Phil gets the house to himself for a few days and he’s opted to upgrade the technology in the home. He programs everything in the house to be controlled by his iPad, essentially freeing himself to do other tasks that require his attention. He can now turn on lights, the TV, and the fireplace from his device. Long term growth in economies is often fueled by capital investments, which allows populations to be more productive. The same is true at the household level, such that investments in capital improve the productivity of inhabitants.
See more: economic growth, marginal product of labor, productivity, standard of living, technological change, technology
Cam convinced Mitchell that he needs to be kinder so Mitch invites a messy colleague who is going through a breakup to spend the night at their place. Unfortunately, she takes him up on it. Determined to keep their beautiful, brand new, designer white sofa (their one nice thing) in mint condition, they give up their bed for her and sleep on the floor. In this clip, they wake up and discover that she has moved onto the couch. This couch is more expensive than one from Rooms to Go and so it counts more towards GDP. Owning an expensive couch is an indication of Mitch and Cam’s high standard of living. Yet, does a high standard of living mean a higher quality of life? Robert Kennedy didn’t think so:
[GDP] counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
–RFK, Speech at University of Kansas, March 18, 1968.
Another perspective on this clip: resources are scarce. At its heart, economics is about how we choose to use those resources. Purchasing this couch moved Mitch and Cam on to a higher indifference curve than before they purchased it so their utility is higher than it used to be. But could they have been on an even higher one if they chose to buy a cheap couch and spend their money on something else? Traditional economics says that Mitch and Cam are rational and made the best decision. Is it possible that they could have made a mistake? What if they incorrectly estimated the cost of maintaining the couch. Could this also demonstrate time inconsistency?
See more: altruism, GDP, gross domestic product, luxury goods, opportunity cost, positional good, quality of life, risk, risk aversion, standard of living, tradeoffs