced 36 to 37% of the GDP of the entire world! What value was that information either at the time, subsequently,…or now?

  13. Some aspects of a product are tangible, and some are not. This is because of human nature.

    One intangible is fashion. This is a tide in the affairs of, mainly, women. It governs restlessness, and explains why your teenage daughter doesn’t look like Joyce Grenfell today, and why she might do so next week, and why you will be dismayed in either case.

    Cachet, that is important too.

    It’s about not buying your fragrances in the same shop where they sell turnips and incontinence pants.

  14. In 1955, the eight states of the U.S. that border the Great Lakes (NY, PA, OH, IL, IN, MI,
    WI, MN) produced 36 to 37% of the GDP of the entire world! What value was that information either at the time, subsequently,…or now?

    It was a bloody good indicator that the West was going to win the Cold War, for a start (while asymmetric warfare is possible in a ‘hot’ war, in an arms race the country which is 10x richer is always going to be the winner. The US could afford to be a consumerist society *and* spend trillions on weapons; the USSR couldn’t even afford to spend trillions on weapons despite allocating a huge proportion of its resources to the military). Also a reminder of why the North won the Civil War.

  15. Matthew:

    I’m slow, I’d suppose. Just can’t figure out how one could equate what I’d written with the conclusion you suggest. I would guess such figures are normally adjusted for any known differences in the currencies in which they might have been expressed.

    I’d guess, rather, that ALL currencies were overvalued in those days (in terms of gold) and that US currency was the least overvalued in such terms.

  16. Matthew:

    Yes, you’re correct–the actual figure (from memory; I remember strange things and this one impressed me). The figure was 51%.

    But the rest of your argument seems rather convoluted to me. And to what end? Merely, it would seem to detract as much as possible from any contemptible admiration for the enormous productivity of the US. It would, generally, tend to level the conditions prevailing in diiferent places, let’s say, for instance, some primitive backwater on the Amazon and New York City because there happened to be a lemon tree in the tropical town from which villagers could get a lemon now and then–for free!–and the fact that, in NYC, people paid 25 cents apiece for lemons.

    Or that, in the same town, the sheriff sported a revolver which, on the antique firearms market of the developed world, might fetch several thousands of dollars.

    Or, to cite an actual example, in 1980 I bought a
    12-foot aluminum rowboat fr $250 (new, retail from a dealer, on a $50-off “deal”) we took with us to Venezuela. There, we were able to trade it “even-steven” for a 9-meter (almost 30 feet)
    “curiare,” a hand-crafted dugout capable of carrying 5 of us and nearly a ton of freight (and which required well over a month to produce.

    You might just as well have remarked that it was more pleasant to live on a tropical isle than in Chicago or Detroit and “adjusted” the plain, reasonably-informative figures to reflect the dollar value of the island’s climate at the rate a tourist from the Windy City might pay for a week’s vacation (and impute it to the “income”
    or “productivity” figures of the island’s population. Not quite the same, of course–but very similar.

    If one would go back to 1955, the “official” valuation of the US $ was expressed as 1/35 of an ounce of gold. For the $ to be “overvalued” in terms of other currencies, you’d have to find one or more (of those other currencies) whose official price of gold was LOWER than $35 and I very much doubt whether that would have been the case. A case could be made that, at that time, all currencies were overvalued but, even then, the $ would have been less overvalued than most others; the inflation that would, ultimately, drive the $ lower (and the price of gold higher) had not yet proceeded so far. Since FDR’s revaluation of the ’30s, the $ was not nearly as sound as previously–but was still about as sound as anything out there, with the exception of a very few.

    My opening remarks were specifically directed to the inanity of using such concepts as GDP to convey any more than the most general idea of productivity or prosperity. They are useful to market participants in planning action of the impending moment or in specific portions of the future. Aggregated, they mean very little; and, contrary to the opinion of many, are quite useless to “planning” on the part of authority.
    Whether understood or not, this is at the heart of the socialist “calculation problem” which proved the undoing of the USSR almost precisely as predicted by Mises in 1920. Mainstream economists have been almost equally blindered in their mathematical prepossessions during the same period of time. (And would have everywhere produced the same result but for the fact that, in those places, the productive assets were still, in the main, in the hands of private entrepreneurs–people for whom the market prices could still convey real information for the rational allocation of resources.)

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