page_title: Conspicuous consumption
section_title: Criticism
hierarchical_section_title: Conspicuous consumption / Criticism
caption_attribution_description: John Stuart Mill
context_page_description: Conspicuous consumption is the spending of money on and the acquiring of luxury goods and services to publicly display economic power of the income or of the accumulated wealth of the buyer. To the conspicuous consumer, such a public display of discretionary economic power is a means of either attaining or maintaining a given social status.
  The development of Thorstein Veblen's sociology of conspicuous consumption produced the term invidious consumption, the ostentatious consumption of goods that is meant to provoke the envy of other people; and the term conspicuous compassion, the deliberate use of charitable donations of money in order to enhance the social prestige of the donor, with a display of superior socio-economic status.
context_section_description: High levels of conspicuous consumption may be seen as socially undesirable on two grounds; firstly, as it is often associated with high relative income, high levels of conspicuous consumption may be an indicator of high levels of income inequality, which may be found intrinsically or instrumentally objectionable; secondly conspicuous consumption differs from other forms of consumption in that the main reason for the purchase of positional goods is not due to the additional direct utility provided by the goods alleged high quality, but rather the social prestige associated with the consumption of that good. One downside of this search for status is that individual purchases of positional goods may at a social level be self-defeating due to external effects. In this case, the externality is status anxiety, the loss of social status suffered by people whose stock of high-status goods (positional goods) is diminished, in relation to the stocks of other conspicuous consumers, as they increase their consumption of high-status goods and services; effectively, status-seeking is a zero-sum game—by definition, the rise of one person in the social hierarchy can occur only at the expense of other people. Therefore, the conspicuous consumption of luxury goods and services (positional goods) is an economic loss—like competitive military spending (an arms race), wherein each country must match the military expenditures of other countries in the arms race, or suffer a loss of relative military power. In the case of conspicuous consumption, taxes upon luxury goods diminish societal expenditures on high-status goods, by rendering them more expensive than non-positional goods. In this sense, luxury taxes can be seen as a market failure correcting  Pigovian tax—with an apparent negative deadweight loss, these taxes are a  more efficient mechanism for increasing revenue than 'distorting' labour or capital taxes.
  A luxury tax applied to goods and services for conspicuous consumption is a type of progressive sales tax that at least partially corrects the negative externality associated with the conspicuous consumption of positional goods. In Utility from Accumulation (2009), Louis Kaplow said that assets exercise an objective social-utility function, i.e. the rich man and the rich woman hoard material assets, because the hoard, itself, functions as status goods that establish his and her socio-economic position within society. When utility is derived directly from accumulation of assets, this lowers the dead weight loss associated with inheritance taxes and raises the optimal rate of inheritance taxation.
  In place of luxury taxes, the economist Robert H. Frank proposed the application of a progressive consumption tax; in the article "The Big City: Rich and Poor, Consumed by Consuming" (1998), John Tierney said that as a remedy for the social and psychological malaise that is conspicuous consumption, the personal income tax should be replaced with a progressive tax upon the yearly sum of discretionary income spent on the conspicuous consumption of goods and services. Another option is the redistribution of wealth, either by means of an incomes policy – for example the conscious efforts to promote wage compression under variants of social corporatism such as the Rehn–Meidner model and/or by some mix of progressive taxation and transfer policies, and provision of public goods. When individuals are concerned with their relative income or consumption in comparison to their peers, the optimal degree of public good provision and of progression of the tax system is raised. Because the activity of conspicuous consumption, itself, is a form of superior good, diminishing the income inequality of the income distribution by way of an egalitarian policy reduces the conspicuous consumption of positional goods and services. In Wealth and Welfare (1912), the economist A. C. Pigou said that the redistribution of wealth might lead to great gains in social welfare:
   Now the part played by comparative, as distinguished from absolute, income is likely to be small f
caption: In the 19th century, the philosopher John Stuart Mill recommended taxing the practice of conspicuous consumption.
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