By Mariano Rojas *
It seems we have developed a practice of burning money every day.
In his Theory of the Leisure Class Thorstein Veblen argued that peoples’ consumption plays a conspicuous role. Veblen stated that people buy many products, not because these products provide a functional utility in their lives but because these products allow them to tell everybody else about their social rank. The price of one’s possessions, rather than the possessions themselves, is a good indicator of one’s status in society. This argument proposed by Veblen was developed by other social scientists who emphasized the role played by status-seeking in people’s behavior. For example, James Duesenberry, a well-known economist, proposed his relative-consumption hypothesis; i.e. people’s consumption is motivated by their relative standing rather than by their absolute needs. Duesenberry is well-known for his ‘keeping up with the Joneses’ view. People spend because they do not want to end up falling behind their neighbors. People are even willing to see their savings vanishing and even willing to go for a second mortgage in order to remain at the same level as their neighbors, or to rise above.
In 1976 Fredrick Hirsch advanced the idea that we live in a positional society. In this view, most of us have enough resources to cover our basic needs, such as food, clothes and shelter. Most of us also have sufficient resources to buy dinnerware, beds, heaters, sport shoes, education, health services and others. After buying all these goods and services, some of us still have resources available or an easy access to credit. What to do with these resources? The answer is that we can use them to show our social status. We spend on goods not for their own sake, but for showing others that we can do it while they can’t. How else can you explain the recent gift of a US$ 80,000 Barbie doll given by a famous female singer to her 1 year old daughter?
To explore the importance of the positional-society argument, some Swedish researchers asked people to express a preference between different products; for example the question could be: If given the opportunity to own a car at no cost, would you prefer a:
Most people who are familiar with cars would prefer a Chevrolet Malibu (some environmental considerations could make someone bend towards the Chevrolet Cruze)
However, let’s frame the same question within a context, which is a more realistic exercise: If given the opportunity to own a car at no cost, would you prefer a
Chevrolet Malibu, while everybody else (e.g.: your colleagues and neighbors) own a Chevrolet Impala
Chevrolet Cruze, while everybody else (e.g.: your colleagues and neighbors) own a Chevrolet Spark
Most people facing this choice bend towards situation b), that is: they prefer to own a Chevrolet Cruze rather than a Chevrolet Malibu not because of the car itself but because of the context it involves which implies a better relative standing. The same exercise is done with different products (designer clothes, house sizes, and so on) and the importance of one’s relative standing shows up many times
People care about their relative standing and they are willing to work longer and to borrow money in order to climb the social ladder. However, what happens when everyone works harder, spends their savings, and opts for borrowing money or even for going for a second mortgage in order to climb the social ladder? We all spend more, we all end up working more hours, we all end up spending our savings, we all end up having more debt, but we do not end up in a better relative standing. Behavior motivated by relative-standing presents a big problem for us. What is true for someone from a partial perspective is not true for everybody once we have the full perspective. In other words, if someone buys a Chevrolet Cruze while everybody else keep driving a Chevrolet Spark then her relative standing improves and this provides her with social status and a sense of success in life which is associated to her well-being. She may even find it acceptable to work extra-hours or borrow money in order to get this rung up on the social ladder. However, if she works extra-hours and borrows money to buy a Chevrolet Cruze while every else does the same then we all end up with a situation where there is no sense of relative success. In this sense, we are collectively burning money. Economists refer to this situation as a zero-sum game since nobody wins with this behavior. As a matter of fact the situation is even worse. It is what economists call a negative-sum game since everybody losses with this behavior. It is not only that our relative standing is not improving, but what is worse, we have less time for our personal hobbies, for sharing time with our family, and even for exercising and taking care of our health. And we have even more stress from the resulting debt. It is in this sense that we are wasting our lives, since our well-being is declining.
Philosophers refer to this situation as a ‘fallacy of composition’: what is true of some part of the whole is not true of the whole. The problem is that most of us cannot have a full perspective of the situation. We are so afraid of lagging behind that we have no time to ponder the whole situation
Why are we burning money and wasting our lives?
Individualistic thinking does not contribute. As in a fire, it may pay off for everyone if we collaborate to suppress the fire, but individually we may react by running to the closest door.
Depersonalized societies foster material positional goods. If we do not know our neighbors or our colleagues except for what they wear and where they live then we tend to base our judgments on what we observe of them. The luxury of their clothes and possessions is something easy to observe. Status will be based on possession of material goods rather than who the person is. Erich Fromm tells us that being is not the same as having, but if we do not give ourselves the chance of knowing who the others are we risk judging them by our observations of what they have.
Economic indicators do not reveal this trap. The GDP is insensitive to this trap since it observes how much money we are spending but not how much well-being we experience. If we all are spending more, even by overworking and over-borrowing, then the GDP increases and we are misled
The commercial system is interested in fostering sales rather than fostering well-being, hence it keeps reminding us that what we already have is not enough. A conformist attitude is attributed to those societies where people lack the desire of having more and newer products.
Easy money does not help. The central bank policy of providing financial resources even at zero interest rates constitutes a trap. We are encouraging people to remain in this trap of borrowing more to purchase new products. The GDP may rise, but peoples’ well-being will not.
Some quick considerations:
At the personal level let’s procure to be autonomous, that is: let’s define what is of value to us and let’s focus on those things which we value. Let’s also remember that price and value are two different concepts. As Oscar Wilde once said “a cynic is a man who knows the price of everything and the value of nothing”.
Let’s remember that conformism is not the same as a lack of desire for purchasing. We can aspire to higher standards in education, peace, altruism, marriage, health and many other important personal goals.
Let’s enjoy what we already have. Rather than placing our attention on what others have or what we are lacking, let’s place our full attention on what we already have. We can substantially raise our well-being by enjoying what we already have. In Plato’s view a desire plays the role of telling us what we are lacking and this desire motivates us to purchase. In Spinoza’s view a desire plays a role of empowering our enjoyment from what we have. Let’s remember that to consume is not the same as to purchase. We can have fewer products and enjoy them more.
* Reproducido de la fuente original con permiso del autor.