Thorstein Veblen coined the term conspicuous consumption; he “argued that people spent lavishly on visible goods to prove that they were prosperous”:
“The motive is emulation — the stimulus of an invidious comparison which prompts us to outdo those with whom we are in the habit of classing ourselves,” he wrote.
This, it turns out, is quite true of the African-American subculture:
On race, the folk wisdom turns out to be true. An African American family with the same income, family size, and other demographics as a white family will spend about 25 percent more of its income on jewelry, cars, personal care, and apparel. For the average black family, making about $40,000 a year, that amounts to $1,900 more a year than for a comparable white family. To make up the difference, African Americans spend much less on education, health care, entertainment, and home furnishings. (The same is true of Latinos.)
It’s not quite that simple though:
Since strangers tend to lump people together by race, the lower your racial group’s income, the more valuable it is to demonstrate your personal buying power.To test this idea, the economists compared the spending patterns of people of the same race in different states — say, blacks in Alabama versus blacks in Massachusetts, or whites in South Carolina versus whites in California. Sure enough, all else being equal (including one’s own income), an individual spent more of his income on visible goods as his racial group’s income went down. African Americans don’t necessarily have different tastes from whites. They’re just poorer, on average. In places where blacks in general have more money, individual black people feel less pressure to prove their wealth.
The same is true for whites. Controlling for differences in housing costs, an increase of $10,000 in the mean income for white households — about like going from South Carolina to California—leads to a 13 percent decrease in spending on visible goods. “Take a $100,000-a-year person in Alabama and a $100,000 person in Boston,” says Hurst. “The $100,000 person in Alabama does more visible consumption than the $100,000 person in Massachusetts.” That’s why a diamond-crusted Rolex screams “nouveau riche.” It signals that the owner came from a poor group and has something to prove.
This nouveau riche phenomenon goes well beyond a few racial minorities in the US:
It suggests why emerging economies like Russia and China, despite their low average incomes, are such hot luxury markets today — and why 20th-century Texas, a relatively poor state, provided so many eager customers for Neiman Marcus. Rich people in poor places want to show off their wealth. And their less affluent counterparts feel pressure to fake it, at least in public. Nobody wants the stigma of being thought poor.
So, Veblen was right — but he was also wrong:
Or at least his theory is out of date. Given that the richer your group, the less flashy spending you’ll do, conspicuous consumption isn’t a universal phenomenon. It’s a development phase. It declines as countries, regions, or distinct groups get richer. “Bling rules in emerging economies still eager to travel the status-through-product consumption road,” the market-research group Euromonitor recently noted, but luxury businesses “are becoming aware that bling isn’t enough for growing numbers of consumers in developed economies.” At some point, luxury becomes less a tool of public status competition and more a means to private pleasure.
For today’s affluent, success is about inconspicuous consumption:
In Veblen’s day, the less affluent scrimped on their homes in order to keep up appearances in public. “The domestic life of most classes is relatively shabby, as compared with the éclat of that overt portion of their life that is carried on before the eyes of observers,” Veblen wrote, noting that people therefore “habitually screen their private life from observation.” By contrast, consider David Brooks’s observation in Bobos in Paradise that, for today’s educated elites,
it’s virtuous to spend $25,000 on your bathroom, but it’s vulgar to spend $15,000 on a sound system and a wide-screen TV. It’s decadent to spend $10,000 on an outdoor Jacuzzi, but if you’re not spending twice that on an oversized slate shower stall, it’s a sign that you probably haven’t learned to appreciate the simple rhythms of life.Virtuous or vulgar, what all these items have in common is that they’re invisible to strangers. Only your friends and family see them. Any status they confer applies only within the small group you invite to your home. And the snob appeal Brooks pokes fun at corresponds to the size of the audience. Many friends may see your Jacuzzi or media room, but unless you’re on HGTV, only intimates will tour your master bathroom. A slate shower stall may make you feel rich, but it won’t tell the world that you are. As peer groups get richer, the balance between private pleasure and publicly visible consumption shifts.