Conspicuous Frugality: Is Cheap the New Cool?

This article appeared on The Umlaut on April 24. 2013.

Economists from Thorstein Veblen to Richard Layard or Robert Frank have worried about the implications of status-seeking behavior. If one's utility depends, say, on his earnings or consumption relative to his peers, then earning more or consuming more imposes a negative externality on other people. Hence, the argument goes, a progressive tax on income, or a tax on luxury consumption, can enhance welfare because it discourages wasteful status seeking. How compelling is this story in what appears to be an increasingly post-materialist society?

In two excellent posts, Jerry Brito shows how the modern economy enables people to maintain high standards of living while spending less. Because of improvements in the technology of production or retail, people are able to enjoy more leisure without hurting their material standards of living. In other words, markets make frugality less painful than in the old days. With cheap and stylish clothes from Zara and organic food from Trader Joe's, who needs expensive stores?

According to Jerry, when people pick Zara suits over Brioni, and food trucks over lunches at Michelin-starred restaurants, they do so in order to enjoy more time off work. One would thus expect people to trade luxury items against more leisure. They should be grumpy about the inconvenience of eating a masala dosa served on a plastic plate but appreciate that it comes with the benefit of more free time. Data seem to agree — average working hours in OECD countries have been decreasing over the past decade.

Yet, anecdotal evidence from both sides of the Atlantic seems to suggest that something deeper may be going on. When the era of cheap Chinese manufacturing started, English-speaking elites didn't seem particularly cheerful — at most, they grudgingly acquiesced to the new low-cost alternatives that had reached Western markets. In the present era, in contrast, they embrace frugality as something cool. What is more, we see culturally-induced frugality in areas where there have been few fundamental shifts in the underlying supply chain.

One of our favorite culinary personalities seems to be making her living by educating people how to use leftovers in the kitchen. Food trucks and simple ethnic dining are becoming genuinely exciting dining options — not just a humble source of sustenance on the go. People seem to bike more, instead of driving cars. Hey, even the pope takes a bus. Finally, doing one's shopping at eBay or in charity stores is not stigmatized, in fact it's seen as desirable.

In contrast, how much is sheer wealth or conspicuous consumption being rewarded? When I look back at my time in London, I don't get the impression that swanky residences and Bentleys of Russian oligarchs and Saudi princes were buying them a lot of goodwill with local residents. Far from being met with admiration or even envy, they were generally seen as signs of bad taste and mental immaturity.

True, the embrace of frugality seems to be an elite phenomenon, and may not extend beyond large cities and folks with university degrees. Conspicuous consumption and display of wealth may get you ahead in many places around the planet, even in the developed Western world.

Regardless of how strong is the cultural shift towards frugality, the implicit assumption used by Veblen, Layard and Frank — namely that people compete for status along just one relevant margin, namely income — sounds no longer convincing. As Will Wilkinson wrote in a policy paper on happiness research six years ago,

[l]iberal market societies not only create new technologies, they create proliferating forms of association, affiliation, expression, and identity at a sometimes alarming rate. Each musical genre, hobby, committee, church, club, ideology, and lifestyle provides a new dimension — a new frame of reference — for positional competition. Environmental purists can compete with one another to conspicuously consume eco-friendly products (or conspicuously refuse to consume much at all), while punk rockers duke it out on grounds of anti-establishment authenticity and economics professors knock themselves silly trying to get articles into esoteric journals no one else cares about.

Whether frugality will assert itself as a relevant reference frame for seeking status is an open question. What we can say with certainty, however, is that there is already a multitude of different ways of competing for status, each of them with radically different implications for welfare.

As a result, it is not clear that there is one single policy lesson one can draw from the study of status seeking — contrary to the sweeping generalizations that typically dominate such discussions. But I am almost willing to bet that we are living in a world in which the social effects of status seeking — including status seeking through frugal and low-key consumption — are becoming increasingly beneficial.