Luxury Fever

I'll start discussing Geoffrey Miller's new book Spent soon.  But first let me review its main predecessor: Robert Frank's book Luxury Fever, from 2000. Miller on Frank:

I owe Gad Saad and Robert Frank a great debt for their groundbreaking work. … Frank's reasoning, like mine, is that many purchases function as positional goods that display one's wealth, status, or personality traits rather than yielding true happiness benefits or fitness payoffs to the purchaser. … All my arguments are highly supportive of Robert Frank's proposal for a progressive consumption tax. (p27,312)

Frank begins Luxury Fever complaining about $5000 barbecue grills, whose main purpose he presumes is to show off how much money its owners can spend.  Frank wants to discourage "conspicuous" rather than "inconspicuous" consumption: 

If we all lived in smaller houses, or drove less expensive cars, we could all take more weeks of vacation each year. … Vacations offer the opportunity to see new places, visit with distant relatives and friends, take up a new sport, read books, lie on a beach, hike in the wilderness. ….

The degree to which workers enjoy autonomy and choice with respect to which tasks they do and the manner in which they perform them. … Workers tend to find greater satisfaction in jobs that provide greater opportunities to make use of their skills. … Job satisfaction increases with the variety of tasks workers are called on to perform. … If pay were the same, people would choose safe jobs over risky ones, quiet jobs over noisy ones; jobs with convenient parking over those without; jobs with security over those without; and so on.

What … I call "inconspicuous consumption" – freedom from traffic congestion, time with family and friends, vacation time, and a variety of favorable job characteristics.  In each of the examples discussed, the evidence suggests that subjective well-being will be higher in the society with a greater balance of inconspicuous consumption. 

The list of inconspicuous consumption items could be extended considerably.  For instance, we could ask whether all living in slightly smaller houses would be a a reasonable price to pay for higher air quality, more urban parkland, for cleaner drinking water, for a reduction in violent crime, or for medical research that would reduce premature death. … Rapid transit to alleviate traffic congestion … Spending additional time with family and friends. … A given sum can be spend to make a car faster and more luxurious, or to make it safer and more reliable.  (pp86-92)

Frank is correct that if we do some things more for show, to make us look good relative to other people, and if we do other things for more absolute gains, we might indeed be better off with a global tax on the showy activities.  Yes there may be some efficiency gains from status sorting, but we probably do work too hard for relative status gains. 

But, Frank seems completely blind to the fact that most of the "inconspicuous" activities he likes are also visible and status-determining, just as the "conspicuous" activities he dislikes.  We only see those fancy grills when visiting friends and relatives, as Frank recommends, at which time we commonly mention or show, and are judged by, our job task variety, vacations, commutes, crime risk, auto safety, and water purity. 

Strikingly, Frank offers no evidence whatsoever that the activities he dislikes and wants to tax in fact cause more inefficient status-seeking than the activities he likes and wants to subsidize.  It doesn't even seem to occur to him that such evidence might be requested.  A cynic might suspect that he and his supporters mainly just want to raise their status by discouraging status signals in areas where they do worse, and encouraging status signals in areas where they do better.  At that summer barbecue, maybe Frank would rather we all sat transfixed by his articulate lecture on the politics of status, without being distracted by the host's shiny new grill. 

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  • psychohistorian

    Anything that is generally desirable will technically increase your status if you obtain it. Frank’s point seems to be against things that are explicitly status-seeking, like expensive grills (of both kinds). Things that incidentally raise status do not pose the same problems, since we would want them in the absence of their status-seeking qualities. Admittedly, an increase in relation-visiting might increase the demand for showy BBQ’s. This doesn’t seem like it would be a significant enough side effect to undermine his point, since, however much it increased the demand, given budget constraints, it would lower consumption of BBQ’s.

    There’s a simple Genie test for conspicuous consumption: If a genie said, “You can have X, but everyone you know will get 1.5X, or you can have 1/2 X, and everyone you know gets 1/3 X;” if you take the second deal, conspicuous consumption is probably the bulk of the item’s utility. I don’t claim scientific rigor for this, of course, but it’s a pretty good indicator.

    It certainly works with Frank’s examples. If X were “commute time reduction,” “vacation time,” or “improved air quality,” it seems like you’d take the higher outcome, and your only complaints would be about fairness; you’d definitely be better off. If X were about designer clothes or something similar, most people would probably take the lower equilibrium.

  • Gary

    I like Frank’s hockey helmet template: absent regulations, hockey players choose to play bare-headed; if given a vote, they unanimously choose rules enforcing use of helmets. So it would be wonderful if Frank were proposing that rich people vote amongst themselves about whether to limit their income possibilities. Sadly, I don’t think that’s what he’s suggesting.

  • http://profile.typepad.com/robinhanson Robin Hanson

    Psycho, I agree your test is reasonable, but Frank offered no evidence for what passes or fails such a test. You say “it certainly works” but you offer no evidence either.

    Gary, the hockey example is fine too; but we need evidence on what other examples are like it.

  • http://www.ciphergoth.org/ Paul Crowley

    Do you have any proposals on how we might gather evidence on to what extent a purchase is status-seeking rather than quality-seeking?

  • L. Zoel

    This is just prisoner’s dilemma on a larger scale. If we all agree not to waste our money on status-items, we will all be better off. But if someone defects and buys that really fancy grill, then he looks really awesome compared to the rest of us. We preempt him by buying our own grills, while he at the same time is preempting our preempt and we all end up back where we were to begin with, competing over expensive status-showing items.

  • Leonid

    I tend to be suspicious of all kinds of anti-capitalist rhetoric. However, I can see a utilitarian argument in favor of high taxes on some forms of conspicuous consumption.

    The reason people prefer wearing real rather than fake diamonds is the price differential, which makes real diamonds inaccessible to the less wealthy. It is of little importance to the owners whether most of this differential comes from taxes, De Beers policies or real production costs of the mining industry. Hence raising taxes on diamonds may increase government revenue without negatively affecting the opportunities for status signaling.

  • Anon

    What a dullard, Frank is.

  • http://ssmag.wordpress.com PeterW

    Frank also has not even a qualitative idea of how expensive his alternative non-signalling goods are. It is far cheaper to stamp out a few hundred grills than to achieve any significant increase in lifespan, for example.

  • Jaffa Cakes

    “At that summer barbecue, maybe Frank would rather we all sat transfixed by his articulate lecture on the politics of status, without being distracted by the host’s shinny new grill.”

    Robin, you’re NAUGHTY!

  • http://singyourownlullaby.blogpost.com mariana

    No-one knows what money is, which seems odd. We know about strange things like quarks and quasars. But not about money. Everybody claimed wisdom, starting with Economists and ending with academics. Money is ‘nothing but numbers’, a ‘measure’, a ‘means’, a ‘liberator’, ‘money is, what money does’. In fact, money can be anything we believe it to be.

    Theories about money are plentiful and can fit any circumstance.They are comforting to us, but fundamentally unreliable.

  • http://www.pendorwright.com Elf Sternberg

    Frank’s “inconspicuous consumption” seems to correspond to the “consumption of experience” meme that’s been circulating among the geeky cognoscenti with whom I hang out. For those of us past our 30s, our houses, however large, are full. It takes effort to clear stuff out. Far better to consume experiences than things.

    But that “inconspicuous consumption” can be made highly conspicuous– if you blog. Tweet. Facebook. You can make your friends envious of your emotional fulfillment puttering in your garden, bicycling with the children, having an afternoon picnic, and so forth and so on. Frank’s argument fails because his distinction is wholly artificial, and doesn’t take into account alternative forms of signaling now available to anyone with a lick of literacy.

  • Jason Brennan

    If the world is ever ruled by omniscient, omnibenevolent angels, maybe I’ll go for this. Until then, I don’t trust anyone to implement this kind of policy.

  • ES

    We value expensive gewgaws because they represent tangible proof that someone, somewhere, thought we were worth something.

    mariana, money is a means of coordinating arrangements that would be too complex to manage by direct barter.

  • Phil

    “If we all lived in smaller houses, or drove less expensive cars, we could all take more weeks of vacation each year. … Vacations offer the opportunity to see new places, visit with distant relatives and friends, take up a new sport, read books, lie on a beach, hike in the wilderness. ….”

    If we all took fewer vacations, we could all live in larger houses or buy more expensive cars. … Larger houses offer the opportunity to accumulate a greater variety of goods that provide opportunities for recreation, such as pool tables and televisions. Better cars offer increased accident avoidance, and better safety in accidents that can’t be avoided. By offering more comfort, they allow people to spend more time in their cars, which provides increased opportunities to drive to visits with medium-distance family and friends, beaches, and wilderness.

  • diogenese

    psycho — some psychologists have looked at your test, unfortuantely I don’t have a reference, but vaguely recall that there is something like a 50/50 split between the two options.

  • Will Pearson

    “But that “inconspicuous consumption” can be made highly conspicuous– if you blog. Tweet. Facebook.”

    So we need a Twitter Tax!

  • Tony

    Hence raising taxes on diamonds may increase government revenue without negatively affecting the opportunities for status signaling.

    I wonder what would happen if there was a tax on lentils. A dollar a bean. Lentil soup would cost hundreds of dollars a serving! Perhaps it would be the ultimate luxury tax.

    I’m only half kidding. A tax on lentils would only create a black market. 😉

  • justin

    Even with incentive, people will always compare themselves to other people and then prove that their x is better than the other person’s x. Or simply, that the other person doesn’t have an x, but the speaker does, which would, supposedly, put one person higher than the other on whatever subjective scale the two have. The second person might respond that they do not measure themselves along x, but that won’t stop the first person from acquiring x to impress someone else. Prestige is important, and we’ll always make excuses to be treated better/higher up than other people. As some comments have made clear, there’s always a bit of utility and a bit of show in our material goods, and we typically buy those things for both.