Media Briefings

AFFLUENCE AND WELL-BEING: HOW ‘CONSPICUOUS CONSUMPTION’ MAKES SOCIETY RICHER BUT NOT HAPPIER

  • Published Date: July 2009

Once a country reaches a reasonable standard of living, consumption goes increasingly on status symbols with no intrinsic value – such as lavish jewellery, designer clothes and luxury cars. These goods represent a ‘zero-sum game’ for society: they satisfy the owners, making them appear wealthy, but everyone else is left feeling worse off.

That is the central message of a study by Professors Curtis Eaton and Mukesh Eswaran, published in the July 2009 Economic Journal. They also find that the sense of community and trust in society deteriorate with increased wealth.

These findings provide an explanation for empirical studies that show stagnant levels of happiness and feelings of community in affluent countries like the United States, despite unprecedented growth in real incomes.

Consider an economy where people can spend their time on only three pursuits: leisure; working to buy general consumer goods; and working to buy status symbol goods that only act to differentiate their wealth – known as ‘Veblen goods’ after the economist Thorstein Veblen, who described the idea in 1899 along with the term ‘conspicuous consumption’ in his book The Theory of the Leisure Class.

Leisure and consumer goods have a positive impact on individual happiness regardless of others. But the value of a Veblen good to an individual is determined by the average wealth of others: the level of equality in the economy. The more unequal the society, the greater the motivation for conspicuous consumption, which makes someone stand out as wealthy.

As the economy grows, people can consume more of the three goods but increasingly choose the Veblen goods. The problem with Veblen goods is they represent a zero-sum game. Those with above average wealth consume Veblen goods with a positive impact on their happiness. But those with below average wealth simply cannot afford these goods, so they have a negative impact on their happiness. This is known as ‘Veblen competition’. As average wealth rises, people grow richer but not happier.

The authors comment:

‘Veblen competition characterises affluent people, not just people who live in affluent countries. Thus one observes the rich in developing countries living in luxurious houses, driving expensive imported cars and conducting outrageously expensive weddings.’

The authors then consider ‘leisure’ to mean activities that contribute towards community and trust – for example, voluntary work in the neighbourhood. In a finite world, the same impulse to work and consume Veblen goods takes away time available to spend in the community.

Community and trust form part of an economy’s ‘social capital’, lowering the costs of doing business by reducing the need to haggle, to monitor other people’s behaviour, etc. Thus, conspicuous consumption can have an impact not only on people’s well-being but also on the growth prospects of the economy.

The researchers predict that in countries like the United States: ‘it is likely that its conspicuous consumption will become worse as time progresses.’

ENDS

Notes for editors: ‘Well-being and Affluence in the Presence of a Veblen Good.’ by Curtis
Eaton and Mukesh Eswaran is published in the July 2009 issue of the Economic Journal.

Curtis Eaton is at the University of Calgary. Mukesh Eswaran is at the University of British
Columbia.

For further information: contact Curtis Eaton on +1 (403) 220-2672 (email: eaton@ucalgary.ca); Mukesh Eswaran on +1 (604) 822-4921 (email: eswaran@econ.ubc.ca); or Romesh Vaitilingam on 07768-661095 (email: romesh@vaitilingam.com).