Making 'em Feel Small...

I wrote that one reason that America's rich today live the expensive and ostentatious lifestyles they do (rather than spending much more money on charity, or philanthropy) is that it is a way of making other people feel small and unhappy:

Brad DeLong's Semi-Daily Journal: Lyndon Johnson, Yes. William Jennings Bryan, No.: I'm enough of a touchy-feely sociology-lover to believe that a good chunk of the utility the rich derive from their conspicuous consumption is transferred to them from the poor...

and that as a result:

...the happiness America's working poor and middle class derive from the compensation distribution--given their compensation, the compensation of the rich, and the lifestyles of the rich and famous--seems to me to be certainly less than that of their counterparts back in 1973.

Greg Mankiw translates this into:

Greg Mankiw's Blog: [T]he answer is less obvious if, as Brad suggests, people derive utility from comparisons with others. In this case, making the rich poorer raises others' welfare, even if their material standard of living is unchanged. In Brad's world, a rich person conveys a type of negative externality, like pollution. High taxes on the rich can be seen as Pigovian. Economists like me complain that high tax rates on high earners discourage their hard work and entrepreneurship. The Veblenesque Pigovian economist replies, "Precisely!" I must confess that I do not have a good retort to the argument.... But I am uncomfortable making envy a basis for public policy...

He misses the import of the phrase "conspicuous consumption." It's not the hard work and entrepreneurship that is to be discouraged. Make inventions, build enterprises, donate money for hospitals and libraries--that is all extremely meritorious and praiseworthy. It's the conspicuous consumption that is the problem.

Surely spite is at least as offensive an other-regarding preference as envy, isn't it? Surely public policy should weigh the spite-generated utility the rich gain from their conspicuous consumption as worth less than nothing, shouldn't it?

And Jane Galt talks about how:

Asymmetrical Information: Should we cut down the tall poppies to give the shorter ones more light?: it is repulsive to make people suffer just because others enjoy it.... The quest for autonomy, the thirst for knowlege, the desire to live a cleaner, healthier, richer life, free of hunger and want... these are the sorts of values we want our government to express and empower. Envy is not.

thus missing my point. My point was that the rich are spiteful--that they enjoy the envy of the poor.

Perhaps some sociologist or psychologist or social psychologist can explain why the reaction is one of jumping to condemn the poor whom the displays by the rich make feel small, rather than to condemn the rich for making the displays in order to feel large...

---

Blissex takes on the role of Apostle to the Gentiles, and tries to shed light on the issues. He returns depressed:

http://delong.typepad.com/sdj/2006/09/lyndon_johnson_.html#comment-21888738: Hi I have been very depressed to see that Greg Mankiw first and then ''Jane Galt'' in an even worse fashion have twisted DeLong's comments in this post in a way that I think is thoroughly vile: http://JaneGalt.net/archives/009434.html

(Mankiw): But the answer is less obvious if, as Brad suggests, people derive utility from comparisons with others. In this case, making the rich poorer raises others' welfare, even if their material standard of living is unchanged.

(''Jane Galt'') No, I think the reason that we recoil is that it is repulsive to make people suffer just because others enjoy it. And it is horifying to give free reign to our worst impulses through the power of the state.

I have tried to explain what I think DeLong actually meant, quite clearly, and I hope that I haven't misinterpreted it myself: http://JaneGalt.net/cgi-bin/MT/mt-comments.cgi?entry_id=9434#110374 http://JaneGalt.net/cgi-bin/MT/mt-comments.cgi?entry_id=9434#110379.

Comments

[Jon]

Prof. Delong:

So if I understand your argument correctly, would it be that the reason

[one reason]

the rich make ostentatious purchases is not simply that they "want" Ferraris, Yachts, etc., but that they want them because "the rest of us" cannot have them? I guess that's one reason to desire luxury goods.

If this is the case, is a progressive sales tax an ideal solution to this probem? One whereby basic necessities are not taxed, minor luxuries are slightly taxed, and major luxuries are heavily taxed? That way you avoid taxing income, (which generally discourages work and innovation), and the rich are made to suffer for their conspicuous consumption.

[stunster]

Another way of making people feel small is by calling them appeasers of fascism if they disagree with you.

Today's photo pairing at http://dailywarnews.blogspot.com/ following on Rumsfeld's 'appeasement' speech earlier this week is very salutary.

[Jon Fernquest]

"My point was that the rich are spiteful--that they enjoy the envy of the poor."

And the poor and middle class waste their whole life away in envy with movie star mags and a desire to be part of "high so", to be Paris Hilton's offspring (?), (I've only seen it in a Thai dubbed version).

The only solution: FREE EDUCATION and MORE FREE EDUCATION. Why is America so stingy with this very liberating resource?

They definitely need to dump more money into it. I'd really like to see the inflation adjusted price of a UC education over the last century. Probably frightening.

Need to broaden the tenticals of subjects taught, research done, tear down those frat houses to the south of campus and expand.

[Bill Conerly]

"rich are spiteful--that they enjoy the envy of the poor."

Where do get this? Read "The Millionaire Next Door" for an insight into the rich. Or meet a few. Several of my clients are very rich, ranging from $20 million to $400 million. They are nice people, driving everyday cars, wearing pretty much the same clothes that you or I wear. Their homes are nice, and they may fly on private jets, but they are not ostentatious. In fact, they'd prefer to blend in than to stand out as exceedingly rich. There are certainly some exceptions, with the huge yachts and lavish parties, but I think the large majority of the very rich aren't much different from you or me.

[quiz]

The Mankiw and Galt responses highlight a very powerful tool of the hard right and that is their tenacity in framing the argument.

The issue is really not about "hurting" the rich. The issue is to reverse the policies the rich have installed that are hurting the middle class and the poor. The argument that the unconscionable "free lunch" that this country has given the rich will increase their productivity would be humorous if it wasn't so tragic. Where are the results, Mankiw? Galt?

They cannot hide behind the national economic results because they simply do not support your assertions. The tax cuts are bankrupting the country, increasing the undesirable polarization of incomes, reducing the national security, and destroying the fabric of our economy.

These are the same people that scoff at the idea that a raise in the minimum wage will pay for itself through higher productivity. I guess the rich are just different than you and I. Just think of all the minimum wage jobs we could create if we reduced the maximum wage and balanced the budget, eh greg.

The Dems have got to begin reframing the arguments around the truth. The hard right has had free reign in slanting all dialogue in light of the "poor" rich paying for everything. The rich pay for everything because the system returns far more to them than to the less well off and far more than they put in.

The wealthy want a dead plutocracy. I do not. Restore the tax cuts and retain progressivity.

[James Galbraith]

Ah, Veblen...

Brad's view of conspicuous consumption should not be confused with Veblen's view; they are quite different.

For DeLong, the rich get their jollies by showing off in front of the poor.

For Veblen, the key distinction was not between the rich and the poor, but between the leisure class and the industrial classes. In higher barbarian cultures, the former included principally four types: soldiers, priests (of which modern intellectuals are a minor branch), government and sportsmen. The latter included mainly women, slaves and other chattel, plus craftspeople and a sprinkling of engineers.

Only members of the industrial classes actually work; only for them does the idea of being paid to compensate for the drudgery of toil apply. The functions of the leisure class, on the other hand, are matters of honor and prestige. For this class, income is important mainly as a mark of the prestige accorded by the community to the person.

For Veblen, the purposes of pecuniary emulation, conspicuous leisure, conspicuous waste, and conspicuous consumption were certainly not to impress the mass of working women, slaves and so forth. Such people were beneath notice. The purpose was strictly to establish and maintain one's position within the hierarchy of the leisure class.

This explains why much modern conspicuous consumption is conducted out of view of ordinary people. The point is not to show off to them; only to one's peers.

As an aside, I've always thought that the greatest latter-day American social innovation was (and is) conspicuous philanthropy: the practice of showing off by giving large donations to universities, churches, hospitals and so forth. Unlike the other forms, conspicuous philanthropy is almost completely innocuous. And there is no natural upper limit to the amounts one can dispose of this way.

Long live the estate tax.

[James Galbraith]

Ah, Veblen...

Brad's view of conspicuous consumption should not be confused with Veblen's view; they are quite different.

For DeLong, the rich get their jollies by showing off in front of the poor.

For Veblen, the key distinction was not between the rich and the poor, but between the leisure class and the industrial classes. In higher barbarian cultures, the former included principally four types: soldiers, priests (of which modern intellectuals are a minor branch), government and sportsmen. The latter included mainly women, slaves and other chattel, plus craftspeople and a sprinkling of engineers.

Only members of the industrial classes actually work; only for them does the idea of being paid to compensate for the drudgery of toil apply. The functions of the leisure class, on the other hand, are matters of honor and prestige. For this class, income is important mainly as a mark of the prestige accorded by the community to the person.

For Veblen, the purposes of pecuniary emulation, conspicuous leisure, conspicuous waste, and conspicuous consumption were certainly not to impress the mass of working women, slaves and so forth. Such people were beneath notice. The purpose was strictly to establish and maintain one's position within the hierarchy of the leisure class.

This explains why much modern conspicuous consumption is conducted out of view of ordinary people. The point is not to show off to them; only to one's peers.

As an aside, I've always thought that the greatest latter-day American social innovation was (and is) conspicuous philanthropy: the practice of showing off by giving large donations to universities, churches, hospitals and so forth. Unlike the other forms, conspicuous philanthropy is almost completely innocuous. And there is no natural upper limit to the amounts one can dispose of this way.

Long live the estate tax.

[Blissex]

«If this is the case, is a progressive sales tax an ideal solution to this probem? One whereby basic necessities are not taxed, minor luxuries are slightly taxed, and major luxuries are heavily taxed?»

That's what happens in many European countries (as you probably know).

But one interesting feature of anti-tax Republicans is that they rarely if ever argue for lower sales taxes, even if, or because, they are regressive, expensive (levied on every sale), and anti-business.

No curiously their hostility is first for capital income taxes and then for high end income taxes, and then estate taxes, whose incidence is on a relatively small number of lightly taxed households. Surprise, surprise. :-)

[Maynard Handley]

" if, as Brad suggests, people derive utility from comparisons with others. "

Anyone willing to make such inane statements is clearly not interested in truth, only in promoting ideology. OF COURSE people compare themselves with others and are thereby happier or sadder. I mean, for christs sake, read any of the psychological or sociological literature of the last ten years (and probably the last 100, last 1000 and last 10 000 years). People like Daniel Nettle and and Dan Gilbert and Richard Layard and Bruno Freye are constantly going on about this.

What is next?
"Assuming, as some claim, that people enjoy sex..."
"If we go along with Handley's assertion that people breathe oxygen..."

[BG]

We're not confusing envey with desire are we. Envy says deprive the other fellow of what he has while desire says let me have the same thing or better. Simple fact is that most rich people don't see themselves that way but rather as those who take care of their lives in the best way possible given the conditions. All attempts to change that have failed not because they punish the rich but replace the conditions with ones the rich cannot cope with. The poor cope even less well in those conditions. Gifts only help those who were working as hard as they could to get whatever the gift is and continue to work to get even more.

The notion of envy springs not from wealth is this world but the preception of wealth in the next world of after life. People will go hungry to avoid hell. The richest people on earth are the clergy. Their wealth is untaxed, the obvious reason why. That alone shows that the acculumination of wealth is related in great part to tax laws.

Prior to 1962 the graduated tax scale topped out at 92% at what today seems like a small figure, low 6 didits of income. The clergy simply put their incomes into the church treasury that is both unaccounted and untaxed. The church, not them owned, (still does) their lusury automobiles, private airplanes etc. This is a very unfair playing field for one who has started a business with no similar loophole to shield his income from the government.

The national debt may well be the untaxed and tax deductible "gifts to God." "Coulifornia" might well pay off it's massive and increasing debt by taxing church real estate like that of other businesses. http://www.hoax-buster.org is a beginning to soilving that obvious social problem.

[Blissex]

«Several of my clients are very rich, ranging from $20 million to $400 million. They are nice people, driving everyday cars, wearing pretty much the same clothes that you or I wear.»

Uhm they may be nice to you, a professional they trust, but not necessarily to their employees or servants. :-)

«Their homes are nice, and they may fly on private jets, but they are not ostentatious.»

As to how nice the homes of the modestly rich are, a gallery of ''special'' homes that have been on the market for a while:

http://images.BusinessWeek.com/ss/06/08/undersold/index_01.htm

and compare with those of the merely affluent:

http://images.BusinessWeek.com/ss/06/08/gulf/index_01.htm

or those of the ''middle class'' (MBAs at the beginning of a career as a manager):

http://images.BusinessWeek.com/ss/06/08/apartments/index_01.htm

I am doing my bit here to transfer some chunk of utility from the poorer readers of this blog to the rich :-).

«In fact, they'd prefer to blend in than to stand out as exceedingly rich. There are certainly some exceptions, with the huge yachts and lavish parties, but I think the large majority of the very rich aren't much different from you or me.»

Not necessarily, even if what you say applies indeed to many rich people.

But DeLong's argument to me is that the rich as a class enjoy their stuff more, knowing that it is ''exclusive'', even if when they are not ostentatious about it. A rich NY trader may light his cigar with a $100 note even when he is alone :-), simply to enjoy the ''because I can'' feeling of doing so.

Anyhow, I'll recycle here a rather interesting quote from Tocqueville's classic, precisely on the very subject:

http://xroads.Virginia.edu/~HYPER/DETOC/1_ch10.htm
«Just look at this opulent citizen. Wouldn't you say he is like a medieval jew who dreads that his wealth might be discovered? His clothes are simple and his demeanor is modest. Within the four walls of his house he adores luxury; he allows only a few chosen guests, whom he insolently calls his equals, to penetrate this sanctuary.
No European aristocrat can show himself more exclusive in his pleasures, more jealous of the slightest advantages of his privileged position than he is.
Yet here he emerges from home to make his way to work in a dusty den in the center of a busy town where everyone is free to accost him. On his way, the shoemaker may pass by and they stop; they both begin to chat. What can they say? These two citizens are concerned with affairs of state and will not part without shaking hands.
But beneath this conventional enthusiasm and amid this ingratiating ritual toward the dominant power, you can easily perceive in the wealthy a deep distaste for the democratic institutions of their country. The people are a power they both fear and despise.» [volume 1, part 2, chapter 2]

Note that he was writing this as to New England as to the 1830s, in a place and time where 80% of the population were fairly independent smallholders and most businesses had regional scope, not of the 1990s with immense and globe-spanning concentrations of wealth and power.

[bncthor]

Bill Conerly..."but I think the large majority of the very rich aren't much different from you or me."

This may be the case with respect to appearance. However, the rich are very different from you and me when incomes, etc. are compared. They have and enjoy much greater income. And, that makes them very different.

[Blissex]

«What is next?
"Assuming, as some claim, that people enjoy sex..."
"If we go along with Handley's assertion that people breathe oxygen..."»

Most of the Economics that Greg Mankiw practices (I hope he does not believe in it), is based on assumptions like:

''Let's assume all odd numbers are prime...'' (Walras)

''Let's assume all even numbers are prime...'' (Debreu)

''Let's assume all powers of 2 are prime...'' (Lucas)

(from an old joke as to what mathematicians would be like if they thought like economists)

[anne]

http://www.irs.princeton.edu/krueger/01_06_2005.htm

January 6, 2005

Doctoral Thesis Says Rich People Spend More on Conspicuous Things
By ALAN B. KRUEGER - New York Times

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....

[James Galbraith]

"Maybe the people who feel inferior to the rich and really feel envious are upper-middle class liberal academics. They seem like the kids with their noses pressed against the candy-store glass, to me."

Veblen is also very good on this point. It's not just liberal academics. It's all academics. As minor members of the leisure class, we have to display a standard in life, dress, food, drink, and consorts that permits us to mingle with captains of industry and others far wealthier than ourselves. Since (though otherwise very comfortable) we lack the material means to compete in this league, we live a very stretched existence. This is, precisely, a formula for inducing extreme envy. Ordinary members of the industrial classes do not feel this envy because they are not forced to play the game; in fact they are quite completely excluded from it.

Please excuse the conspicuous erudition displayed here. It's the poor academic's one little weapon...

[Finn]

I think critics of Delong's comments should distinguish four types of objection to the Professor's statement:
(1) The number of rich who enjoy flaunting their luxuries over the poor is vanishingly small;
(2) Conspicuous consumption by the rich does not undermine the utility obtained by the poor and middle classes from lifestyles which they can afford;
(3) Conspicuous consumption of luxury goods so as to enjoy the envy of financial inferiors is not immoral; and
(4) The flaunting of material success over financial inferiors is immoral but it benefits society by creating incentives for wealth creation and employing people to make/provide luxuries.

I think points 1 and 4 are contestable because both depend on an assessment of the internal motivations of strangers. One might agree with Prof Delong's view based on one's knowledge of our society, including the portrayal of wealth in popular culture, and one's general view of human nature. But I have a hard time seeing how one could prove or disprove this idea. OTOH, I do think a strong argument can be made against point four in that large investments in the capacity to provide luxuries is probably not socially optimal.

Point 3, it seems to me, cannot be maintained by a serious person. We can all agree that obtaining enjoyment from the suffering of others is repugnant.

Point 2 is the most important point of contention, it seems to me, because, if Prof Delong's argument is true, it applies to conspicuous consumption of luxuries regardless of the mental state of the consumer. Now I happen to think that there are problems---both moral and economic---with all forms of consumption designed to demonstrate the consumer's social rank, and expecially with the conspicuous consumption of luxuries. But this critique extends to the lifestyle of the wealthy in general rather than just the repugnant few who enjoy the envy of the less fortunate.

[bob mcmanus]

Thank you Professor Galbraith. It was a pleasure.

[Johnny]

The region has a lot to do with it. Where a middle class person can afford a decent lifestyle, it's radically differently than say many areas of California where housing prices are ridiculous.

[Les Brunswick]

"I wrote that one reason that America's rich today live the expensive and ostentatious lifestyles they do (rather than spending much more money on charity, or philanthropy) is that it is a way of making other people feel small and unhappy"

Well, that's what Adam Smith thought, but what did he know about anything?

[monkyboy]

Bring back the 90% tax bracket on top incomes.

Allow the rich to try to cut their tax rate by letting them go on a reality show to state their case why they deserve their high income...let the audience vote decide their tax rate.

The revenue from the show goes to the poor.

[Fazal Majid]

It is a mistake to consider "the rich" or "the poor" as a homogeneous group. Often, the pressure for conspicuous consumption stems from an acute sense of insecurity from people who acquired their fortune rapidly, e.g. Leona Helmsley. On the other hand, you have confident people like Bill Gates, Warren Buffett or George Soros who give massively to charity, or the old-money types who shun ostentation.

Of course, the mix in California leans more towards the insecure nouveau-riche caricatures (Larry Ellison, anyone?) than in the East, hence DeLong's skewed perspective.

[joan]

There is an entire TV channel (Fine Living) to help people with more money than they know what to do with, decide how to spend it. I am not sure who watches it, rich people to get ideas, or the non-rich out of curiosity. On the whole it shows how little value extra money has (once you are financially secure which at least half of the US population is not), until you have so much you can afford private jets and flunkys to cater to your whims. Rich people who live normal life styles have probably figured this out.

[Jim S]

I went over to Asymmetric Information, read the post and comments and posted my own. My point was that perhaps one of the reasons for dissatisfaction with the current status quo is not simply resentment of the increasing gap but the slow realization that the great American myth of everyone having a decent shot at that kind of wealth (or at least their kids having it) is becoming more and more detached from reality. I posted multiple links to articles and papers showing that economic mobility in the U.S. isn't as good as the myth says it is.

[JR]

What's missing here is any recognition that wealth is power. A rich person can command the time, energies, and loyalties of a poorer person. The greater the relative difference between the wealth of the two, the easier and cheaper it is for the rich person to exert power over the poorer person. An upper middle class person can command the energies of a maid or a nanny. A rich person can command the time and energies of many more -- including, for the truly rich, elected officials who like to watch sports from sky boxes and fly in private jets. The greater the difference between the very rich and the rest of us, the greater the power they command.

[anne]

http://www.nytimes.com/2005/12/19/national/19give.html?ex=1292648400&en=83c752fafe5c479d&ei=5090&partner=rssuserland&emc=rss

December 19, 2005

Study Shows the Superrich Are Not the Most Generous
By DAVID CAY JOHNSTON

Working-age Americans who make $50,000 to $100,000 a year are two to six times more generous in the share of their investment assets that they give to charity than those Americans who make more than $10 million, a pioneering study of federal tax data shows.

The least generous of all working-age Americans in 2003, the latest year for which Internal Revenue Service data is available, were among the young and prosperous - the 285 taxpayers age 35 and under who made more than $10 million - and the 18,600 taxpayers making $500,000 to $1 million. The top group had on average $101 million of investment assets while the other group had on average $2.4 million of investment assets.

On average these two groups made charitable gifts equal to 0.4 percent of their assets, while people the same age who made $50,000 to $100,000 gave gifts equal to more than 2.5 percent of their investment assets, six times that of their far wealthier peers.

Investment assets measures the value of stocks, bonds and other investments assets held in the tax system. Excluded from this are retirement accounts, which are generally held outside the tax system, personal property like furniture and art and equity in homes.

The I.R.S. data was analyzed by the NewTithing Group, a San Francisco-based philanthropic research organization that since 1998 has been encouraging the most prosperous Americans to give more. The full report was posted last night at www.newtithing.org.

Tim D. Stone, the president of New Tithing, said that taxpayers who itemize took $148.4 billion in deductions for charitable gifts in 2003. The American Association of Fundraising Counsel, an organization of companies that advise charities on seeking donations, estimates giving by all Americans, including those who file simple tax returns, was $180.6 billion.

The study used unpublished I.R.S. data from 180,000 tax returns to analyze giving by income, assets, gender, marital status and age. It found that disparities in giving by income class declined once taxpayers reach age 65, but it also found that as Americans grew older their giving as a share of their investment assets also generally declined....

[andres]

Michael: slow down. deeeep breaths. tranquility. birds. mind over bile. Otherwise, whatever you're giving birth to won't look so good ;-)

And when you're in a more peaceful frame of mind, read (again?) Jim Galbraith's first comment above on the reasons for conspicuous consumption. Afterwards, read some of the lesser known loathesome leftist literature (eg Keynes' "Economic Possibilities for Our Grandchildren" for a standard, sane view that the so-called "left" holds on acquisitiveness. And reread many of the chapters of _Wealth of Nations_ to remind yourself that too many businessmen gain their income not through risk-taking and entrepreneurship but through their ability to extract monopoly rents, which their friends in the government often grant. Perhaps then you'll reach your happy place ;-)

[meno]

"the wealthy engage in conspicuous consumption to advertise their wealth"

Yes. But I think this is a rare case where DeLong misses the point.

DeLong write as if the super-rich give a damn what the peons think: they don't. The super-rich are just like the rest of us, only with a lot more money.

You don't buy a Lear Jet 6 or $300 million house/estate as a put-down to the poor. You buy a Lear Jet 6 or $300 mill house as a put-down to your acquintances who only have a Lear Jet 4 or a $100 million house.

It's a human universal: getting one up on the Jones's next door.

But Mankiw misses the point by further: egalitarianism is an ideal we should work towards because it increases overall utility, but his mockery assumes both that it is the ONLY ideal that economic policy should work towards.

Mankiw also wants to be a utilitarian - except when he doesn't like the emotions that make people unhappy or happy. Which is no sort of utilitarian at all.

[Blissex]

«(3) Conspicuous consumption of luxury goods so as to enjoy the envy of financial inferiors is not immoral;»
«Point 3, it seems to me, cannot be maintained by a serious person. We can all agree that obtaining enjoyment from the suffering of others is repugnant.»

For the sake of argument, «repugnant» is rather excessive here...

«obtaining enjoyment from the suffering of others» is not quite the same as ''inflicting suffering'', and then there are different degrees as to the type and degree of suffering.

Being a conceited *sshole is at the very least a traditional perk, it is legal, it is arguably a human right. Yes, it is despicable, but repugnant is overstating it.

Note that if the wealthy deliberately favoured policies to worsen the lot of the poor to enjoy higher profits and an even greater sense of superiority, that may be repugnant, but even so, business is business.

I'd rather reserve strong words like "repugnant" for great crimes like those of slavers who do much worse than even those who may aim to further their interests by worsening the welfare of their suppliers of labor.

[tomboy]

Brad,

Just wondering if the fact that you are now posting class notes and syllabi on your blog means that the political content may change? Also, is the largest student club at Berkeley still the College Republicans?

Just curious.

[Blissex]

«You don't buy a Lear Jet 6 or $300 million house/estate as a put-down to the poor. You buy a Lear Jet 6 or $300 mill house as a put-down to your acquintances who only have a Lear Jet 4 or a $100 million house.
It's a human universal: getting one up on the Jones's next door.»

The ''poor'' I suppose is whoever is not doing quite as swell as you are :-). There are quite a few grades of spite. The top 0.01% can spite the next 0.99%. The 0.99% can spite the 99%...

But many enjoy ''because I can''. :-)

«Of course, the mix in California leans more towards the insecure nouveau-riche caricatures»

The not so nouveau-riche can be pretty elitist too, but yes, idioms like ''f*ck you money'' and ''f*ck you, I am fully vested'' are typically west coast attitudes...

«[ ... "Fine Living" ... ] I am not sure who watches it, rich people to get ideas, or the non-rich out of curiosity.»

Looks like that programme is part of the mechanism by which utility is transferred from the poor to the rich :-).

«Veblen is also very good on this point. It's not just liberal academics. It's all academics. As minor members of the leisure class, we have to display a standard in life, dress, food, drink, and consorts that permits us to mingle with captains of industry and others far wealthier than ourselves.»

But engineering professors who start companies or economics professors who do consulting can achieve much the same standards of wealth as a CEO... :-)

[steve kyle]

I am surprised that so many take it for granted that rich people got that way because they worked so hard. Sure, some of them do but an alarming number got rich because they either inherited it or were lucky enough to be able to afford to go to the best schools or were otherwise fortunate in some way. Who the richest are in this generation is highly correlated with who the rich were in the last generation and you will have a tough time convincing me that it is because they all have a gene that makes them work harder.

The hardest working people I know are the poor folks who have two or three different jobs. So enough of the Horatio Alger mythology. That isnt reality

[andres]

Sheesh. What's the point of replying to trolls if their posts get deleted in 10 minutes flat? :-)

What has to be remembered in all this hullaballoo is that conspicuous consumption is a phenomenon of class, a way, as Jim Galbraith pointed out, for the elite of society and their enablers to visually separate themselves from the riffraff even as they have to live with them in the same town or nation.

Contrary to what many trolls and other glorifiers of capitalism like Jane Galt believe, it is possible to have a classless society with substantial differences in income, with a substantial division of labor, and with a standard hierarchy of management/employees in business firms. Classlessness does _not_ preclude entrepreneurship, innovation, finance, and hierarchies within firms. But it does preclude _huge_ income inequality gaps obtained from unearned income. That is an important credo to keep in mind when discussing conspicuous consumption and its bad effects. In such a world, conspicuous consumption would not really be necessary.

[PW]

The worst thing about money is the power issue. The way money is allowed to buy political outcomes is a disgrace. I could subtract a lot of the dislike and distrust I feel for stinkin' rich if I could be sure they didn't have the capacity to own our future. If they were on the same level as you and me politically, they could feel as spiteful as they want and I'd just walk on by, hiding my smug thoughts about their emotional immaturity and their lousy taste. Corporations, having become persons, are equally guilty.

I admit to huge tolerance for Warren Buffet. Independence, humor, and generosity are extremely attractive in spite of all those billions!

[David M. Nieporent]

Someone quoted this Op/Ed: 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.

But the reverse is also the case, is it not? If a Timex tells time as well as a Rolex, then the people who can only afford the former are really living just as well as the people who have the latter; the only thing that makes the former worse off is that he feels jealous that he doesn't have the Rolex.

Why should anybody care what some whiny Timex-wearer whines feels? Objectively, he's telling time just as well. The only thing that's missing from his life is social status. It seems pretty ludicrous to say that we ought to punish the rich, not because the poor need food, clothing, or shelter, but just because the poor are status-seeking.

[Frank]

David N- All humans are status seeking or no one would buy a Rolex in the first place. That neither means we cannot avoid endless heirarchy nor that we must avoid them, but the people at the bottom will always feel bad in proportion to the height of the pyramid.

[Tom Marney]

This nation did very well for a very long time with the a much smaller share of wealth and income going to the rich and the very rich. Now, the share of income and wealth going to the rich and the very rich is much larger and increasing, yet we aren't doing as well. I think that many of us who aren't rich or very rich (and some who are) are sensing that something is very wrong, and that defenders of the rather indefensible transfer of wealth and income to the rich and very rich are spinning by referring to the legitimate concerns of the rest of us by the pejorative term "envy."

[James Galbraith]

"But engineering professors who start companies or economics professors who do consulting can achieve much the same standards of wealth as a CEO... :-)"

Yes, this is a good point. Conservative academics have an advantage: it's easier for them to find outside income. And the salaries in the B-Schools are higher, too.

So maybe we liberal academics do have a special problem with (rational) envy.

[theCoach]

Is Mankiw insinuating that Gates would not have had the incentive to start Microsoft and to work hard if he were only to make $ 25 Billion (or half of whatever he has)?
Can Warren Buffet's work ethic really be tied so closely to his desire to give away a really huge some of money?

With regard to hard work and entrepeneurship, isn't there a pretty low ceiling on hard work? Pretty soon my lack of rest will bring diminishing returns, no? As for entrepeurship there may be something there, but the extreme payouts to those that can be gatekeepers, rather than those that add value, likely distorts the incentive to create value.
I do not think that most on my side are against providing incentives that fuel growth, but that we should have a more honest accounting of them.
BTW, it is extremely discouraging for a lay person to see top economists arguing about such basic and trivial points. Mankiw's comments, and the simplifying assumptions implied, make me think that economics is a deeply troubled field. (James Galbraith and in other places Dean Baker, among others offer some hope).

[TheJew]

If in fact rich people like to use their consumption to simply feel superior, why should whatever props and dramatic acting used to affect this response be treated differently then props and acting devoted to eliciting a thrilling or humorous response in the audience?

If in fact people gain utility from reducing the utility of others then we are outside the realm of market interactions by definition (since all parties involved in a market transaction must be at least indifferent to the transaction). I suppose if rich people were paying telemarketers to call up people and annoy them by delivering short speeches about the wealth and superiority of their patrons we would have a social problem, but this is not the case.

I am pretty sure the majority of the positional component of utility (that is the part of our utility that depends on our relative wealth or consumption, as opposed to absolute wealth or consumption) comes from the non-market allocation of mates. Suppose we have four people, the high resource guy and girl and the low resource guy and girl. The high resource girl wants to marry the high resource guy because it will give a higher shared consumption, similarly the high resource guy wants to marry the high resource girl. Even if the difference between the high resource guy and low resource guy are small, the low resource guy cannot “purchase” the high resource mate; whoever has a slight amount more gains the difference in utility between having the high resource mate and having the low resource mate. The relative wealth of the agents becomes important. More details are discussed in this paper:

Cole, Harold L., George J. Mailath and Andrew Postlewaite (1992), “Social norms, savings behavior, and growth”, Journal of Political Economy, 100 (6): 1092-1125.

http://elaine.ihs.ac.at/~espino/cole_m_p.pdf#search=%22%E2%80%9C
Social%20norms%2C%20savings%20behavior%2C%20and%20growth%
E2%80%9D%22

It also discusses how a more compact income distribution may increase savings and accelerate growth.

The important liberal implication of positional utility is that we can redistribute wealth to a point of equality and still get large and significant motivation of effort by allowing tiny increases in inequality, gaining huge motivation by offering a change in relative social position without harming the least well off very much (and indeed not at all after making a Rawlsian accounting of incentives).

[David Wright]

Brad draws a distinction between what he sees as two related but distinct phenomena: the disutility felt by the envious poor and the utility felt by the spiteful rich in response to the poor's envy. He condems the latter but doesn't want to pass judgement on the former.

From an economic perspective, that's very odd. Usually, we want to encourage utility-generating effects while discouraging disutility-generating effects. To the extent that we view these phenomena as distinct, that would mean encouraging the spite while discouraging the envy. (For example, we could provide counseling to reduce the envy of the poor, making them happier, while encouraging them to pretend to still feel envious, so that the rich can continue to feel happily spiteful.) Instead, Brad seems to want to discourage the spite and encourage (or at least not discourage) the envy. Curious.

[glenn]

Though pure speculation, I'm sure Brad is right about some of the rich, but probably a minority. That being said, believe it or not, many people would probably consider Brad to be rich, so maybe you have more insight than I.

I think there's a subset of the rich, the Ellisons et. al., who desire most of all the have the largest yacht, and unfortunately the media play up on this, and I feel, distort it. And frankly, I speculate they get more utility from them having things that other rich people, their peers, cannot rather than hoi palloi. That is not who they are comparing themselves to.

[glenn]

For the record, Envy is one of the seven deadly sins, and was ranked by the church (I'm far out of my bailiwick here) as the second worst (Pride being the worst). Spite - not on the list (but maybe on Brad's). (Warren Buffett had a comment about gluttony, being the only of the seven sins in which you have fun. "Some of the best times I've ever had were when I was gluttonous," he said)

[Flaviu I.]

"You buy a Lear Jet 6 or $300 mill house as a put-down to your acquintances who only have a Lear Jet 4 or a $100 million house.

It's a human universal: getting one up on the Jones's next door."

I think that this hits the nail right on the head and the implications are catastrophically damaging to any argument that intends to base calls to egalitarianism on the presence of conspicuous consumption.

If the main reason for conspicuous consumption is impressing only or mainly your perceived peers and if, as James Galbraith argued, one is afflicted with envy mainly towards one's perceived peers, then this particular "evil" will _not_ disappear in any egalitarian society that stops short of imposing utopian communist style of egalitarianism.

You make your neighbor envious even with a very small difference of income -- indeed it is _mainly_ when there is a small difference of income that you can make someone envious, as when the income difference becomes large, the subjects of the discussion do not perceive themselves as being peers.

If there is a solid basis for supporting egalitarianism, conspicuous consumption just isn't it.

[Tom]

The thesis seems pretty wonky, generating strange examples when one thinks of it. Does Brad DeLong feel spite against his impoverished grad students? Are americans spiteful against the rest of the world? Huh.

As far as I can recall, Vebleins conspicuous consumption is basically a race against others in the same general economic class as oneself, not against the poor. The upper classes may treat the poor with some pity, disinterest, and/or condescension, but hardly spite. That's usually reserved for those downward bound or insecurely perched on the peg above poor.

[Krug]

I still don't understand why spitefulness based on wealth and consumption should be more deserving of policy intervention than that which is based on talent, good looks, or political connections?

After all the Soviet Union had much flatter monetary equality than the US. That didn't prevent envy and spite based on numerous other margins that were far less productive for society than money-based envy. And the small material differences (ability to shop at hard currency stores) were blown way up in importance.

Better that someone look down on the poor for being poor than for being short or ugly or crippled. Status races don't disappear in a world without any money at all.

[save the rustbelt]

Did anyone see Tiger Woods on 60 Minutes yesterday.

Did you see the yacht? Wow!

But then Tiger funded a community center for youth education (look like a sort of high brow Boys/Girls Club) and other charitable ventures.

Re: tax policy

We have to be careful. When the infamous "yacht tax" was passed the primary result was the unemployment of middle class boat builders.

[Bruce Ferguson]

Human Abstract
William Blake
Pity would be no more,
If we did not make somebody Poor;
And Mercy no more could be,
If all were as happy as we;

[Tom Maguire]

Well, since the main point of the original post seemed to be the stagnation of median wages, I have to say I totally missed the notion that "conspicuous consumption" was the problem.

Whatever - if "conspicuous consumption" is the problem, should the government try to reduce the incomes of all of "the rich", or simply the conspicuous consumers? Presumably, some mix of consumption taxes would meet this rather hazy objection; maybe an special tax on wine costing more than $100 per bottle, or $20 per glass.

Of course, since the policy prescription in the first post was a more progressive tax system, that simply reinforced my misinterpretation that it was "the rich" and not "conspicuous consumption" that was the problem.

Frankly, if a few annoying and badly behaved rich folks can upset that many in the working class, I think the mission of placating the working class is hopeless. As a corollary to "the poor will always be with us" I suggest "and so will the obnoxious."

[David M. Nieporent]

Frnk, y wrt: "bt th ppl t th bttm wll lwys fl bd n prprtn t th hght f th pyrmd." Bt tht msss m pnt, whch s ths: WH SHLD W CR? Whn y tlk bt ppl lvng n hmlss shltrs nd nt bng bl t fd thr chldrn, w cn ll fl sympth. Bt f th nl ss hr s tht th "fl bd" bcs th dn't hv th sm scl stts, s wht? Tll thm t sht p nd stp whnng. Dvd Wrght sd wht ws tryng t s, bttr thn dd. dn't b Brd's whl rgmnt bt wh th rch ct s th d, bt f th d, t dpnds n th pr byng nt th sm mndst: tht Tmx s nfrr t Rlx, nd tht wnrshp f Rlx s smthng t nv. f t's bd fr th rch t fl tht w, shldn't t b bd fr th pr t fl tht w s wll?

[Tom Maguire]

As a baseline, here is something from the Prof (with a quote from Krugman, for good measure) about conspicuous consumption written in May 2005:

http://delong.typepad.com/sdj/2005/05/class_status_pr.html

"To the extent that goods are valued not for the services they provide by themselves but as indices of exclusivity, it is pointless to produce them for more people because then they become less exclusive and so less valuable. Paul Krugman, for example, has placed himself on Orwell’s side: he would rather be middle-class in the fifties than working poor in the nineties-—even though the material standard of living of America's working poor in 1990 is higher than that of America's middle class in 1950. He:

[Krugman excerpt]

know[s] quite a few academics who have nice houses, two cars, and enviable working conditions, yet are disappointed and bitter because they have never received a [job] offer from Harvard and will probably not get a Nobel Prize. The live very well... but they judge themselves relative to their reference group, and so they feel deprived. And on the other hand, it is an open secret that the chief payoff from being really rich is, as Tom Wolfe once put it, the pleasure of "seeing ‘em jump." Privilege is not merely a means to other ends, it is an end in itself.

[END EXCERPT]

Note that in the endorsed Krugman passage there is nothing about the attempts by the rich to spite "the poor"; the focus is on the envy experienced by folks who don't quite measure up to their imagined peer group.

If I may hazard a guess - the DeLong post which sparked this discussion mentioned 'conspicuous consumption" but was easily interpreted by readers suchas Mankiw as an endorsement of class envy as a basis for public policy.

Rather than defend that position (which I am sure could be done, although I would not attempt it), the Prof back-pedaled into a swamp by arguing that, no, no, it is not the envy of the poor that troubles him, it is the obnoxious sense of self-satisfaction enjoyed by the rich that merits government action.

Unfortunately that leaves the mismatch of problem and solution noted by others (and me) - if "conspicuous consumption" is the problem, why is a progressive income tax, rather than excise taxes on spiteful goods the answer?

(A possible answer - *all* of the rich engage in spiteful, obnoxious behavior. Please.)

And other glaring problems with this "spite" theory include:

(a) everyone does it - even in poor neighborhoods, some folks are wearing "bling" and Air Jordans, and others are not. My guess - it is an attempt to display status and attract the hot chicks, but what do I know?

(b) "Stealth" conspicuous consumption: Per the DeLong theory, BillGates, Larry Ellison, and Warren Buffet all enjoy their private jets not just for the convenience factor, but becasue it is annoying me (and the other readers here, too).

OK, then, quick - what kind of planes do those three fly? Are any of them in a converted 727, a top of the line Gulfstream, or what?

Answer - I have no idea, and (absent Google) I doubt anyone here does either.

So how is this working - are they engaging in conspicuous consumption in order to gall me, then keeping it secret? Are these guys rich *and* stupid?

C'mon - those three could care less about imrpessing me. But I'll bet each of them could tell you what the other two are flying.

If the title of this post, "Making 'em Feel Small" is extended to every income group and other species, then yes, there is a basic impulse to acquire and flaunt status. Personally, I blame the hot chicks - if they would ignore such superficial indicators as expensive sports cars and expensive suits and focus on the real values (e.g., does this guy have a successful blog?) it would be a better world.

(I say that only conceptually, of course, being happily married.)

Last gasp - if we look at status-seeking behavior from a different direction, why is it that economists (and academics generally) routinely list their published papers on their website? Once an idea is "out there" and accepted, why does authorship matter, anyway? Shouldn't committed egalitarians amongst the academics abandon this whole notion of counting citations and piling up publication?

As if. For some reason, I think it is sensible, status-seeking behavior. And I bet some young grad students are envious, and I bet some profs even spite their underlings by boasting about their publications. Shocking.

[Blissex]

«why spitefulness based on wealth and consumption should be more deserving of policy intervention»

Why policy intervention? I think that Brad's comment on the transfer of utility was just in passing. Just to add color to the issue.

The issue is not spitefulness, the issue is a much more inequal distribution of income than the one that prevailed for most the past 60 years, and this inequality has been achieved by lowering the real incomes of the poorest workers and robbing most of the rest of the rewards of increasing productivity.

The morale damage effect (if any) is just a secondary issue.

It was made into a primary issue by the intemperate (and in my judgement rather dishonest and vile) misrepresentation by Greg Mankiw and ''Jane Galt'' of his argument as an example of the malicious nature of progressives, to the point that they ended up ''suggesting'' that DeLong was arguing for sadistic envy, and ''Jane Galt'' compared taxes to throwing acid in people's faces:

http://WWW.JaneGalt.net/archives/009434.html
«[ ... ] free lance beauty socialists could give the rest of America a big boost in net happiness with every jar of acid they toss.
All right, so we're not going to do this.
But why is this so much more horrifying than the idea of taking the fruits of people's labours--most of which were gotten fairly honesty, by dint of hard work and delayed gratification [ ... ] Or is it that the body is more sacred than the wallet? Do not most of today's wealthy make their money by presenting their body at work for many hours a day, and labouring with their minds, which are far more sacred to any rational person than their limbs or cheeks?
No, I think the reason that we recoil is that it is repulsive to make people suffer just because others enjoy it. And it is horrifying to give free reign to our worst impulses through the power of the state.»

And no, in the last phrase in the quote she is is talking about progressive income taxes, not torture because ''better safer than sorry'' and indefinite administrative detention ''just in case''.

Don't be surprised if ''Jane Galt'' eventually gets a position in a Republican administration or something similar...

[guest]

Tom Maguire:

This is economists we are talking about - conspicuous consumption is at least something interesting to ponder. Inequality is just same old same old *yawn*.

[Lee A. Arnold]

Exactly right. The distributions of wealth, income, and debt are getting worse, and should be redressed. But this has NOTHING to do with the fact that the Stupid, among both the poor and the rich, are spiteful and/or envious. "The stupid ye will have always with you!"

More of that stupidity was historically revealed among the nueveau riche classes, just as soon as they started to chatter, and it makes for a fascinating social history of the explanation of sin. Of course the explanation will be incomplete, since sin is interior, and emotional causation, even when negative, is not measurable. How alienating! Yet it remains a sort of ready topological existence theorem, and always ripe for the plucking.

Now it is combined here, in a new(old) rationale by politically conservative economists, to explain why others have made their opposing judgments. For another example, wasn't Paul Krugman attacked recently for being some sort of traitor to his class? I only read it halfway through and fell asleep, so I may have it wrong... But now it all strikes me as very odd, stupid stuff. Perhaps there is a new campaign guideline out there? As a tactic, it is emotionally analogous to the new Republican Campaign Theme that the Democrats are appeasers to the new fascism... In both cases the proper response is something like, "How dare you, bonehead! Grow up!"

[Gerard MacDonelll]

Mankiw refers to a "material standard of living." What is that?

[PCD]

A recent study showed that the happiest people where those who perceived themselves as better off than their peers irrelevant of income level. Its not keeping up with the Jones's, it's being the Jones's.

[elizp]

The comments claiming that the rich are not spiteful towards the poor deserve rebuttal, however anecdotal. I attended a heterogeneous (ethnically and economically) public high school in a California agribusiness city; my tracked honors courses attracted students from high SES backgrounds while I myself am (to use University of California parlance) an “underrepresented minority” from an immigrant, working-class family. Once in a junior-year honors math class I happened upon a perfect score on a textbook chapter test; the usual standard bearer, a resident of one of the most coveted neighborhoods in town (if not the entire state), the daughter of Math PhDs, and a girl of preternatural brilliance who later would become a Stanford Econ professor, scored a couple points below me. My startled delight was, however, cut short by classmate Lisa Frederickson, a neighbor of the standard bearer, who confronted me that I shouldn’t let this one moment of success delude me into believing I was any better than the standard bearer. I took her advice and I didn’t think anymore of that regular exam.

The following year I graduated as a salutatorian and left town to follow a charmed existence that includes a couple Cal degrees, work positions in global cities, an interesting (if small) publication record, and all this time decent health and a joie de vivre of a boyfriend/husband. Life is good. But for years that encounter with Lisa Frederickson bothered me like a pebble in a shoe: Why would she care more than the standard bearer about how I did on an silly high school math quiz, except to set the social order of the world right and remind an underrepresented minority from an immigrant, working-class family that she (I) was not entitled to the status normally enjoyed by high SESes, but that meritocratic achievement could possibly confer on others?

Since graduating from high school and leaving town, I’ve also met many rich people, some who got their wealth through ability, work, and luck, and others who were just lucky. The most significant attribute I’ve observed among them, the one characteristic that determines their values and regard for others, is the degree to which they identify with their wealth. Those who (most of the time) do not see themselves (or, in regard to conspicuous consumption, make others see themselves) through their homes, cars, shoes, and spouses are generous, restless souls who take more pride in their work than in the status attained; they understand their position and wealth as instruments, means to an end rather than ends in and of themselves. Those who do identify with their financial capital join the Lisa Fredericksons of the world in believing their materiality makes them superior to the poor and therefore mandates their petty hatred.

(Sorry for the long and perhaps irrelevant post, but this exchange really touched a nerve.)

[Daniel]

I've often wondered how intelligent and talented people come into my office and make purchases of diamonds in the tens of thousands of dollars when in fact they themselves would admit that they couldn't tell the difference between a diamond and a cubic zirconia. often i'll have customers requesting a rather large diamond and yet at the same time mentioning how "they don't want it to look gawdy or obnoxious".. which only begs then the question why the need to buy a huge diamond???... clearly they're getting some immense pleasure in the acquisition of a chunk of carbon...