The consequences of changes in the relative price of wealth and time

In my ECONS101 class this week, we covered some of the basic concepts in economics, one of which is relative prices. The relative price can be simply thought of as the price of one alternative (or one good) compared with another. If both prices are measured in monetary terms, we can calculate the relative price as the ratio of the two prices (P1/P2). However, it need not be the case that the price of each alternative is measured in monetary terms. Regardless of how they are measured, relative prices are important, because changes in relative prices create incentives for decision-makers to change their behaviour. When the relative price of an alternative increases, decision-makers will be less likely to choose that alternative, or will choose to do less of it. When the relative price of an alternative decreases, decision-makers will be more likely to choose that alternative, or will choose to do more of it.

In class, we discussed the role of the relative price of coal and labour in providing incentives for the adoption of less labour-intensive production methods during and after the Industrial Revolution. However, there are any number of other interesting real-world examples of the effect of relative prices. I was particularly interested in this recent post by Tyler Cowen on the Marginal Revolution blog:

Real GDP per capita has doubled since the early 1980s but there are still only 24 hours in a day. How do consumers respond to all that increased wealth and no additional time? By focusing consumption on goods that are cheap to consume in time. We consume “fast food,” we choose to watch television or movies “on demand,” rather than read books or go to plays or live music performances. We consume multiple goods at the same time as when we eat and watch, talk and drive, and exercise and listen. And we manage, schedule and control our time more carefully with time planners, “to do” lists and calendaring. A search at Amazon for “time management,” for example, leads to over 10,000 hits.

As income (and wealth) have increased, the relative price of time-intensive activities has increased. As a result, as Cowen notes, we tend to do less time-intensive activities. Or, we find ways of combining those activities with other activities so that the time cost is lessened. In addition to the examples that Cowen gives, we eat lunch at our desks, we text and drive, and we watch television and scroll through social media. Another way of thinking about this is that the opportunity cost of time-intensive activities has increased - we now give up more income in order to 'consume' time-intensive activities. Like relative prices, when the opportunity cost of an activity increases, we tend to do less of it (in this case, less time-intensive activities). Cowen also makes the following point:

By the way, the same theory also explains why life often appears to unfold at a slower, more serene pace in developing nations. It’s not just an illusion of being on holiday. In places where time is less economically valuable, meals stretch more leisurely, conversations delve deeper, and time itself seems to trudge rather than race. In contrast, with economic development comes an increased pace of life–characterized by a proliferation of fast food, accelerated conversation, and even brisker walking...

'Island time' might be a real thing, with an underlying economic cause. Lower income in developing countries lowers the opportunity cost of time-intensive activities, so people in developing countries do more of them. When the opportunity cost of time is low, being late for a meeting is less costly, both to those who are late, and to those who are waiting. Changes in the relative price of time also explain why the pace of life appears to slow down (for some people, at least) at retirement. The opportunity cost of time for retirees is lower than for working people, and so engaging in time-intensive activities becomes less costly when people retire.

Most of us are not recent retirees though, and we face an inexorable increase in the pace of life, arising from the increasing relative price of time-intensive activities. However, this seems in stark contrast to the 'slow movement' that has arisen in recent years, which advocates for slowing down the pace of life. Adherents to the slow movement are deliberately engaging in time-intensive activities and using more time than is necessary to do so. That doesn't seem to make sense in light of the increasing relative price (and opportunity cost) of time.

That is, until you realise that people in the slow movement may be engaging in conspicuous consumption (of time). Conspicuous consumption is a costly signal of social status (as I've noted before here and here). Only those who are truly wealthy or high status can afford to waste a lot of time on slow food, slow travel, or slow gardening. People in the slow movement face the same opportunity costs of time as everyone else, but they are willing to pay those costs in order to demonstrate their high social status. Think about the celebrities or social media influencers who advocate for the slow movement. I may be wrong, but I don't see too many working-class folk among them.

Relative prices really do matter for decision-making, and changes in relative prices create incentives for people to change their behaviour. And surprising as it may seem, we can sometimes explain important social changes as happening as a result of changing relative prices.