In his 1999 book Luxury Fever: Money and Happiness in an Era of Excess, Cornell economist Robert H. Frank analyzed the economic consequences of the status-driven arms race that has raged for some years among the group that I call the affluenza. I guess affluenza is both the social class and the disease that afflicts them rolled into one.
The affluenza don’t simply consume goods and services, they use them to construct identities much as the singer in the video above (see note). Identity building is a complex process (ask the parent of a teenager) and sometimes an expensive one, too. You need to send status signals to others, of course, and you’ve also got to convince yourself. The acquisition and display of consumer goods (including but not limited to luxury products) is one aspect of identity building. Thorstein Veblen coined the term “conspicuous consumption” to describe it.
Private Choice, Social Consequence
Affluent consumers purchase increasingly expensive and scarce commodities as a way of telling others (and convincing themselves) of their status and taste. Robert Frank was concerned about the rise of luxury fever because of its boundless ability to soak up resources that might be better used somewhere else.
If you are just buying a car for transportation, for example, you can get pretty much what you might need for less than $30,000 (much less, in fact). But if you are building a self-image or staking out a place in the social pecking order, then the sky is the limit, both in terms of the car itself and the gadgets, accessories and so forth. Pretty soon you’ve got enough automotive wealth parked in your garage to feed and clothe a small Africa village for several years.
Luxury fever isn’t a new phenomenon. Affluent citizens of renaissance Venice engaged in competitive conspicuous consumption that threatened to bankrupt the city and its great families. In desperation, sumptuary laws were enacted to protect the citizens from their own excessive zeal. Such conspicuous displays as the number of rings that women could wear in public were strictly regulated.
To this day the gondolas that ply the waters of Venetian canals must by law be painted plain black — a regulation that dates back to the era when elaborate and expensive decorations threatened to sink both the boats and their owners “under water.” I think about sumptuary laws whenever a Hummer fills my rearview mirror.
Robert Frank isn’t the first economist to express concern about luxury fever. John Maynard Keynes wrote his famous essay “The Economic Possibilities of our Grandchildren” in 1930, in the depths of the Great Depression. Keynes’s main point in the essay was that the temporary problem of the Depression would eventually disappear leaving a bigger problem, which Keynes called the Permanent Problem: how to live a rewarding, fulfilling life.
Keynes meant the essay to both calm panicked citizens and to inspire them to think beyond their wallets and purses to bigger issues that matter more in the long run. I have been thinking a lot about this essay recently, since 2009 bears a family resemblance to 1930.
Keynes thought that we would be getting to that point where the economic problem was fading and the permanent problem being solved right about now. He thought we would be rich enough, most of us in the developed world, to have enough stuff to satisfy our needs and be ready to think about more important matters than material goods. He put a number of conditions on this forecast, however, and one of them was that we would get over our interest in positional or status goods — that we would get over luxury fever. But I guess he was wrong.
Luxury Fever Cools
Or maybe I am being too hasty. “Luxury Wine Market Reels from Downturn” is the story in today’s Wall Street Journal. It reports a collapsing market for high end wines in the United States with lower sales, discounted prices and the prospect of industry consolidation as the wine market shakes out. Some of these wines are the sort of rare, expensive luxury products that have an irresistible appeal to the affluenza. Their value goes beyond what’s in the bottle to the people who long to own them.
The collapsing luxury wine market is bad news for the wineries, distributors, retailers and restaurants that earn a living on luxury wines. Good news for bargain hunters and collectors, I guess.
And possibly good news for our grandchildren. The decline in luxury wine sales is probably simply an exaggerated reaction to the economic crisis and this market will likely bounce right back when the economy starts looking up. But maybe, just maybe what we are seeing here is a reassessment of the economic and social role of fine wines, designer clothes, and other luxury goods.
I’m not saying that luxury goods will disappear, but if they become a mere end in themselves, not a means to a more complicated psychological goal, then they will lose a little of their toxic social effect. Perhaps the economic crisis will change public perception of conspicuous consumption and encourage individuals to define identities in the ways that Keynes imagined. It’s a long shot, I know. Or maybe it is just a beginning.