Conspicuous consumption

[Louis Proyect <lnp3@xxxxxxxxx>]

ECONOMIC SCENE
NY Times, January 6, 2005
Doctoral Thesis Says Rich People Spend More on Conspicuous Things
By ALAN KRUEGER

LONG before Thorstein Veblen coined the term "conspicuous consumption,"
economists from Adam Smith to Karl Marx had argued that people choose to
buy some goods because of what those goods reveal about their standing in
society, not because of any intrinsic enjoyment they get from the purchase.

Yet conspicuous consumption remained mainly a theoretical curiosity for
more than a century, with little empirical content or support. Now, Ori
Heffetz, a doctoral student in economics at Princeton University, has
developed the first broad-gauged index of product visibility. Sure enough,
he finds in his thesis that conspicuous items make up a greater share of
the consumption budget in wealthier families.

The idea of conspicuous consumption is intuitive. A Timex watch, for
example, tells time about as well as a Rolex, but the particular watch you
wear tells a lot about your purchasing power and personality. A major
motivation for buying an extravagant watch is to signal to others that the
consumer has "made it," a point not lost on advertisers.

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.

It is unclear, however, whether conspicuous consumption is a motivation
underlying the purchase of many products or just a few. Furthermore,
products that are conspicuous may nonetheless be consumed for their
intrinsic value, not their curb appeal.

To determine whether conspicuous consumption is a rarity deserving little
attention or central to understanding what people buy, it is necessary to
have a measure of the extent to which a good is conspicuous.

Mr. Heffetz measured the visibility of various products by conducting a
telephone survey of 243 randomly chosen individuals last summer. He first
requested that respondents "imagine that you meet a new person who lives in
a household similar to yours." Then, for each of 29 types of products,
which together account for most of consumer spending, he asked them to
imagine that the household spent more than average on that product. "Would
you notice this about them, and if so, for how long would you have to have
known them to notice it?"

full: http://www.nytimes.com/2005/01/06/business/06scene.html

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