Veblen and the savings rate

by Rob Horning

17 November 2008


Maybe the savings behavior of Americans has nothing to do with optimism and everything to do with fear. Chris Dillow linked to this paper by Jon Wisman that confirms an idea that seems intuitively true, but that many economists took to the op-ed pages to refute—that when Americans save less, it’s because they ar eunder pressure to spend more, and they are rejecting prudence altogether. Wisman seeks to explain Americans’ paltry savings rate with Veblen’s theory of consumer behavior. He rejects the hyperrational “life-cycle hpyothesis,” which argues that individuals try to spread out consumption levels over time based on their income expectations in order to maintain a consistent standard of living. Empirical studies Wisman cites seem to refute this. Using survey data, he instead establishes that though American society is not characterized by unusually high social mobility, Americans think that it is.

The data presented above (as well as that provided by Alesina and La Ferrara 2000) suggest that there is “American exceptionalism,” but that it relates not to the actual degree of vertical mobility in American society, but Americans’ exceptionally strong belief that they live in a land of highly fluid vertical mobility, a land of relatively equal opportunity. If they study, work hard and diligently, they can improve their social status. Each is responsible for his or her own status. Possessing high status is thus a consequence of virtue. This places a premium on showing higher status. One option for doing so is to struggle to consume at the level of those with higher status and thereby improve one’s reputability. This special pressure to demonstrate higher status through consumption may help account for the exceptionally low personal saving rate in the U.S.

Increasing inequality worsens the cycle, making the efforts necessary to emulate higher-status people more strenuous, while support for collective, public goods erodes. These, after all, boost no one’s status. You don’t score points for idling in the public park and riding the bus (unless you a part of a hyper-eco-conscious counterculture.)

If that is the case, then the key question is what sustains the ideology about social mobility in the face of contrary evidence. Wisman suggests that it might be advertising, since Americans are believed to be targeted by more marketing messages than those in other cultures. The nature of this advertising need not be subtle or especially laden with a defense of “freedom” as defined by consumer choice or proofs that social mobility is possible. Ads simply need to show us what the lives of the wealthy are like (and convince us their portrayals are accurate), and our “natural” desire to emulate their behavior will kick in. By seeing the living standards of the rich, we know what we must aspire to. Consumption overall increases because of status anxiety, so they don’t even have to sell a particular product well to be effective. They must instead create an aura that the standards above our own are comprehensible and attainable. They must make luxury life seem not so much glamorous as realistic, almost ordinary. (On this point, marketing and entertainment converge, fulfilling much the same function—they make the substance of status anxiety appear pleasurable to absorb.)

Goods need not be presented as exclusive; the exclusivity appeal of luxury goods stems not from how they are marketed, but from what they cost, and the nature of that appeal has to do with being safe and belonging, with feeling worthy rather than feeling superior. Thus people can consume luxury goods without ever regarding themselves as snobs and without ever thinking of themselves as being more than middle class—upper middle class? Sure, but not one of those snotty elitists.

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