Climbing the Consumption Ladder Together

I just read a really interesting post by David at My Two Dollars. His post, “Which Jones family are you trying to keep up with?” struck a chord with me. I’ve been thinking and reading about consumption and psychology for a while now and I’m going to run with a bit of what David touched on.

Is TV making you spend?

David’s thesis as I read it is that people would be better off if, when comparing their lives to those around them, they did so with open eyes. He says that people are too susceptible to the effects of advertising and television. If they looked at their neighbors, they’d see people much like them in terms of lifestyle.

I have to disagree. I think that the media (e.g. advertising and TV) play a relatively small part in people’s consumption behavior. Certainly people do respond to advertising, but I don’t believe to the degree David seems to think.

Looking one rung up on the consumption ladder

No, I think the real cause of conspicuous consumption is that people do exactly what David advocates – look at those around them. The difference is that people compare themselves to others just one step higher on the consumption ladder. Instead of seeing the other Toyotas on their street (to take an analogy from David’s post), they see the one BMW. Instead of comparing their vacation to other people in their office who also went to Six Flags, they compare it to the one person who went to Italy.

It’s this kind of comparison that drives conspicuous consumption ever higher. When people look at their house, they don’t compare it to their old one bedroom apartment. They compare it to the 3,000 square foot McMansion they pass dropping their kid off at school. And the owner of the 3,000 square foot McMansion? He’s looking at the 4,000 square foot estate on 3 acres down the road.

I’m not going to make a judgment on whether a 3,000 square foot house is necessary. I’ll only mention that since the 1950s, the median U.S. home has doubled in size, while the median family has shrunk in size by close to 50%. Does a modern person take up that much more space? Yes, we’re fatter as a nation, but not that much fatter.

We’re all moving together

The real problem with this conspicuous consumption pattern of comparing ourselves to those just a little higher on the ladder is that we’re all moving up the ladder at more or less the same pace. The additional consumption isn’t getting anyone anywhere. People’s expectations have simply shifted. A perfectly good working refrigerator isn’t good enough anymore. It has to be a gigantic stainless steel one.

In the process of this expectation shift, though, we’ve spent a lot of money. Real money that could have been better used. Not only that, but people aren’t happier with their abundant lives.

So where does this leave us? I’d like to say that we can make a difference one person at a time. I’d like to say we’d be happier if we were all just thankful for what we have. I’d like to say you could just get off the consumption treadmill.

But the truth is, I can’t say those things because they’re not true. The plain fact is, what you do affects me. And when you spend half a million dollars to buy a four bedroom house in my town, that’s what I’ll also have to pay for a similar house. When you buy a two ton SUV, if I don’t want to lose badly in a crash with you, I also have to drive a two ton SUV.

To reduce conspicuous consumption, we have to do what economists like to say. We have to get the incentives right. I’m not sure of the details, but there’s a real need to limit consumption for its own sake. Making it worthwhile for all Americans to save would do us a world of good.

And it would reduce your mortgage payment, too.