Wealth and Complacence

This article proposes that complacence can theoretically arise from decreasing marginal utility of wealth. I propose that this allows an explanation for the puzzle of growing government.

I recently explained the process by which decreasing marginal utility of wealth causes search to become an inferior good. The same process leads any sort of expenditure of effort to become an inferior good, and perhaps even a bad, as in the case of labor. This is consistent with the normal goods properties of leisure. As people become wealthier they work less, but the interesting point here is that calculation is a form of work.

When society tends toward general complacence and inferior calculation, special interests are able to claim control of a larger share of the economy.

I call this theory a theory of general complacence.

Economists have wondered why government has grown as a percentage of GDP since 1900. One popular explanation is the ratchet effect described by Higgs (1989). Tyler Cowen (2009) proposes an alternative where the growth in government is caused by a latent demand in the population. This latent demand is finally freed by improvements in technology.

The theory of general complacence provides an explanation similar to Cowen’s, but they key difference is that people never actually demand more government under my theory. Technology is in some sense the means in my theory as well, because it is the means by which social wealth increases. My theory also does not need to invoke any kind of latent demand. Instead, I appeal to the same marginal effects discussed widely in economics.

Cowen, Tyler. "Does Technology Drive the Growth of Government?." Stockholm meeting of the Mont Pelerin Society. Vol. 22. 2009.

Higgs, Robert. Crisis and Leviathan: Critical episodes in the growth of American government. Oxford University Press, USA, 1989.