In an affluent economy the process of producing goods also produces the wants they satisfy, so meeting those wants adds less to welfare than it appears to.
Galbraith named it in The Affluent Society (1958): if advertising and emulation create the desires that production then satisfies, rising output cannot be read as rising wellbeing. Hayek replied in 1961 in 'The Non Sequitur of the Dependence Effect', arguing that nearly all wants beyond the most basic are culturally acquired, and none the less real for it.
In practice
- A new category of gadget arrives with a campaign explaining why life without it is incomplete.
- A family's idea of a normal kitchen rises each time a neighbour renovates.
- Possible explanations
- One explanation is advertising, which shapes preferences. Another is social comparison, in which wants rise with what others have. A third is habituation, which resets satisfaction to each new level of consumption.
- In its favour
- Consistent with evidence that advertising shifts demand and that satisfaction adapts to consumption, and a forerunner of work on the hedonic treadmill.
- Against it
- Hayek's objection persuades many economists: where a want came from does not make it less valuable, and art, literature and education also create the wants they satisfy. Some empirical work finds advertising mostly moves demand between brands rather than creating it.
- Standing
- Contested between Galbraith's followers and Hayek's. Compare conspicuous consumption and the Easterlin paradox.
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money