Conspicuous consumption vs inconspicuous investment

Even though it rankles, splashing the cash may be missed as funds are stashed away instead

Wealth has always been something to put on display as it shows that you are doing better in life than other people. Even though it can be irksome, there is some good in people parading their wealth as their outlays provides employment opportunities for others. Yet, it may be the case that such shows of prosperity are becoming less common as flaunting one’s good fortune is increasingly frowned upon. Instead of being spent, money is likely to be put to use so as to bring in more wealth, and the resulting shift from showy spending to prudent investment could be hurting the economy and driving up inequality.

It is commonplace in most cultures for the upper echelon of any society to have a way of showing that they were above everyone else. It often would require, as a way of showing their dominant position, getting their hands on objects that took much effort to produce but tended to serve little practical purpose. Such shows of prestige could include anything from extravagant head dresses for a native American chief to a modern-day highflyer driving a high-performance sports car around city streets. It is such a common occurrence that it has been given its own label – “conspicuous consumption”.

Putting aside whether such a practice was good or bad for those at the top or for society as a whole, the economy benefits from the extra spending. Any cash used for flashy clothes or showy interiors would provide work for people who may have otherwise been left unemployed. And funds used to purchase luxury items would result in more money flowing out of the wallets of the wealthy into the economy and hence benefiting a wide range of people. The overall effect would thus be to boost employment while also acting to reduce inequalities.

The concentration of funds in fewer hands can be seen as unfair by some but can also have a positive impact on the economy. Large differences in wealth had been justified (by those on the right) through the notion that more money in the hands of those who have been successful in business can be used to create more jobs. The label for this is the supply-side trickle-down effect whereby funds of the rich help create opportunities for others. In comparison to this, conspicuous consumption has a similar effect but works through the demand-side of the economy so as to raise spending and shift wealth to those with less.

Yet, as society as a whole becomes better off, the tolerance of extravagant displays of wealth could be diminishing. It could be that, with their hard-earned prosperity, the middle classes dislike being shown up by those higher up the social ladder. Yet, frowning on the lavish habits of those with more money also means that the extra spending that would provide jobs is less forthcoming. As a result, the irony is that the growing social stigma against displays of wealth could then act to increase the likelihood of a larger gap between rich and the rest. Hence the dislike of the wealthy could actually serve to strengthen their position at the top.

Money that might have been spent conspicuously on consumption is now more likely to be put to use inconspicuously as investments. Along with less money going towards lavish spending, the well-off have also benefited from changes in the economy and so have larger incomes with which to invest. The growth of the finance sector also means that there are an increasing range of avenues for putting funds to work so as to earn more of a yield. Yet, investments do not benefit the economy as in the past due to much of the extra cash tending to go toward lifting the prices of existing assets rather than towards new business or infrastructure.

On top of this, the rich are also devoting funds so as to cultivate their talents as a means to gain access to high-earning employment now on offer in the global economy. While such routes to large incomes also open up an avenue for gifted individuals to rise up the ranks, it is also true that those already at the top are best placed to pass on the advantage to their children and others around them. Large outlays on education are the main route to ensure a spot at the top table, while connections with those already at the top also proves helpful for up and comers.

As such, the frivolity of conspicuous consumption has been replaced with the more circumspect approach of inconspicuous investment. It is not yet clear whether these changes to the economy have had enough of an impact to warrant concern. If it is the case that economic growth is being hampered by a decline in spending by the wealthy, the government could always step in to readdress the balance. Higher taxation targeting those with big incomes or large pots of wealth could be used to shift spending power to where it is more likely to be used. This action would come with the justification that a healthy economy is for the benefit of everyone, but such a stance may be difficult to sell politically given the current political climate. However, a change could be possible if it were the growing gap between rich and poor that became more conspicuous.