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Avner Offer

Daniel Ben-Ami
posted 3 July 2006

The Challenge of Affluence is one of the most profoundly miserable books anyone is ever likely to read. It is also probably one of most important challenges to the conventional wisdom on economic growth.

Avner Offer, Chichele Professor of Economic History at Oxford University, does not quite argue that growth is bad but he comes close. Up to a certain point he acknowledges that people can benefit from rising affluence. But beyond that point any growth is likely to be counter-productive as one set of individuals simply benefits at the expense of another. To quote Offer: ‘Economic growth has a strong positive impact on the quality of life in poor countries. That does not constitute an argument for further enriching the rich in the most affluent ones.’

Offer’s argument is complex but it includes two key propositions. First, beyond a given point - exactly where can be debated - the benefits from economic growth diminish. In economic jargon terms this is known as the ‘diminishing marginal utility of consumption’.

In other words if someone is hungry and they eat a cake they are likely to benefit hugely. Perhaps they will still enjoy eating a second or even third cake. But the more cakes they eat the smaller the additional benefit from each cake will be.

After a while eating cake will become counter-productive as consuming too many can lead to obesity. What is true for cake is, according to this view, true for society too. We may have more material things than ever before but, according to opinion poll evidence, they are not making us any happier.

The second key argument is that people’s happiness depends on their relative position in society rather than absolute wealth. Most individuals, it seems, would rather earn £30,000 a year when the average is £20,000 than earn £40,000 a year when the average is £50,000. From such a perspective competition between individuals does not benefit society as one person’s gain is another person’s loss.

Indeed, for Offer and other happiness advocates, the battle for affluence is worse than a zero-sum game. It means that individuals are locked in a competitive struggle which is ultimately dispiriting. This is what they mean when they use terms like ‘hedonic treadmill’ and ‘rat race’.

Offer’s observations lead him to question human rationality. He argues that people tend to place too much value on short-term pleasure at the expense of longer term gains. In economic jargon terms they exhibit a ‘myopic bias’. For Offer this explains, for instance, why humans eat too much even though it can make them fat.

It would be easy to simply dismiss Offer’s arguments but, as would be expected of an Oxford professor, he marshalls an impressive amount of evidence to support his case. For example, he argues in great detail that the rise of obesity shows individuals have, literally, become bloated as a result of over-consumption made possible by economic growth. He also shows that the time saved by devices such as vacuum cleaners and washing machines has simply been transferred to entertainment appliances such as television. In addition, he argues it is economic growth that has undermined traditional family structures and damaged mental health.

Countering such arguments is not easy if it is simply a question of trading facts. Indeed, Offer and others who hold similar views, such as Professor Richard Layard of the London School of Economics, would almost certainly win if they were allowed to set the terms of debate. The key to challenging their views is to contest the premises of their argument.

Perhaps the biggest mistake they make is to assume that unhappiness is necessarily bad. Humans are often at their most creative when they are in some respects unhappy with their lot. Society has improved and technology has developed largely as a result of a strong human desire to make life better. Otherwise why do we prefer democratic societies to authoritarian ones? And why have we graduated to email and mobile phones rather than remain satisfied with a quill and ink?

In contrast, the implicit message of Offer and those who emphasise happiness is a deeply conservative one: be happy with what you have got. Although they present themselves as humanist critics of contemporary society their message sits well with traditional conservatism. It embodies an almost aristocratic disdain for ordinary people who want to raise their living standards.

Another key error is to confuse association with causation. Although this may sound academic it has important consequences for the way the data relating to happiness is interpreted.

In crude terms the advocates of happiness point out that society has become much more affluent over the years and also that individuals have not become happier. While both propositions are true it does not necessarily follow that one caused the other. Lots of things have increased enormously in recent decades - including the number of types of bread sold in supermarkets, the power of computers, and the salaries of professional footballers. But it does not mean that the prevalence of unhappiness in society can be explained by any of these factors.

This point may seem glib but it is critical. Questions such as the prevalence of unhappiness in society, growing concerns about mental health and family breakdown are all important to examine. But simply assuming they can be explained in relation to economic growth precludes such a discussion. It takes as the end point of investigation - the prevalence of such social problems - what should be its starting point.

The Challenge of Affluence is worth reading as it is a comprehensive examination of the problems associated with economic growth. However, it is one-sided in its exaggeration of the difficulties related to growth and its underestimation of the benefits. It could even have those of a particularly nervous disposition reaching for the Prozac.

An earlier version of this review appeared in Fund Strategy magazine. 

Daniel Ben-Ami and Avner Offer will take part in the Keynote Controversy debate on The Battle for Affluence at the Battle of Ideas 2006.