Saturday, November 20, 2010

When is More of a Good Thing Not Better?

I admit that I am not a great believer in the predictive ability of economics, but I do appreciate some of its descriptive concepts and models. My favorite three are externalities, indifference curves and the law of diminishing marginal returns.

Externalities are the hidden costs and benefits of activities. For example, pesticides kill harmful insects and protect the crops but also pollute the earth, air and water in the process. There is a cost for this activity that is not paid by the user or the producer. Public education, if it is good, has positive externalities like making the population more skilled and productive and less likely to commit crime. The role of good government is to factor in the externalities of each activity and ensure that costs are paid by the responsible parties and benefits are acknowledged when allocating more resources.

Indifference curves are often tied to pricing or cost. If a seller increases the price of a product, the immediate result will be higher profit per item and therefore more money. But as the price increases, there comes a point when fewer items are sold for the higher price and so while the profit per item increases, the volume decreases until no one wants one at a very high price, so they are indifferent as to whether they have it or not.

Finally, I like the law of diminishing marginal returns which is designed to predict or at least describe the point at which something precious loses its luster because too much is available. I tested this theory with filet mignon. Surely, there can never be too much filet mignon. But after my eighth meal of it in a three-week period, I could no longer bear the thought of it. We now see this happening with gasoline usage. When the price gets to a certain point, say $4.50 a gallon, people will seek alternatives such as public transportation or carpooling or getting rid of the pickup or SUV.

I think all this can be applied to the notion that more is better, the more the merrier. Like the idea that you can never be too thin or too rich or never have enough friends or should never turn off your cell phone.

When you see even a few anorexic models and actresses, it is hard to come away thinking one can never be too thin. When you read about the excesses of athletes, actors, and businessmen, it makes you wonder if this wealth could not be put to better uses like reducing poverty, improving education or cleaning our environment and whether the excessively rich are really better for the experience. When you talk to a friend who must squeeze you in between two other friends who are also vying for attention, you realize with so many friends there is never enough time for any of them.

And when I see people constantly on their cell phones literally hooked the way smokers used to be, I wonder if there is not something like too much cell phoning. Do people really have to talk on their cells while driving their cars, eating their lunches at a restaurant, purchasing something at a store, walking across a busy intersection or nursing their baby? Have cell phones become our new Sirens drawing us in against our free will? Or are they like communications from the Almighty that should never be ignored?

It seems like the answer our former president gave for his many infidelities in the White House - “Because I could” - could apply to our many daily excesses. We do them because we can afford to. But I wonder when do we realize that enough is enough and that more than that is not necessarily better but could be worse?

When do we recognize the externalities in our excessive behavior and develop an indifference to these gluttonous activities be they eating or drinking too much, to listening to talk radio too much, to buying too much, owning too much, controlling too much and therefore worrying too much?

How long will it take us to see the diminishing marginal returns of increased activities?
When do we say “enough really is enough?”
July-August 2008

No comments:

Post a Comment