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Conspicuous Consumption

Jun 20, 2010 • Economic Thinkers, Households • 226 Views    No Comments

I once read that Thorstein Veblen let his dirty dishes accumulate until his cupboard was bare, then sprayed them with a hose and started all over again. Maybe a good idea, but unusual. This early 20th century scholar (1857-1929) was somewhat eccentric.

We remember Veblen for his The Theory of the Leisure Class (1899) and his theory of conspicuous consumption. According to Veblen, affluent consumers try to convey their power and wealth through wasteful and unproductive behavior. The affluent can do less because their servants and employees do more. And then, to display their prestige and power, everyone else also wants to do less. As expressed by Veblen, “The members of each stratum accept as their ideal of decency the scheme of life in vogue in the next higher stratum, and bend their energies to live up to that ideal.”

In a 2009 essay, columnist Daniel Gross asks whether Veblen is still right. Does wasteful spending convey prestige? Yes, he concludes. But, when Veblen says the affluent become unproductive, times may have changed. “Type-A” behavior has become prestigious. Maybe now, “there’s a sort of reverse prestige associated with leisure.”

More tomorrow with specifics on what the rich buy.

The Economic Lesson

Using Lorenz curves developed by statistician Max Lorenz, we can look at income distribution in the U.S. Lorenz divided the total number of families into 5 equal groups as the X-axis of his graph. For the Y-axis, he looked at the total amount of income that all families received. Then, he used coordinates to show how society’s total income was distributed. For example, a dot at (20.20) would mean that 20% of all families received 20% of all income. If the line moved from (20.20) to (40.40) to (60.60) and finally to (100,100), income distribution would be equal. Displaying unequal income distribution, in the U.S., the most affluent quintile receives close to 50% of all income. 

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