Conspicuous Consumption

Ray Fisman reports on the new Charles, Hurst and Roussanov conspicuous consumption and racial differences in "bling" expenditure paper. There are a handful of people working on this extremely important topic, and hopefully we'll see much more work on this in the immediate future.

The paper points out nicely what makes the economist different from the other social sciences. Whereas other social scientists appeal (at least the bad ones [don't hit me!]) will appeal to culture as a cause or personal taste, the economist says those are non-explanations and instead urges one another to look for different prices and income constraints. This is from Becker and Stigler's classic De Gustibus Non Est Disputadum paradigm. Assume preferences are constant and the same, for purely methodological purposes (forget whether it's really true, in other words), and push neoclassical economics til it breaks. Or as Fisman nicely puts it:

In general, the poorest people in any group are forced to opt out of the conspicuous consumption arms race—if you can't afford the signal, even by stretching your finances, you can't play the game. I, a humble economics professor, don't try to compete in a wealth-signaling game with the Wall Street traders whom I see on the streets of Manhattan. But this still leaves us with the question of why a black person would spend so much more in trying to signal wealth than a white person. The Cosby explanation—that there is simply a culture of consumption among black Americans—doesn't quite cut it for economists. We prefer to account for differences in behavior by looking to see if there are differing incentives.