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Wednesday, September 24, 2014

'Having It and Flaunting It'

Paul Krugman:

Having It and Flaunting It: David Brooks is getting some ribbing for suggesting that the wealthy should “follow a code of seemliness”, not living the lavish lifestyles they can afford. ...I want to talk a bit about the economics of flaunting your wealth...
The first thing to say is that expecting the rich not to flaunt their wealth is, of course, unrealistic..., for many of the rich flaunting is what it’s all about. ... So it’s largely about display — which Thorstein Veblen could, of course, have told you. ...
Wait, there’s more. If you feel that it’s bad for society to have people flaunting their relative wealth, you have in effect accepted the view that great wealth imposes negative externalities on the rest of the population — which is an argument for progressive taxation that goes beyond the maximization of revenue.
And one more thing: think about what this says about economic growth. We have an economy that has become considerably richer since 1980, but with a large share of the gains going to people with very high incomes — people for whom the marginal utility of a dollar’s worth of spending ... comes largely from status competition, which is a zero-sum game. So a lot of our economic growth has simply been wasted, doing nothing but accelerating the pace of the upper-income rat race. ...

From the past, my view of what wealth is for:

What is Rich?: ...When I was a little kid, being rich meant being able to buy the stuff I wanted without having to worry about how much it costs.

But as I got older -- and maybe this explains my choice of jobs -- being rich was much more about the ability to do what I wanted with my time. In this sense, you can have considerable wealth, but still not be rich. In fact, the quest for more and more stuff gets in the way (though it depends in part on what you want to do with your free time, if it's to play golf at an expensive club, sufficient wealth is a necessary condition).

Some of the richest people I know are quite poor in terms of having "stuff", but free of the rat race, and as far as I can tell, they are generally happy. I think a lot of people are actually looking for freedom as they accumulate wealth -- they imagine being able to do whatever they want -- but don't realize that working longer and longer hours until there is no time left for anything else is not the best the way to get the freedom they are looking for. ...

But for many it seems the accumulation of "stuff" and the envy of people who cannot afford it is more important than freedom from the never ending job of status competition.

    Posted by on Wednesday, September 24, 2014 at 09:19 AM in Economics, Income Distribution | Permalink  Comments (43)


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