The Parable of the Tuileries – Pt. 1 The Law of Diminishing Marginal Utility

Yesterday in Economics of Entertainment, we were introduced to a concept coined by the (right-winged) French newspaper Le Monde. They released a short animated video clip that aims to support the public funding of Culture through three basic concepts of economics: the law of diminishing marginal utility, the principle of positive externalities, and the multiplier effect. However, one could easily argue that this video was pieced together in a rather simple, if not unintelligent manner that shows elements of syllogism through hasty shortcuts and overly general conclusions.

Have a sit through the video, after which you might find yourself convinced because of how much it ‘makes sense’.

Now, let’s run through the first of the three economic concepts illustrated in the clip. I must warn you though, this is purely an exercise in contradiction,

The first one I’d like to talk about is the Law of Diminishing Marginal Utility. It introduces the concept that as an individual increases consumption of one specific product, while keeping the consumption of other goods at a constant, he will experience a decline in the utility or perceived benefits that he or she can draw from the product.
You might want to think of it as gospel if you’re running an ‘all you can eat’ buffet-type restaurant because indeed, each additional plate of food the customer helps himself to will inevitably provide less satisfaction than the previous one. That is due the finite nature of the space available in a human stomach.

It might be a futile attempt for me to try and put this in perspective, but intellectual masturbation never hurt anyone. Le Monde puts it clearly, this law applies to ALL types of goods but one. And how convenient is it that the exception is Culture? It even goes further than that and assumes that in ALL cases, the more you increase your consumption of cultural goods, the more you’ll retrieve exponential satisfaction from it. As if listening to the same Schubert piece for the 40th time were to be more exalting than the second or third. You’d believe that an outer-body experience would occur on the 41st, but anyway…

The video claims that the more you listen to Schubert, the more satisfaction you’ll get from it, and the more eager you are to listen Beethoven, then Brahms etc…
Wait! Some of you might have realised that they’ve just switched from considering the marginal utility of one specific product (lemonade/one Schubert piece), to a whole category of goods (classical composers).
That’s literally comparing apples and pears, no fruit pun intended, but one’s mind is capable of great leaps when it comes to serving a purpose. So I ask, would the benefits perceived from drinking lemonade not turn an individual on to consuming more freshly squeezed juice in general? whether it be orange, apple etc…

Is there even a point in furthering this conversation? Let’s carry on, just for the heck of it…

I could also easily argue that the more I listen Schubert, the more nauseating it gets because Schubert has no emotional resonance with my childhood, or even brings back traumatic experiences of a totalitarian music teacher. Who knows…? Since we’re mixing up categories, I could even argue that the purchase of a Macbook would create incentive for me to purchase an iPhone and then an iPad etc… And trust me, the satisfaction of going on a shopping spree for that kind of products does not diminish with repetition.
Therefore, one could argue that high-tech ecosystemic goods are impermeable to the law of diminishing marginal utility, contradicting the first premise of the video that Culture is the only good to which the concept doesn’t apply. Unless of course I’ve missed the point that Apple products are encompassed in the realm of Culture. In which case, should they too be publicly funded?

Please let me know if you were able to follow some (if not all) of the arguments highlighted here or if I’m just rambling. Probably the latter…

I’m really curious to see if I’ll gather the motivation to write parts two and three of this series…

Here’s a brilliant Snarky Puppy tune, in the Brazilian style of Forró bound to get you rid of the mid-day Thursday blues:

Why invest in Culture?

The answer seems obvious: an educated and cultured society understands, respects and coexists better.  We might even say that culture is the path to a healthy, well-adjusted and happy society. If we take a closer look at music, the benefits shoot up. Not only does music stimulate the brain, isolate stress and strengthen one’s health, but it also helps to work at a full capacity, sleep better and be optimistic, working as an emotional medicine. Should these advantages not be enough to convince someone about the importance of investing in culture, lets take a look at the economic benefits.

cerebro_musica

Based on the French notion of the Parable of the Tuileries, there are three economic principles we should know about and understand.

The first is the concept of Positive Externalities, meaning a benefit that results from an activity and that affects an otherwise uninvolved party who did not choose to incur that benefit. There are activities which basically affect others in a positive way, so the benefit to the individual or firm is less than the benefit to society. An example would be France’s cultural image and how it is perceived by the world. This causes a call-effect of investment from other parts of the world, as well as tourists who are attracted and keep consuming more. Although things in Spain are changing due to economic cutbacks, the amount of music festivals Spain has to offer can still be taken as an example of positive externality.

The second principle is the multiplier effect of culture-based investment. Investing in music obviously benefits musicians, technicians, venues, record labels and many other players in the music business. However, if we take a step further we’ll notice how other industries are also taking advantage of these investments.  Just imagine a Friday night: You take a cab to go to a concert, but first dinner at your favourite restaurant. You arrive and buy the concert ticket but before entering the venue you have a beer or two. When the concert’s over, you’re so excited you buy the band’s t-shirt and album, have the last drink at another bar and take another cab home. Next morning you wake up, run to the drugstore and buy some Ibuprofen. Music has just generated benefits for different sectors which at first, had nothing to do with the music industry.

diminishing_marginal_utility

Last but not least, there is an inspiring and unique principle known as  Diminishing Marginal Utility. What does this actually mean? Lets start by explaining each term. Utility is what consumers obtain –value– when consuming products or services, and by marginal we understand the gain from the last unit. Marginal Utility is therefore what the consumer gains when consuming the last unit. A Diminishing Marginal Utility should now start making sense.  The first unit of consumption of a good or service yields more utility, more satisfaction than the second and subsequent units, with a continuing reduction for greater amounts. Consumers normally get a positive utility when they purchase and consume a good or service, although this satisfying feeling decreases each time as the consumer becomes bored of the product.

diminishing-marginal-utility

You’ll probably understand it better with a real life example. Imagine if you eat paella –or something you really like– every single day: on the first day your level of satisfaction would be really high, and so would the second and third. Now imagine how you would feel ten days later, ten days eating just paella. You would probably still like the good (paella) whereas the level of satisfaction decreased. You wouldn’t enjoy it as much, would you? Now think about a whole year eating paella… The level of satisfaction might even become negative!

marginal_utility

Nowadays, this theory can be applied to almost every product. Remember, almost! All forms of culture, and specially music, have the magic quality of generating the opposite effect.  The more you listen to music you like, the greater the pleasure, generating a desire to consume other types of music and leading to a never-ending cycle. We’ll be more passionate about music each time, broadening our music preferences.

Debussy’s Clair de Lune has been playing in my parents house since I can remember. Probably, the first time I heard it I didn’t pay much attention, or none at all! But after listening to it several times and seeing my mum perform it, I really started appreciating its value. Now, each time I listen to it I get goose bumps. In other words, Clair de Lune provides me with more satisfaction each time I consume it.

Maybe now we understand why the main affected by cultural cuts is, in fact, society.

Just in case you still don’t understand why investing in culture is important, take a look at this video about the Parable of the Tuileries.

Parable of the Tuileries

By the way, tell me about your song, the one which will move you more each time you listen to it!