Home > Behavioural Economics, Inequality > Veblen Goods and inconspicuous consumption?

Veblen Goods and inconspicuous consumption?

Conspicuous consumption was introduced by economist and sociologist Thorstein Veblen in his 1899 book The Theory of the Leisure Class. It is a term used to describe the lavish spending on goods and services acquired mainly for the purpose of displaying income or wealth. In the mind of a conspicuous consumer, such display serves as a means of attaining or maintaining social status.

Economists and sociologists often cite the 1980’s as a time of extreme conspicuous consumption. The yuppie materialised as the key agent of conspicuous consumption in the US. Yuppies didn’t need to purchase BMWs or Mercedes’ cars for example; they did so in order to show off their wealth. This period had its origins in the 1930’s with Austrian economists Ludwig von Mises and Fredrick von Hayek – the latter being the author of “The Road to Serfdom”, in which he said that social spending rather than private consumption would lead inevitably to tyranny. Margaret Thatcher (UK Prime Minister 1979-1990) and Ronald Reagan (US President 1981-1989) believed in this ideology and cut taxes and privatised the commanding heights in a move to a free market environment.

VeblenSo-called Veblen goods (also as know as snob value goods) reverse the normal logic of economics in that the higher the price the more demand for the product – see graph below

Over the last three decades conspicuous consumption has accelerated at a phenomenal level in the industrial world. Self-gratification could no longer be delayed and an ever-increasing variety of branded products became firmly ingrained within our individuality. The myth that the more we have the happier we become is self-perpetuating: the more we consume, the less able we are to tackle the myth.

However a recently published book The Sum of Small Things: A Theory of the Aspirational Class by Elizabeth Currid-Halkett looks at how the power of material goods as symbols of social position has diminished due to their accessibility. Although the lower income groups must dedicate a greater proportion of their income to basic necessities, they spend a higher share of their income to conspicuous consumption than the rich do. Between 1996 and 2014 the richest 1% fell further behind the national average in the percentage of their spending dedicated to bling. The middle income quintile went the other way: by 2014 they spent 35% more than the average as a percentage of their annual expenditure.

According to Elizabeth Currid-Halkett the higher income groups have moved away from buying stuff – materialism – to more subtle expenditures that reveal status and knowledge. The most common of them being education for their children.

Those in the top 10% of income earners now allocate four time as much of their spending to school and university compared to 1996, whereas for other income groups spending has remained fairly constant. However one could say that fees for both school and university have increased over that period of time. The upper class also invest heavily in domestic services such as housekeepers, freeing up time that the less fortunate must spend on chores.

Rather than frittering away that precious leisure time on frivolities, as Veblen’s leisure class did, they devote it to enriching experiences, like attending the opera, holidaying in far-off lands and working out at fancy gyms. Their children, by tagging along and thus absorbing this “cultural capital”, develop the sophistication needed to win admission to selective universities, vastly increasing the odds that they will form the next generation’s elite. The modern equivalent of Victorian worsted-stocking wearers are hipsters, who imitate the wealthy’s penchant for farmers’ markets and fair-trade lattes, even if they cannot afford a cruise to Antarctica.  Source: The Economist – August 5th 2017

 

 

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