Guest Post: “Why Everyone Younger Than You is Spoiled” Part II

Following on last week’s excellent guest post, Jeff Lundy (Sociology PhD Candidate at UCSD and visiting scholar at Michigan) completes his discussion of the accounting errors that may partially explain why older people think the kids these days are so profligate.

Why Everyone Younger Than You is Spoiled: the Foibles of Amateur Accounting Part II
By Jeff Lundy

Welcome to Part II of my post on why everyone younger than you is spoiled. Last week, I covered two “accounting errors” that older generations make when taking stock of younger people’s lives. In particular, I argued that older generations don’t adequately account for inflation or substitution, and that this leads them to overestimate how “well off” young people live. This week I’ll cover two more of these amateur accounting mistakes that tend to “overinflate” our image of current living standards, relative to the past.

Diffusion

Like substitution, diffusion is a phenomenon most people know about, but haven’t really thought through. In terms of consumer goods, diffusion refers to the process by which innovative goods start out as expensive, and then gradually become cheaper, as they concurrently also become more widespread in the population.

For instance, circa 1925:

40% of Americans had a telephone in their home,

50% had an automobile,

65% had an electric light.

By 1980:

90% of American households had a telephone,

85% had a car,

100% (essentially) had an electric light.

As the number of people who had these objects increased, the inflation-adjusted price of these technologies decreased. This was due to a number of factors. The more people that owned telephones, the more telephone network providers achieved economies of scale (and were better subsidized by the government). The same goes for the cost of building power lines for the electric light, as well as the cost of manufacturing for the automobile (although, as “feature creep” set in, the inflation-adjusted cost of cars has now gone up since the 1920’s, as we get cars that – in theory – have more utility than a Model T).

Why is Diffusion Accounting a Problem for Older Generations?

Diffusion creates a problem for older generations because they seem incapable of accounting for its effect when comparing their youth to their children’s youth.

I’m sure most young people have heard the plaintive cry of their elders, saying: “Man, I would have killed for a computer like yours when I was a kid.” To which, if you are like me, you want to reply: “Of course you would have, but so would the U.S. Military and a whole host of other people who would have been amazed by my incredibly futuristic technology.”

You simply cannot compare one’s experience of having a computer today, with a boomer’s experience of having that same computer back in the 1960’s. And yet, it seems an irresistible temptation for older generations to think of how special it would have been to own a modern computer back in the 1960’s, rather than in terms of how “special” it is own that computer today. And from this mistake it’s not a long leap to see why they believe our generation – “with all the things we have that they didn’t” – should be eternally grateful for what we have.

To take a moment to pause, this sentiment is partially true – we shouldn’t be such a consumerist society that forgets how much has been given to us over recent generations. However, I do not think that this anti-consumerist sentiment is what motivates most boomers’ gripes.

For instance, if you were to tell your mother that she should regard indoor plumbing as a special treat, do you think she would agree with you? I don’t know about your Mom, but mine would not. And yet, by the same logic that is often applied to youth today, a middle-aged Mom should be super-grateful for a lifestyle that is technologically improved above her mother’s (e.g. my grandmother did not have indoor plumbing as a youth). I’m not sure that many people in older generations see this logical connection between taken-for-granted improvements in their own lives to taken-for-granted improvements in their children’s lives.

Furthermore, you can also see how not accounting for diffusion would work hand-in-hand with not accounting for inflation. All the new “marvels” we youth possess are much cheaper for us to purchase then they would have been had our parents tried to purchase an identical object in their youth (an idea that is patently absurd for some objects – e.g. a USB flashdrive – for which there would have been no use to buy these objects).

So failing to account for diffusion makes our life seem filled with so many goods and services our parents would have “killed for;” and thus, makes us seem “spoiled” for not appreciating their value. However, when the same logic of gratitude is applied to older generations, and is shown to be false; older generations seem incapable of seeing the connection.

Increasing Standards

The last factor for which older generations do not sufficiently account is one I call increasing standards. Increasing standards are really just the flipside of diffusion. Diffusion is about how things today that are commonplace would have been luxuries in the past. Conversely, increasing standards is about how “impressive” things today will eventually become commonplace.

Let me give an example. Apple announced recently that they are going to offer a base-level iPhone that costs $99, instead of their previous price floor of $199. This is a perfect example of diffusion and its price-lowering effects.

However, diffusion doesn’t just make products ever cheaper; it also raises the bar for new products to be considered innovative. If iPhones continue to become cheaper and more widespread, then it will no longer be sufficient for Apple to improve them incrementally, if they want to continue to grow their share in the cell phone market. To continue “wowing” consumers, Apple will eventually be forced to come up with a new device that will be just as shockingly advanced as the iPhone was when it was first introduced.

And this process of increasing standards doesn’t just apply to the supply-side of manufacturing. Consumers who bought one of the first iPhones were seen as possessing a cutting-edge device (a cache for which they gladly paid a lot of money). But as time goes on, and more people consider smartphones to be commonplace, owning an iPhone (or an equivalent device) may simply be a necessity of interacting with the modern world.

What all of this adds up to is a situation where innovative products, as they diffuse into the mainstream, become accepted as commonplace and necessary.

Why is Accounting for Increasing Standards a Problem for Older Generations?

The problem with older generations not accounting for rising standards is probably pretty obvious to most. Increasing standards mean that the utility of many goods and services is constantly decreasing. Today’s cutting-edge computer will eventually go the way of yesterday’s typewriter. Thus, while kids today might be under the sway of consumerism when they desire the “fanciest” new products; they might also have some understanding that not buying the latest product could mean that they will be left in the dust.

By not seeing that increasingly advanced technology also brings increasingly rising standards, older generations often think youths have the advantages of advanced products, without realizing that increased standards now obtain. This leaves them thinking that kids are spoiled, for say, wanting a laptop to go to college; when given today’s environment kids can’t even survive without one (and frankly, if they want their children to succeed as much as they seem to want them to succeed, they should happily give them two).

I’ve rambled for too long…

Let me repeat again that my intention in writing this post is not to whine about how hard it is for today’s youth (although, from the standpoint of the income distribution, one could make that argument).

Rather, I offer this post as an interesting comment on how the politics of economics extends more broadly than the “economic” sphere. This exploration of “amateur accounting” shows how economic thinking is entwined in our everyday social comparisons. Similarly, our comparisons with others feed back into our understandings of the economy and its health. How much have we heard lately that the current recession is due to the prodigal spending of the “Me generation” (a judgment about younger generations influenced by our amateur accounting)?

Finally, on a practical note, I also offer this post as a useful corrective to those who would naively see modern youths as spoiled, without considering the complexities of comparing living standards. Comparing one’s wellbeing to others is fraught with both technical and subjective issues, which many people seem completely willing to ignore –this goes not just for “young” vs. “old,” but also for comparing “whites” and “blacks,” or “Northerners” and “Southerners”, etc.

Maybe the best answer is for us all to restrain, as far as possible, our desire to make snap comparisons to others. Oh, and make sure you give young people a break once in a while.