Author Topic: It's the rich's fault! "Trickle down consumption"  (Read 6974 times)

the fixer

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It's the rich's fault! "Trickle down consumption"
« on: March 28, 2013, 07:24:07 AM »
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/27/trickle-down-consumption-how-rising-inequality-can-leave-everyone-worse-off/?hpid=z1

I'm still in the process of reading this one but it's already so complainypants-y I just had to throw it in here.

My favorite part so far:
Quote
"What you think you need depends on the context you find yourself in," Frank said in an interview. "And standards tend to be local. When most of the income gains are going to the very top, the people around them feel relatively poorer and spend more because of that."

So the middle class suffers from the "wealth effect" where they spend more when they feel wealthier. And there's also "trickle down consumption" where people spend more because they feel poorer? Really???

spider1204

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #1 on: March 28, 2013, 07:27:37 AM »
I had to double check that I wasn't reading The Onion or Cracked, especially after that first picture.

shedinator

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #2 on: March 28, 2013, 07:55:05 AM »
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/27/trickle-down-consumption-how-rising-inequality-can-leave-everyone-worse-off/?hpid=z1
My favorite part so far:
Quote
"What you think you need depends on the context you find yourself in," Frank said in an interview. "And standards tend to be local. When most of the income gains are going to the very top, the people around them feel relatively poorer and spend more because of that."

So the middle class suffers from the "wealth effect" where they spend more when they feel wealthier. And there's also "trickle down consumption" where people spend more because they feel poorer? Really???

Do you really find this surprising? 'Keeping up with the Joneses' has been a thing for decades. When Mr. and Mrs. Jones were making slightly more than the average person, it meant the average person had to stretch the budget, or spend only on those marquee items which made it look as though they were keeping up. As income disparity grows, it gets harder to keep up. Yes, this is clearly Anti-Mustachian, but even on these boards we've talked about the impact your environment and circle of friends can have on your spending habits. All this study does is show that this is true.

mugwump

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #3 on: March 28, 2013, 08:26:28 AM »
Thorsten in Veblen covered all this in 1899 (the earlier Gilded Age) in his book "Theory of the Leisure Class".

the fixer

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #4 on: March 28, 2013, 08:41:43 AM »
I think it's oversimplified. When you put the two effects side-by-side, it makes no sense.

"I feel wealthier because my home increased in value. What should I do? Spend money!"
"I feel poorer because everyone around me has lots of stuff. What should I do? Spend money!"

I think there has to be a lower-level psychological/sociological explanation for the phenomenon. The authors of the paper appear to be economists so they're looking at it in macroeconomic terms: "we observe people behaving this way, therefore that's just fundamental human behavior and we have to rely on influencing the market to deal with it." But that's completely missing the point: I think sociologists are much better equipped to study and understand inequality as a collective psychological problem, which this appears to be pointing to.

The only reason this is on washingtonpost.com's front page is because it assigns blame to the rich.

shedinator

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #5 on: March 28, 2013, 09:15:50 AM »
I think it's oversimplified. When you put the two effects side-by-side, it makes no sense.

"I feel wealthier because my home increased in value. What should I do? Spend money!"
"I feel poorer because everyone around me has lots of stuff. What should I do? Spend money!"

I think there has to be a lower-level psychological/sociological explanation for the phenomenon. The authors of the paper appear to be economists so they're looking at it in macroeconomic terms: "we observe people behaving this way, therefore that's just fundamental human behavior and we have to rely on influencing the market to deal with it." But that's completely missing the point: I think sociologists are much better equipped to study and understand inequality as a collective psychological problem, which this appears to be pointing to.

The only reason this is on washingtonpost.com's front page is because it assigns blame to the rich.

Fair enough.

The beauty of the internet and press aggregators is that I have no idea what's considered 'front page,' I just see the articles I might be interested in :)

skyrefuge

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #6 on: March 28, 2013, 09:54:29 AM »
I think it's oversimplified. When you put the two effects side-by-side, it makes no sense.

"I feel wealthier because my home increased in value. What should I do? Spend money!"
"I feel poorer because everyone around me has lots of stuff. What should I do? Spend money!"

I think Frank just gave an unintentionally inaccurate quote there. He surely meant to say "I feel poorer unhappy because everyone around me has lots of stuff. What should I do? Spend money!" Then there's nothing contradictory about the two effects. Money is spent in a (futile) effort to increase happiness, it's just easier for people spend that money when they feel wealthier.

I think there has to be a lower-level psychological/sociological explanation for the phenomenon.

Sure, but it's still valuable for some economists to first actually verify that the phenomenon is real before sending in the sociologists to explain/fix it, and that's what the UofC paper does. And if it is "just fundamental human behavior", it's much better to recognize it as such and deal with it from that perspective, rather than to say "90% of the world is filled with aberrant idiots, why don't they just stop being idiots?!"
« Last Edit: March 28, 2013, 09:57:26 AM by skyrefuge »

the fixer

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #7 on: March 28, 2013, 10:43:16 AM »
That's fair, but I still think that people spending money when they are happy and when they are unhappy is a sign of a social problem, and only manifests itself as an economic one.

The paper itself notes one area of further study is in supply-driven aspects of the effect, i.e. marketing and advertising. This could have a lot to do with why people are buying larger and more expensive products to "keep up." Car companies make more profit off an SUV than a subcompact, for example, so if there's any market for SUVs at all it's in their interest to encourage more people to buy them. The same is true for housing: large houses are more profitable for builders than small ones.

As I read the article, though, the implication is that if the wealthy didn't have so much money the middle class wouldn't have this problem.

shedinator

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #8 on: March 28, 2013, 11:07:01 AM »

As I read the article, though, the implication is that if the wealthy didn't have so much money the middle class wouldn't have this problem.

Are you saying that's incorrect? It seems pretty basic to me. If nobody could afford something, it wouldn't exist, and therefore nobody would want it. If there were no wealthy people, then there would be no opportunity for the middle class to want what the wealthy have. But this is a case where correlation does not indicate causality. Just because the existence of opulence gives the middle class something to desire does not mean that the middle class would be fiscally responsible were opulence not to exist.

Jamesqf

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #9 on: March 28, 2013, 12:01:53 PM »
If nobody could afford something, it wouldn't exist, and therefore nobody would want it.

No?  People have imagination, and so are perfectly capable of wanting things that don't exist.

Justin234

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #10 on: March 28, 2013, 12:03:59 PM »
The message I get from the article (and the economists discussed) is not "It's the Rich's Fault" but rather, "It's the Political Economic structure's Fault".

I appreciate the value of a good face-punching, but there is a time and place for everything. This article is about an economic phenomenon: the impact of inequality. You don't have to ignore personal responsibility to look beyond it. It's worth considering the negative consequence of a system that over the last few decades has allowed inequality to rise (and this isn't some magic force of nature - government policies have a huge role in wealth accumulation and distribution over time; and the wealthy have excess of power when it comes to influencing policy).

Sure, people need to spend less, but they haven't read this blog, and they think they are making themselves happy. There are at least two solutions to this that are not mutually exclusive: 1) promote better spending/consumption habits (e.g. MMM), and 2) implement policies that put a brake on rising inequality, support educational, financial opportunities for people in lower and middle income/wealth groups, etc.

shedinator

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #11 on: March 28, 2013, 12:07:21 PM »
If nobody could afford something, it wouldn't exist, and therefore nobody would want it.

No?  People have imagination, and so are perfectly capable of wanting things that don't exist.

I don't see anybody rushing out to purchase a $1 Trillion widget. We might be able to imagine such a thing, and we might even think it would be neat to own one, but so long as said widget only exists in imaginationland, there is no desire for it, at least not on the level of desire which exists for, say a Million Dollar Home. In the first case, I might casually observe that it would be fun to be able to afford the imaginary widget, but in the second case I am making something which actually exists, and which other people own, the object of my desire, and can therefore make stupid financial decisions in an effort to obtain or emulate it. If such a home did not exist, chances are I would not be at risk of ruining my finances attempting to obtain it.

mm31

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #12 on: March 28, 2013, 12:34:04 PM »
The message I get from the article (and the economists discussed) is not "It's the Rich's Fault" but rather, "It's the Political Economic structure's Fault".

I appreciate the value of a good face-punching, but there is a time and place for everything. This article is about an economic phenomenon: the impact of inequality. You don't have to ignore personal responsibility to look beyond it. It's worth considering the negative consequence of a system that over the last few decades has allowed inequality to rise (and this isn't some magic force of nature - government policies have a huge role in wealth accumulation and distribution over time; and the wealthy have excess of power when it comes to influencing policy).

Sure, people need to spend less, but they haven't read this blog, and they think they are making themselves happy. There are at least two solutions to this that are not mutually exclusive: 1) promote better spending/consumption habits (e.g. MMM), and 2) implement policies that put a brake on rising inequality, support educational, financial opportunities for people in lower and middle income/wealth groups, etc.

Agreed. People live in societies and like to follow the example of their immediate milieu. If you hang out with rich people, you'll try to have the same habits as them. Same with frugal people. You'll try to fit in, sometimes regardless of whether or not it is beneficial to you. It's up to you to determine what you want out of life and what sacrifices you're willing to make. I'm not willing to spend my weekend making my own soap, I guess I'm not as frugal as some. I'm not willing to pay $120 for a cell phone plan, I guess I'm not as rich as some.

Welmoed

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #13 on: March 28, 2013, 12:49:16 PM »
I saw that article and it immediately reminded me of an old MAD Magazine spread about how to keep up with the Joneses without actually spending the money. It included things like installing a fake air conditioner in your window (the "deluxe" model included a sponge that would drip water on passersby to realistically simulate a working AC), and putting in a diving board over a trampoline, so the only thing visible above the fenceline was the diving board, and you could pretend to be jumping into a pool from it.
Dang, I wish I could track that spread down... It was so funny!!!

Jack

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #14 on: March 28, 2013, 03:56:51 PM »
The message I get from the article (and the economists discussed) is not "It's the Rich's Fault" but rather, "It's the Political Economic structure's Fault".

I appreciate the value of a good face-punching, but there is a time and place for everything. This article is about an economic phenomenon: the impact of inequality. You don't have to ignore personal responsibility to look beyond it. It's worth considering the negative consequence of a system that over the last few decades has allowed inequality to rise (and this isn't some magic force of nature - government policies have a huge role in wealth accumulation and distribution over time; and the wealthy have excess of power when it comes to influencing policy).

This is an important point: although philosophically you might argue that financial inequality is normal, natural, good, etc., too much of it is detrimental in the context of the United States because it gives "the rich" an extreme political advantage that undermines the democratic process.

CanuckExpat

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #15 on: March 29, 2013, 03:07:03 PM »
I'm still in the process of reading this one but it's already so complainypants-y I just had to throw it in here...
So the middle class suffers from the "wealth effect" where they spend more when they feel wealthier. And there's also "trickle down consumption" where people spend more because they feel poorer? Really???
I'm not sure I see the need to call this complainypants, or anything like that. Economists are social scientists, they are observing and describing what happens in the world. You may not like that these things are happening, but the people writing the report (or the news article) aren't really complaining, they are just stating what is happening.

Jamesqf

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Re: It's the rich's fault! "Trickle down consumption"
« Reply #16 on: March 29, 2013, 10:20:57 PM »
...too much of it is detrimental in the context of the United States because it gives "the rich" an extreme political advantage that undermines the democratic process.

On the contrary, I'd argue that the US currently suffers from a bit too much democracy. the end result of which is the inmates running the asylum.