Thursday, September 07, 2006

Conspicuous Consumption

Conspicuous Consumption:
In Veblen's view, the wealthy engage in conspicuous consumption to advertise their wealth. If true, such behavior can set off a wasteful rat race, in which people buy expensive products they don't particularly like only to ''keep up with the Joneses'' and signal their lofty status. Because conspicuous consumption makes others feel less successful, some economists have argued that society would be better off if a high tax rate were applied to goods that are the object of conspicuous consumption.
Mr. Heffetz's analysis indicates that the higher the visibility of a good, the more likely it is to be a luxury item. For example, spending on cars and jewelry, two highly visible items, rises as a share of a household's budget as its income rises, while spending on home utilities, an inconspicuous category, falls as a share of the budget as income rises.

The relationship is far from perfect, however. Cigarette consumption is greater among lower-income households than among higher-income ones, yet cigarettes are the most noticeable product of all, according to the findings of the study. Formally, the index of visibility accounts for 12 percent of the way in which income relates to consumption across products. Interestingly, the effect of visibility on consumption applies only to the richest half of families, for whom the visibility index accounts for 20 percent of the way additional income is spent on various products.

For those in the bottom half, product visibility has no detectable effect on how income affects the pattern of consumption.

My first thought was "horseshit." How much more electricity can you use? But, of course, people are not really using the added capacity of their Hummers.

My second thought is, I should get into selling a premium brand cigarettes that cost $25, or $100, per pack. It could have something alleged to be special in it to make people think its better, like those $200 hand creams. So smooth you can still taste every bit of your excellent gray goose martini.

What if you had a law that allowed people to purchase visible wealth from the government? Lets say everyone must have a white car, except for people that pay a great deal of money to get another color. Instead of buying a useless hummer people could pay 20K to get a Black or Gold car to show off. Society could use the resources that are otherwise spent on Hummers and digging up shinney rocks to help everyone have a truly higher standard of living, rather than spending the resources on making ourselves look comparably wealthier. Yes, very silly. People would still want to be able lie and say, “No, it really is worth the money.”

1 comment:

Oakland Native said...

There is a cigarette that costs $20 / pack - Treasurers. They're Dutch. And worth every penny.