In their book The Elephant in the Brain, Kevin Simler and Robin Hanson write about “conspicuous consumption,” a term coined by economist and sociologist Thorstein Veblen who lived about 100 years ago. Simler and Hanson write, “When consumers are asked why they bought an expensive watch or high-end handbag, they often cite material factors like comfort, aesthetics, and functionality. But Veblen argued that, in fact, the demand for luxury goods is driven largely by a social motive: flaunting one’s wealth.” The other pieces of the argument, the good performance of the item, the colors we were dying to have, and the durability of the product might be the true reason we made a purchase in some instances, and that allows us to make those excuses even though they only describe part of our behavior. A big part of Hanson and Simler’s book focuses on the idea that we use these types of excuses to justify our actions. Further, they argue that our behaviors often signal something about ourselves implicitly that we don’t want to say explicitly.
In the case of luxury goods the thing we are signaling is our wealth. Our wealth demonstrates our financial resources and can be used as a proxy for our social capital and human value. Our wealth may give others insights into our skills and abilities to do hard things, helping us stand out against a crowd. And, our wealth may reveal our deep social connections or our family’s high status, two social traits that certainly helped our ancestors pass their genes on in small political tribes.
The problem today, however, is that we don’t admit this is what we are doing with our purchases, and as a result we face major negative externalities from our consumptive habits. We spend a lot of money on unnecessary luxury goods, and many people go deeply into debt to signal that they are the type of person who would own a certain type of luxury good. Our unyielding desire in the United States for ever further and greater consumption leads us to buy larger houses that we have to heat, faster cars that use more energy, and to own more clothes that will take millions of years to break down thanks to the new synthetic fibers we use to make them. Our consumption and our drive to continuously signal our wealth and social value, some would argue, is poisoning and heating our planet to dangerous levels.
Simler and Hanson don’t focus on the externalities of our signaling behavior in their book, but they do acknowledge that they are there. The authors simply make an argument that most of us would rather ignore. That we do things for selfish motives and reasons we don’t want to talk about. This is important if you are an economics, sociology, or policy researcher because you need to understand what people are really doing when they rally politically or make economic decisions. For the rest of us, in our daily lives, we can take a lesson from Hanson and Simler that stems from an awareness of our self-centered behavior. We can think about our signaling behaviors and ask if conspicuous consumption is really worthwhile. We can step back and ask if the ways we signal our wealth help or hurt the planet, and we can start to make decisions with positive externalities and attempt to avoid the negative externalities I mentioned above.
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