Echo

Is conspicuous consumption dead?

Monday, May 11, 2009

In economics there is a wave of literature, pioneered by the likes of Thornstein Veblen, that attributes consumption patterns to one's level of income and wealth, but also to his "relative" standing in society. In short: households accumulate wealth in order to pay rent, buy a car, or purchase groceries, but also to to flaunt, or openly display, one's placement in the pecking order of society. This behavior is called "conspicuous consumption", or "keeping up with the Joneses". Did you ever:

  • Build a pool in your backyard because your neighbors all had one...even though you don't swim?
  • Buy a big Hummer to drive around the streets of Houston, Texas?
  • Buy the $300 cotton top at Saks rather than the $10 cotton top at Target?
The adverse effects of this recession on consumption behavior has been diffused across all classes of society. And as households save and delever (pay down debt), does this mean that the days of conspicuous consumption are over? At least for the time being? Well, the makers at Rolls Royce are worried and planning accordingly. From the Economist:
In these hair-shirt times, selling the ultimate statement of automotive luxury is tricky. Rolls-Royce’s customers can still afford the £300,000 ($450,000) asking price. The problem, as Mr Purves acknowledges, is that for some buyers, the “atmospherics” of splashing out on such a conspicuous symbol of wealth do not feel quite right. The firm has data going back to 1904 that suggest there is no link between Rolls-Royce sales and either stockmarkets or GDP, but there is with property prices. In 2007 Beverly Hills was Rolls’s best market, beating London, Dubai and Riyadh. But last year Beverly Hills was relegated to fourth place behind Beijing, with oil-rich Abu Dhabi claiming top spot. Mr Purves says that America accounts for about 40% of Rolls-Royce sales, and California was one of the first markets to soften.
I know that most of us are not in the market for a Rolls Royce. However, it is likely that "class" may play a lesser role on consumption behavior while households slowly pay down debt.

Rebecca Wilder

2 comments:

janie May 11, 2009 at 1:41 PM  

It seems hard to define one's "class" these days when you can easily fall out of upper income into lower with the loss of a job. The conspicuous consumption debt load can pretty well wipe out what ever assets one may have. So what do you call yourself now? Many seniors have been falling from the vast middle class into lower middle class for years and no one said much about it.

Smack MacDougal May 11, 2009 at 2:39 PM  

Hey Rebecca.

You write, "In short: households accumulate wealth in order to pay rent, buy a car, or purchase groceries, but also to to flaunt, or openly display, one's placement in the pecking order of society."

That short description falls short in many ways.

First, only individuals can act. Households names abstraction.

Second, wealth is nothing more than things of worth, which others set the degree of value as expressed in street prices.

In truth, individuals accumulate buying power (cash and credit) in order to gain title to things of worth. Such things we call wealth.

Most of such things fall in street prices once acquired merely because such things become used.

Third, persons buy for many reasons including status. Persons buy for reasons such as influence, practicality, performance.

Many deem things "expensive" simply because they cannot figure out ways to increase their buying power (cash and credit) to buy such things.

Yet, no thing is expensive. The belief that a thing is expensive is a false one, illusory, a trick of the mind.

The makers of a Ferrari 430 set the price within on supply and demand constraints.

Those who buy such a car often do so for performance as much as anything else.

Buying power of individuals is falling everywhere as cash flow and credit is falling. Thus, both output and acquisition of luxury goods is falling.

The rather petty, jealous Veblin and his followers lack a thorough understanding of human nature, money, wealth, worth, group dynamics and products.

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