Conspicuous Consumption, What Is It Good For?

Conspicuous consumption:

Some people want to argue that this is a good idea. I can't imagine how this is a good thing. How could it be? What benefits could there possibly be from people playing a highly expensive zero sum game with the resources at their disposal, not for their own pleasure, but as a measure of relative status?

It's arguably better than the rich hoarding their wealth, since this way the people who make luxury goods at least get some money out of them.

I guess you could say it makes the rich less rich though. Very slightly.

edited 24th Nov '12 4:18:19 PM by Topazan

Because those damned Joneses are showing their brand new goodies off and making us look inferior, and our primitive caveman instincts don't like that! If me want snu-snu with all women in tribe, me MUST have shiny objects!

Seriously, that's pretty much what it boils down to.

edited 24th Nov '12 4:24:11 PM by TrashJack

Well it's pretty damn stupid. Why "Im On A Boat which I don't get much enjoyment from at all" and not "I have paid XXX more than you in taxes throughout my life, which makes me more awesome and a better contributor to society" or "I have invested X amount in these really cool Kickstarter projectes" or even "I WENT TO SPAAAAAAAAAAAAAAACE"?

Yes. Yes it is stupid.

Indeed, it's reason #483503 on my list of why we need to all become cyborgs. With cybernetic brains, we can upgrade ourselves into ditching those primitive desires, and perhaps eventually become a sentient cloud-thingy.

Until that time, assuming it occurs within my lifetime, I'll buy simply what I think I'll enjoy using and/or need to use, provided it's within my budget. Though I suppose it helps that 1. I'm not wealthy, and 2. I keep a self-imposed separation from people, so that probably makes it easier for me.

edited 24th Nov '12 4:48:17 PM by TrashJack

Because humans are social animals with a fairly strong sense of hierarchy, and relatively intangible stuff like paying taxes doesn't have the same perceived value as a yacht.

That, and the song's all one massive joke anyway.

This seems like a very complex topic. How do you tell if a particular instance of consumption is "conspicuous" or not? I would imagine that most people buy things for complicated reasons. I know I do. When my laptop got too old to be useful anymore, I replaced it with a more modern tablet. I like the tablet's convenience, I need to ability to access the web, but I admit I kinda like the interested looks I get when I use it in public. How conspicuous was that consumption of mine?

How do you measure the total rate of "conspicuous consumption" in a population? And are we applying this one term to several different things? According to the wiki article OP linked to

"...In the 20th century, the significant improvement of the standard of living of a society, and the consequent emergence of the middle class, broadly applied the term “conspicuous consumption” to the men, women, and households who possessed the discretionary income that allowed them to practice the patterns of economic consumption—of goods and services—which were motivated by the desire for prestige, the public display of social status, rather than by the intrinsic, practical utility of the goods and the services proper..."

But also "...yet the research of the finance professor Nikolai Roussanove, and the economists Kerwin Kofi Charles and Erik Hurst, indicated that conspicuous consumption is a complex of socio-economic behaviours very common to the poor social classes and economic groups, and common to the societies of countries with emerging economies. Among such people of the “poor” social classes, the displays of wealth psychologically combat the impression of poverty, often because he or she belongs to a social class or to an economic group whom society perceive as “poor”..."

And finally "...In The Millionaire Next Door: The Surprising Secrets of America’s Wealthy (1996) Thomas J. Stanley and William D. Danko reviewed the traditional definition of conspicuous consumption, wherein the examination of the style of life of rich Americans indicated that most tended to economic frugality and practiced a modest standard of living..."

In economics, production is production and consumption is consumption, and the more economic activity that occurs the better off everyone is. It's easy to demonstrate that spending on luxury goods produces less beneficial "spinoffs" for society than, say, civil infrastructure does, but we cant live off bridges and the internet alone. As long as consumption produces wages for someone, most economists wouldnt worry about it.

If you want to get mad about sources of wealth disparity, consider the phenomenon of "Financialization". According to the other wiki: "...Trading in U.S. equity (stock) markets grew from $136.0 billion or 13.1 percent of U.S. GDP in 1970, to $1.671 trillion or 28.8 percent of U.S. GDP in 1990. In 2000, trading in U.S. equity markets was $14.222 trillion, or 144.9 percent of GDP..." In other words, financial speculation is 50% greater than the Gross Domestic Product (i.e. the consumption of goods and services). That was the root of the 2008 recession, and is by far the greater problem.

edited 24th Nov '12 6:54:12 PM by DeMarquis

I'm all for rich people bothering to put their money back into circulation, but a good chunk of this kind of spending is really just trading money between themselves. I mean, most of the ridiculously expensive stuff is made by other rich people.

edited 24th Nov '12 7:01:20 PM by Pykrete

I thought it was made by their employees.

The stuff is made by employees, but the ultimate benefit is reaped by those who own the companies. Luxury goods fill a demand. There are the items that are expensive because they are very good and cost a lot to produce. There are also items that people buy purely because they can.

Interestingly, back in the day of landed aristocracy, they actually needed to buy and run large households, in part because each aristocrat was a miniature government (or corporation) unto himself. But kings, dukes and whatnot also had a social reason to splurge; they needed to show off that they could afford to blow money on huge feasts to create the impression that their kingdom was strong and productive.

I do know several quite wealthy people, and they almost never show off or talk about how much they make. They drive expensive cars and wear expensive suits, and take expensive vacations, but they rarely buy things just to show off to others. Maybe it has to do with the social values around where I live.

"The stuff is made by employees, but the ultimate benefit is reaped by those who own the companies."

Wouldn't that depend on what percentage of the sale price goes into payroll? In a competitive market, that should be relatively high (which also explains the behavior of those feudal-era aristocrats you describe).

We would need to find out how much something like a Rolex or a Bentley costs to make. Everything about the cost of manufacture is profit.

Hmm. Conspicuous Consumption is only a decent idea if supply outstrips demand, which, I think, in this case it does. Honestly, I don't have much of a problem with it (aside from environmental concerns, but that's another thing) because it feels like it tends to re-distribute wealth, even if only a little bit. It does feel like digging ditches, just to fill them in though, or breaking windows, or so on.

Well, rich people buying gold plated laptop or whatever is better than the money just sitting in their bank account, sure. But it would be better spent...pretty much anywhere else.

Depends on what they're getting. If they're buying custom designer clothes and art for thousands of dollars apiece, it's probably not touched by filthy plebian hands. If they're getting a shiny new Macbook with spinners, sixteen cores, and no heat sinks that goes from zero to crotch panini in ten seconds, the money mostly bypasses the filthy plebian hands that made it and goes up to the executives anyway.

edited 24th Nov '12 8:58:58 PM by Pykrete

And it's Google to the rescue! Frankly, 23% net profit on a luxury watch is less than I was expecting. I cant vouch for the source, though. Bear in mind that that figure isn't net profit per individual watch sold, but total net profit over all watches manufactured.

I'll explain the difference. I own a bookstore. I buy used books, and resell at a markup. Typically I mark up a "like new" hardcover from $1 cost to a $6 sale price. But bear in mind I only sell a tiny fraction of my inventory per day. I have maybe 30-40% inventory turn-over per year. Lowering my prices, strangely, doesn't seem to affect sales very much. So I need to mark them up that much just to cover my total costs.

My brother is an even more extreme case. He paints large oil paintings, and marks them up about 1000%. But he is lucky to sell two or three per year. If he lowered his prices, no one would take him seriously enough to even look at his works (conspicuous consumption indeed).

Now, we are both examples of industries where the consumer wants to buy at an inflated price, probably at least partially for prestige reasons. So- the takeaway here is that we can define "conspicuous consumption" as when a consumer voluntarily pays an inflated price which is some percent over cost, including labor. 20% seems reasonable. And if more than 50% of the cost goes toward labor, I'll claim that the social benefits outweigh the costs.

Neither of us has employees, we are both part of the problem. But neither of us is rich. So for us, it's almost pure wealth transfer from upper class to middle class. I'm just saying that this issue is more complicated than it appears at first.

Money sitting in a bank account is still in use. The bank can lend it out to people who want to start a business or buy things. Using money in the bank to buy something, whether practical or not, just moves the money from one person to another. They're both productive uses of money; it's just a matter of who benefits from its use and when.

Spending money on items of conspicuous consumption benefits the makers of gaudy crap (and the buyer, I suppose). It's a fallacy to think that the best use of money is necessarily spending it on luxury goods when you don't need any more necessities. Basically as long as money isn't sitting in a huge pile under your bed or tied up in useless quasi-liquid assets (I'm looking at you, gold sellers), it is being put to use.

How many unemployed people would we have if people only bought stuff that they needed? I don't say that to be sarcastic, I'm really wondering.

That's an incredibly complicated question, no less so because there are many people who just can't afford the necessities of daily life. And what counts as a "need"? Do my wife and I "need" life insurance on each other? Do you "need" to save and invest for the future? At what standard of living are your basic needs satisfied? A dingy one-room apartment under a bowling alley or a three bedroom home in the suburbs can both be seen as "needs". In many western developed countries, it's considered important to maintain a certain minimum standard of living, not just enough to scrape by.

Basically that question is impossible to answer with any degree of certainty.

edited 24th Nov '12 9:22:57 PM by Lawyerdude

"Spending money on items of conspicuous consumption benefits the makers of gaudy crap (and the buyer, I suppose). It's a fallacy to think that the best use of money is necessarily spending it on luxury goods when you don't need any more necessities."

Most economists would disagree. If a "luxury" is simply any good or service above or beyond basic needs, then the vast majority of wealth is spent on luxuries. All economic growth is based on finding new desires (not basic needs- those don't change) to fulfill in new ways. And it's surprisingly hard to define the difference between a "necessity" and a "luxury". Most things we think we need are only because we are in competition with other people for scarce resources, like jobs. Hence the "need" for things like cars and internet-access. If a luxury watch contributes to a professional appearance which helps you compete for a high-level opening in a job interview, then it's a "necessity" not a "luxury".

Nor is it clear that if consumers spent less money on conspicuous items, there would somehow be more money for poor people to buy necessities.

As for the savings issue, it depends on what the bank does with those savings. See my link on "Financialization" earlier.

Like I said, I know it's not the prevailing view, but the school of economics I find the most logical says that production, not consumption, drives economies. Money complicates the issue. It's easy to forget that it's just a tool to facilitate bartering, so I prefer to speak in bartering terms.

When people talk about demand falling, what does that mean? People still need to eat, children are still outgrowing clothes, and the desire to have fun hasn't decreased. People still want stuff, but they don't have anything to trade for it, because something is standing in the way of their production. When demand goes down, it means that production has gone down somewhere else.

As long as people have natural resources to work with, they're always going to work at making the things they need. Hoarding money isn't really a problem. It's just like they're saying "Here's some stuff I made, but I don't want anything in return. Maybe later, but maybe not." Under this line of thinking, consumption is not really a good thing, but at least if you made your money fairly you're consuming no more than you produced.

I really don't see much disagreement. If you buy something from a company, whether it's a necessity or a luxury (however you define them), the seller benefits from the business. That should be self-evident.

But overall it isn't necessarily worse for the economy to take the $25,000.00 you spend on a Rolex and instead lend it to an entrepreneur, or give it to a charity that uses it to buy food and clothing for the poor, or spend it on your child's education, so he or she can get a better and higher-paying job. Those are all productive uses, and it's your choice to decide what option is best for you.

Conspicuous Consumption is, by definition, buying something primarily for the purpose of showing off. There is a demand for gold-plated iPods and diamond-encrusted cock rings. As long as that demand exists, there will be a supply.

I think money simplifies things. It's a medium of exchange, a unit of account, and a store of value. Without money, we would revert to barter.

edited 24th Nov '12 9:41:59 PM by Lawyerdude

@Lawyerdude - The seller benefits, yes. The question is does the economy as a whole benefit? I would say no, because you are simply exchanging one form of wealth for another. Only production creates new wealth.

Let's say you got that money buy building cars. You build four cars and earn 25,000. Now society is four cars richer. When you go and buy the rolex, you take it out of circulation. Society is one rolex poorer. If the value of your labor was the same as the value of the rolex, society is back where it started.

The money is irrelevant. It's just a bookkeeping system that reminds society it owes you four cars worth of stuff.

edited 24th Nov '12 9:42:54 PM by Topazan