Xue Zhaofeng on Consumption

Xue Zhaofeng, “To Consume is to be Linked to Other People in the World”[1]

Introduction and Translation by David Ownby
 
Introduction
 
Xue Zhaofeng (b. 1968) is a “celebrity economist” in China, a Paul Krugman who also stars on popular reality shows.  He earned his Ph.D. in economics at George Mason University in the United States, and subsequently taught at Peking University’s National School of Development before resigning in 2018 to pursue other interests, presumably more profitable.  At the time of his resignation, he was already an immensely popular lecturer on Dedao 得到 (iGet), a well known app where users sign up for lectures and courses, and Xue’s income from Dedao and other ventures far exceeded his university salary.  “How to” books are immensely popular in China, and Xue’s courses cleverly deliver a “how to get rich message” in a package that includes the prestige of China’s most famous university.
 
I stumbled across Xue when translating Xu Jilin’s essay on “redimensioning the enlightenment” when Xu mentioned the reality show I Can I BB 奇葩说, on which Xue is a long-standing judge and “mentor.”  The show, which is hugely popular in China, is a kind of American Idol where contestants debate rather than sing, and the celebrity judges/mentors both decide winners and losers and engage in debates themselves in a sort of carnivalesque setting (click here for a “debate” between Xue and Liu Qing 刘擎, a professor at East China Normal University, which conveys some of the flavor of the show).  Xue fully embraces his “celebrity economist” image on I Can I BB, dishing out wit and wisdom for China’s youth on how to think and act in an economically rational way.  He even wears a bow tie, although I suspect that this part of the show’s aesthetic and not a personal choice.
 
The text translated here is an interview, part of Xue’s effort to popularize economic knowledge and to sell himself as a celebrity.  Southern People Weekly, the magazine in which the interview was published, is the rough equivalent of People Magazine, and their introduction to Xue puts his remarks in context:
 
“Creativity and consumption make up two sides of our daily lives.  Consumption has become one of the ways for everyone to express themselves, convey their personal aesthetics, and show what interests them in life, and a new consumer culture is currently taking form. Southern People Weekly, together with the CBC Credit Card, has launched the column ‘Weekend Afternoon Tea’ to discuss today’s consumption and consumers, and the economics behind, it from an economist's perspective.”
 
In other words, while Xi Jinping and the CCP talk about common prosperity, Xue Zhaofeng and Southern People Weekly tell people how and why to spend their money.
 
Translation
 
How to Look at Consumption?
 
Question:  How do you understand consumption?  Is consumer behavior something that can be analyzed?
 
Xue Zhaofeng:  To consume is to be linked to other people in the world.  Every consumer demands a great deal from other people in the world, and must make their contribution in return.  Consumer behavior is like other types of behavior, subject to the constraints of certain conditions and realities, which means that consumer behavior follows observable patterns.
 
For example, the economist Milton Friedman’s “permanent income hypothesis” is a principle that says a great deal about such patterns.  What he said was that people’s decisions about consumption are based neither on income earned in the short term nor on income randomly acquired at one particular moment, but rather on the average income they imagine they will earn over a long period of time.
 
I often think about this principle in daily life. You can look at yourself and at the people around you and see for yourself whether this applies, or, on the other hand, you can look and see if consumption behaviors that violate this principle are sustainable.
 
Question:  Where do most of your observations about consumption come from? How do you see the relationship between people's pursuit of the good life and their daily consumption?
 
 Xue Zhaofeng: My observations about consumption come mainly from daily life. A consumer product is like a work of art. When you go to a museum, you see that even eating utensils like plates, knives, and forks have evolved over a long period of time.  It's just that the pace of our life is so fast that we don't have time to stop and appreciate the technology and art behind each consumer product.
 
Question:  What kind of consumption is “reasonable” consumption?
 
Xue Zhaofeng: One example is that we should understand the maxim that "you get what you pay for."  If you want to be a rational consumer, then you have to look back on your past consumption behavior and be willing to adjust it.  Whenever you buy something, you need to know what it is that you are buying, whether you are buying it for what it does, or for the warranty that comes with its reputation.  Is it a subtle statement about yourself, or are you buying something to show off?
 
All commodities provide “services” at any number of levels. In normal circumstances, the basic functions of the goods are quite cheap, meaning that you can let price determine your choice; but if other considerations are important then you may well have to pay more.
 
For example, whether you fly economy or business class, you arrive at your destination at the same time, and the difference is only the comfort level during the trip, so the question is whether are you willing to pay double the price in business class for this extra comfort. It’s not that there’s anything wrong with comfort or even luxury, but you should first understand the principles behind your choice.
 
Once you grasp this principle, you can engage in reasonable consumption, which would mean, for example, ordering basic food in a reputable restaurant, thus enjoying a combination of reputable service and a reasonable price.
 
How Should One Consume Intelligently?

Question:  Should we see consumption as a kind of investment?  How should we see the relationship between the two?
 
Xue Zhaofeng: The economist Irving Fisher once famously said that "investment is balanced consumption over time," and nothing more. Economists argue that people are always going to consume, but sometimes if they cut down a bit, wait a bit, or beat around the bush a bit, then the happiness that comes when they finally consume what they have been waiting for will be greater, indeed perhaps much greater. Cutting down, waiting, and beating around the bush are what we call investment.
 
It is sometimes hard tell investment and consumption apart. When we eat every day, are we investing or consuming? Eating is certainly consumption, but can we work without eating? From the perspective of work, the meals we consume every day are an investment. Is vacation travel investment or consumption? Most people will of course say consumption. But we can also see it as an investment, a kind of investment in our memories. In the future, when we get old and lose our mobility, we will still be able to look back on the good old days. From this perspective, traveling when you are young is an investment in memories you will value later in life.
 
So making a clear distinction between investment and consumption, saying that this expense is an investment, while this other is consumption, is not very important; the important thing to look at is the time factor and to keep things in balance, pursuing a maximum amount of happiness over a long period, rather than one moment of intense happiness.  This is a fairly reasonable view of consumption and investment.
 
Consumption can also be a kind of investment, so when you consume, you might think about whether it is pure consumption, or how much investment is involved. For example, education is the most worthwhile consumption because it is largely an investment, an investment in an asset that stays with you and that no one can take away.
 
Question:  There is smart investment, and there is smart consumption.  What is smart consumption, in your view?
 
Xue Zhaofeng:  Whether it is smart or not depends on whether it makes sense. If it makes sense, then it is worth it, and if not, it’s a waste.  What I mean by “making sense” depends on when you spend the money, where you spend the money, and how much you pay.  Is it a waste to hire a professional photographer to take a few thousand pictures for just a few hours?  Here, it depends on the occasion.  In the case of a wedding, it may not be a waste, because this is a unique moment, and it is may be worth it to pick the best from hundreds or even thousands of photos.

There is a "third law of demand" in economics, or "the law of good things from distant places," which stipulates that for high-priced goods, we should choose the best quality. For example, if you are lucky enough to go to Paris, you should eat a real French meal because the trip itself is already very expensive.  If already you live in France, however, a sandwich is fine.

You can also look at consumption from the perspective of “cost,” and people who master the concept of "cost" do not focus merely on "money." This is because money is only the monetary cost, and monetary cost is only part of the total cost, not the whole. For example, spending money to save time, like taking a taxi to get back to work earlier, it a good idea, and you should spend this money, because your time is valuable, I think especially for young people, this is very important.
 
Question:  With the development of the economy, is it a necessary trend that the level of consumption rises and that consumption itself becomes subject to finer distinctions?

Xue Zhaofeng: Yes. An economist once observed that the beef sold in the London slums was all about the same, while many different types were available in the richer areas.
 
People sometimes go back to the basics. I've seen videos of people going out into the wilderness and camping by themselves, which looks as if they are trying to simplify their lives, but if you look more closely at their equipment, like pocket knives, matches, cooking utensils, tents, and of course, HD digital video recorders…they are all top quality.  Obviously, they are looking to explore something new after all their subsistence needs are covered.
 
With economic development and technological progress, people's consumption becomes more and more sophisticated, and they care about more and different things, which seems to be a trend.
 
How to Achieve a Sense of Satisfaction when Consuming?
 
Question:  In pursuing a sense of satisfaction, do people often give priority consideration to costs?

Xue Zhaofeng: Resources are finite, so what something costs is important.  The difference between children and adults lies in their sensitivity to costs. When the cost is low, we give in more to our emotions and preferences, but as the cost rises, we become more cautious and restrained, which is a sign of maturity.

A business school student of mine who sells bags online told me that bags under $200 are the easiest to sell because as far as his customer base is concerned, they can buy a bag for less than 200 RMB (roughly $30 US) without thinking about it and be happy with their purchase, but for anything more expensive, another type of rationality kicks in.
 
Question:  In your view, what kind of consumption leads to satisfaction? 
 
Xue Zhaofeng: A sense of gratitude can make consumption satisfying. In fact, many of the things we use now were luxuries not so long ago, such as the experience of having hot water when you turn on the faucet.

What you are interested in can also bring great satisfaction, as in the case of scientific knowledge. I recently spent more than 200 RMB to buy a small-aperture camera.  It is just a plastic box, with no lens, and you use the principles of small-aperture imaging to take pictures, which means that for each picture, you first have to calculate the exposure time according to the formula, but the results really surprised me. This use of optical principles gave me great pleasure.
 
Good things are not necessarily expensive things, nor do they have to cost a lot, but they can bring us the same satisfaction. Looking at consumption from a dialectical perspective, consumption carried out over time is also an investment. Gratitude can bring satisfaction, and so can buying things for reasons of fun or love.
 
Our consumption behavior has a memory, and it will remember our appearance, our needs, and what we pursue over the course of our lives.  So we should accept the fact that we have different spending habits and needs at different times, and when spending for reasons of love, we should work toward reasonable, intelligent consumption. 
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Notes

[1]薛兆丰, “消费是跟世界其他人的羁绊,” published in Southern People Weekly, on December 9, 2021.