Flat White

How markets are making our lives better

30 October 2018

11:07 AM

30 October 2018

11:07 AM

The latest data out of the ABS reveal that we’re spending ever more money on dining out and takeaway. Indeed, it’s up to A$1 in A$5 of the average food budget, and it’s growing. The traditionalist might lament this apparent turn away from the principles of household economy. But the behavioural economist takes a different view.

I think this is fantastic news and a case study in markets working well to make our lives easier. It suggests we’re seeing the effects of new technologies like Uber Eats and the entire ecosystem of technologies converging on the restaurant sector allowing us to solve the problems of household production – for a pretty good price all things considered.

Two great Australian economists, Duncan Ironmonger and Kelvin Lancaster, were seminal in developing “household production theory”, recognising that production doesn’t just take place in commercial life. It is just as important when it occurs within the household. And it isn’t free. It costs time and resources to keep the household running – meals prepared, clothes cleaned, beds made.

In fact, it is expensive enough that Gary Becker won the Nobel Prize in part for showing that we have good reasons to believe that traditional gender roles emerged, in part, as a division of labour. By having one group specialise in the obscenely difficult task of running the household, and the other group specialise in the obscenely difficult task of earning for the household, the household could (just barely) function.

Some behavioural economics shows us that the problem goes even deeper than what a mainstream perspective of “time and resource” cost would provide. Human behaviour is concerned with building systems, which we call “lifestyles”. For us to keep those systems functioning requires knowledge, and knowledge is cognitively taxing to apply – it takes a great deal of effort.

Now consider the knowledge you require to keep the household production system behind the effective production of meals alone running. You need to keep an inventory of your stocks of ingredients; you need to formulate a plan for your meals; you need to have recipes at hand; you need a fairly good forecasting system for when those stocks need to be replenished; plans based on that concerning when to visit the shops; and a list of necessities drawn up relative to your inventory, plans, and recipes.

For me at least, it’s a wonder we’re able to (as the kids now say) “adult” at all. Even for my better half and I, this simple problem takes a good chunk of the weekend to solve. No wonder for the vast majority of human history we found it necessary to specialise in running or earning for the household just to get by.

Being able to keep food on the table is an immense problem of complexity management – in many ways the fundamental problem of complexity management. And it’s got a great deal more difficult to solve as traditional roles have begun to break down and everyone has begun focussing on the task of earning for the household.

When a problem such as this emerges, it creates the opportunities for profit to which entrepreneurs respond by introducing new technologies which solve it. So, it is no surprise at all that we have observed the emergence of technologies such as Uber Eats and the ecosystem of technologies converging on the restaurant sector.

For a very reasonable price, all things considered, you can pay for others to solve the complexity management problem for you, even to the extent of having your meals delivered to your door.

I for one therefore welcome the latest figures as a good sign that markets are working just as they should to make life easier for us. I, for one, welcome that all the more because it means that (for a pretty reasonable price) we can have our cake and eat it too – we can allow traditional household roles to fade while not collapsing in the face of the complexity management problem in household production.

That is no small thing to celebrate: Ha-Joon Chang has written that the washing machine was a more important invention than the internet because of how greatly it reduced the problem of household production and liberated people from drudgery. Uber Eats and the ecosystem of technologies converging on the restaurant sector which make dining out and takeaway more available are in this category.

Queen Victoria, for all her stupendous wealth and enormous empire, did not have access to the same diversity of quality meals as us and she had the entire Royal Household to help solve the complexity problem in household production! Come to think of it, does Queen Elizabeth II really have it that much better off in this regard than any of us who have the Uber Eats app in our pocket?

As Joseph Schumpeter once said: “The capitalist achievement does not typically consist in providing more silk stockings for queens, but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.” These latest figures suggest that that history of achievement doesn’t seem to be fading into the past any time soon.

Dr Brendan Markey-Towler is a behavioural economist at the University of Queensland.

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