The Veblen Effect: Why We Crave the Latest iPhone and a $10,000 Bag
In a world brimming with goods and services, the question of work-life balance becomes particularly relevant. As we become wealthier, the trade-off between labor and leisure becomes a complex dance. Should we work longer hours to gain more material possessions or embrace a life of leisure? This fundamental question of how we spend our time and money is intricately linked to consumption patterns and the elusive concept of status.
University College London Professor of Economics Wendy Carlin highlights the nuanced choices societies make in their approach to work-life balance. "People say ‘Oh, the Europeans are just very lazy, and they take all these holidays.’ But they’re making a different choice in terms of the way they take advantage of their higher living standards, because the thing that’s really scarce is time."
Carlin emphasizes that the decision to work more, even beyond basic needs, is driven by something more than pure economic logic. This is where Thorstein Veblen’s groundbreaking work on conspicuous consumption comes into play. Veblen, a renowned economist of the late 19th and early 20th centuries, proposed that people, irrespective of their income level, engage in status signaling through their consumption choices.
"Some of those people are working two jobs just to survive," Carlin observes, "but some of them are working two jobs because they want to have the latest thing, the new phone, or the new car, or whatever.” Veblen’s theory explains this phenomenon, suggesting that consumption acts as a social currency, and the desire to climb the social ladder is a powerful motivator.
Veblen goods, as they came to be known, are products whose appeal lies in their high price and exclusivity—a status symbol, the ultimate "look at me" purchase. These goods signify not just affluence, but also membership in a particular social group. A Chanel Classic Flap bag, for example, is more than simply a handbag; it’s a statement, a badge of belonging to the world of luxury. A Brunello Cucinelli cashmere sweater carries a similar weight, representing exclusivity and a certain level of sophistication.
Veblen’s theory challenges the traditional economic assumption that once basic needs are met, people will prioritize leisure. Carlin highlights the discrepancy between this prediction and reality: "It was thought that by now we would be working just two days a week," she says, referencing John Maynard Keynes’ 1930 paper, "Economic Possibilities for Our Grandchildren," which envisioned a future where technological advancements would free up our time. "Instead, people work two, three jobs, take two weeks’ holiday and have more goods. And why do they do that? Well, as Veblen said, because they’re comparing themselves with other people."
The Veblen effect is intensified by income inequality. Carlin explains, "More inequality intensifies the Veblen effect." Research has shown a strong correlation between the income share of the top 1% and the average hours worked across different nations. "The Nordic countries were very unequal a century ago," Carlin notes. "Then inequality fell dramatically, and at the same time, hours of work fell. People were less interested in comparing themselves with ultrarich people, and so they decided to take more leisure time."
The implications of this phenomenon are particularly relevant in the contemporary US, where income inequality has been steadily rising over the past four decades. A 2020 report from the Pew Research Center reveals that "the wealth gap between America’s richest and poorer families more than doubled from 1989 to 2016" and points to a significant divergence in income inequality compared to other developed nations. This trend has fueled a booming market for luxury goods in the US, reflecting the increased desire for status symbols.
The Rise of the "Insta Effect"
Another key driver of the Veblen effect is visibility. The need for others to recognize and understand the symbolic value of a product is crucial. Social media platforms play a pivotal role in amplifying this effect, creating a virtual marketplace for status.
Instagram, in particular, has become a stage for "conspicuous consumption", showcasing designer handbags, luxury automobiles, and lavish vacations. The highly curated aesthetics of social media platforms accentuate the value of these possessions, further amplifying their status-signaling power.
This phenomenon is evident in the popularity of products featuring highly recognizable branding. A Louis Vuitton monogrammed holdall, for instance, instantly conveys prestige due to its readily identifiable logo. Similarly, the oversized grille of a Rolls-Royce or the iconic design of an Audemars Piguet Royal Oak watch speak to their exclusivity and value. In the digital age, the "insta effect" works in tandem with Veblen’s original theory, making the desire for status symbols even more potent.
Beyond the "Look at Me" Purchase
While the pursuit of Veblen goods can be seen as superficial or even frivolous, it’s important to understand the social and psychological forces at play. We are bombarded with messages that equate success and happiness with the acquisition of material possessions. This relentless barrage of consumerism, fueled by the Veblen effect, creates a constant pressure to keep up with the Joneses, even if it means sacrificing time, resources, and even our own well-being.
Understanding the Veblen effect is crucial to navigate the complex landscape of consumption and status. It helps us critically examine the motivations behind our purchasing decisions, separating genuine needs from the desire for superficial validation. By recognizing the societal forces that drive us towards certain goods, we can make more mindful choices about how we spend our time, energy, and resources. Ultimately, we can choose to redefine success on our own terms, prioritizing experiences and relationships over the fleeting satisfaction of owning the latest and greatest status symbol.
In a world of limitless choice, we must find balance. By understanding the forces that influence our consumption patterns, we can regain control over our choices and build a life that aligns with our true values rather than the ever-shifting trends of the Veblen effect.
