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By Dan
#1423635
Cos and Effect
Bill Cosby may be right about African-Americans spending a lot on expensive sneakers—but he's wrong about why.
By Ray Fisman
Posted Friday, Jan. 11, 2008, at 7:44 AM ET


A few years ago, Bill Cosby set off a firestorm with a speech excoriating his fellow African-Americans for, among other things, buying $500 sneakers instead of educational toys for their children. In a recent book, Come On People, he repeats his argument that black Americans spend too much money on designer clothes and fancy cars, and don't invest sufficiently in their futures.

Many in the black community have been critical of Cosby for blaming poor people rather than poor public policies. Others have defended Cosby's comments as an honest expression of uncomfortable truths. But notably absent from the Cosby affair have been the underlying economic facts. Do blacks actually spend more on consumerist indulgences than whites? And if so, what, exactly, makes black Americans more vulnerable to the allure of these luxury goods?

Economists Kerwin Charles, Erik Hurst, and Nikolai Roussanov have taken up this rather sensitive question in a recent unpublished study, "Conspicuous Consumption and Race." Using data from the Consumer Expenditure Survey for 1986-2002, they find that blacks and Hispanics indeed spend more than whites with comparable incomes on what the authors classify as "visible goods" (clothes, cars, and jewelry). A lot more, in fact—up to an additional 30 percent. The authors provide evidence, however, that this is not because of some inherent weakness on the part of blacks and Hispanics. The disparity, they suggest, is related to the way that all people—black, Hispanic, and white—strive for social status within their respective communities.

Every society has had its equivalent of the $150 Zoom LeBron IV basketball sneaker, and thanks to Thorstein Veblen, we have a pretty good idea why. As the Gilded Age economist famously put it, "conspicuous consumption of valuable goods is a means of reputability to the gentleman of leisure," and "failure to consume a mark of demerit." To consume is to flaunt our financial success; it's how we keep score in life.

Economists refer to items that we purchase in order to reveal our prosperity to others as wealth signals. But why use sneakers, as opposed to phonics toys, as a wealth signal? First off, for a signal to be effective, it needs to be easily observed by the people we're trying to impress. This includes not just those near and dear to us, but also the person we pass on the street, who sees our sneakers but would have a harder time inferring how much we're spending teaching our kids to read. For a wealth signal to be credible, it also needs to be hard to imitate—if everyone in your community can afford $150 sneakers, those Zoom Lebron IVs would lose their signal value.

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.

Why would otherwise-similar black and white households have different incentives to signal their wealth? Charles, Hurst, and Roussanov argue that it's because blacks and whites are seeking status in different communities. In the racially divided society we live in, whites are trying to impress other whites, and blacks are trying to impress other blacks. But because poor blacks are more likely to live among other poor blacks than poor whites are to live among other poor whites, poor black families are more susceptible to being pulled into a signaling game with their neighbors.

Consider, for example, a black family and a white family each earning $42,500 a year, the median income for a black household during the 1990s. This black family sees that other black families are buying cars, clothes, and other wealth signals that, while stretching this black family's financial resources thin, are technically affordable for a family making $42,500. So, this family decides to buy them, too, in order to keep up with the conspicuous consumers that they compare themselves with.

Now take the white family making $42,500. The average household income among whites in the 1990s was much higher—$66,800. This white family looks around the neighborhood and is more likely to see white families spending on luxuries that are simply beyond their financial reach. The white family making $42,500 is thus too poor to participate in a signaling game with its neighbors, so they don't. As a result, they're spared the cost of competing, just as I am spared the expense of trying to compete with the Wall Street traders I see driving around Manhattan in their Mercedes sedans.

To test their theory, the authors look at how much a white family spends on conspicuous consumption when it is surrounded by white families making a similar amount of money. They find that this white family spends the same portion of its income on visible goods as a black family surrounded by other black families with similar incomes. They also find that the further a family of either race slips behind the average income of nearby households of the same race (becoming too poor to compete in the signaling game), the less it spends on these visible goods.

Once these effects are accounted for, racial disparities in visible consumption disappear. It's not that black Americans are more inclined to signal wealth; rather, poor blacks are more likely than poor whites to be a part of communities where they are relatively rich enough to participate in the signaling game.

If signaling is just part of a deeper human impulse to seek status in our communities, what's wrong with that, anyway? If a household chooses to spend a lot on visible consumption because it gets happiness from achieving high standing among its neighbors, why should we care? To return to Cosby's concerns, if blacks are spending more on shoes and cars and jewelry, they must be spending less on something else. And that something else turns out to be mostly health and education. According to the study, black households spend more than 50 percent less on health care than whites of comparable incomes and 20 percent less on education. Unfortunately, these are exactly the investments that the black families need to make in order to close the black-white income gap.

In his controversial speech, Bill Cosby appealed to the African-American community to start investing in their futures. What's troubling about the message of this study is that Cosby and others may not be battling against a black culture of consumption, but a more deeply seated human pursuit of status. In this sense, Cosby's critics may be right—only when black incomes catch up to white incomes will the apparent black-white gap in spending on visible goods disappear.

http://www.slate.com/id/2181822/

A rather interesting article.
User avatar
By QatzelOk
#1423636
The disparity, they suggest, is related to the way that all people—black, Hispanic, and white—strive for social status within their respective communities.

If minorities (perceive of themselves as weaker) spend more of their money on visible signs of social status, wouldn't that mean that they probably feel like they need to work harder (show more status-signifiers) to attain the same social status as a white hetro male?

This might be a characteristic of all minorities, including gays, jews and women. White straight men DO appear to be the group that spends the least on clothes.
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By The Eternal Commie
#1423637
If minorities (perceive of themselves as weaker) spend more of their money on visible signs of social status, wouldn't that mean that they probably feel like they need to work harder (show more status-signifiers) to attain the same social status as a white hetro male?

Did you read the article? Black people in general, according to the article, are not competing with "white hetero males". They are competing with the other blacks near whom they reside (thanks of course to racist redlining practices and gentrification, but that's a discussion for another day) to appear wealthy.

This might be a characteristic of all minorities, including gays, jews and women. White straight men DO appear to be the group that spends the least on clothes.

Cite your source.
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By Maxim Litvinov
#1423641
Couching the issue in terms of race is a bit silly - but I suppose it's a device to sell the story.

The theory - that conspicuous consumption is greatest where there is the greatest number who might realistically 'keep up with the Joneses' sounds reasonable enough. But there is only a notable ethnic distinction to be made in the way this manifests itself in the US because of its well-known ethnic inequality and not because of any genetic or biological reasons as the title might suggest.
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By Nets
#1423642
Maxim, I don't think the title suggested genetic or biological reasons for this phenomemon, but rather cultural ones. There is no denying an African-American sub-culture exists in the United States, and this is what the article refers too.

Some interesting work indeed, but I think Bill Cosby still has a huge point.
User avatar
By Maxim Litvinov
#1423643
Maxim, I don't think the title suggested genetic or biological reasons for this phenomemon [sic], but rather cultural ones.

The thread title involves 'race'. 'Race' is a flawed system of biological/genetic taxonomy, not of culture. The article title doesn't mention race or culture though.

Some interesting work indeed, but I think Bill Cosby still has a huge point.

And what's the huge point? Cosby allegedly found a characteristic of a particular group in society and some economists put forward a thesis as to why Cosby's remark might stack up - for non-race and non-culture-specific reasons. If the 'huge point' is that people are better off buying necessary things before they embark upon purchasing unnecessary ones, then I'm sure everyone would agree.
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By Rancid
#1423644
If a household chooses to spend a lot on visible consumption because it gets happiness from achieving high standing among its neighbors


I disagree with this statement. It will never make you happy...
Last edited by Rancid on 12 Jan 2008 06:51, edited 1 time in total.
User avatar
By Nets
#1423645
The thread title involves 'race'. 'Race' is a flawed system of biological/genetic taxonomy, not of culture. The article title doesn't mention race or culture though.


Oh, I didn't realize you meant the threat title. You're right. Perhaps I jumped the gun since I'm familiar with Bill Cosby's culture-related thoughts here and associated culture with the article title. Nevermind.

And what's the huge point? Cosby allegedly found a characteristic of a particular group in society and some economists put forward a thesis as to why Cosby's remark might stack up - for non-race and non-culture-specific reasons. If the 'huge point' is that people are better off buying necessary things before they embark upon purchasing unnecessary ones, then I'm sure everyone would agree.


Basically, what you said, but also that it is a particularly endemic problem in the African American community. An interesting comparison arises with the large Asian-American community which has faced lots of racism in this country, particularly on the West Coast, yet has completely different consumption patterns in this regard compared with African Americans. Asian Americans also lived in slums yet have remarkable achievement records in education.

Clearly, it is a complex issue in which I feel there are more variables than just income inequality.
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By Maxim Litvinov
#1423646
Clearly, it is a complex issue in which I feel there are more variables than just income inequality.

Maybe, maybe not. The evidence in the article is entirely of the kind that suggests consumption habits are not to do with skin colour or even entrenched ethnocultural differences though.

I disagree with this statement. It will never make you happy...

I can't agree. It may sound all upstanding to proclaim that money never made anyone 'truly happy' or buying status never made anyone content, but it tends to ignore the facts. For starters, you simply don't get behaviours like conspicuous consumption manifesting themselves unless people get some sort of 'happy' buzz out of them. You can deride the 'quality' of that happiness if you want, but that's a rather subjective value judgement.
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By ThereBeDragons
#1423653
The reason race is mentioned is because the impetus for the study was a racial disparity.
You can deride the 'quality' of that happiness if you want, but that's a rather subjective value judgement.

Even when such things as health and education are sacrificed for a happy buzz? Do you see this as not being a problem?
User avatar
By Maxim Litvinov
#1423654
The reason race is mentioned is because the impetus for the study was a racial disparity.

More a cultural one. After all, it was a phenomenon supposedly seen amongst black people in the US, but not amongst black people in Africa.

Even when such things as health and education are sacrificed for a happy buzz?

If they are sacrificed for a happy buzz then that means by definition you can be happy from visible consumption. So it appears you actually agree with me. I made no value judgement about whether it's a 'good' or 'bad' happiness - I simply observed Rancid was wrong to say 'it will never make you happy'.
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By Kapanda
#1423660
Do blacks actually spend more on consumerist indulgences than whites? And if so, what, exactly, makes black Americans more vulnerable to the allure of these luxury goods?

This is the wrong question to be asked IMO. It isn't whether they spend more than white people, it is whether they spend beyond their capacity
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By Noelnada
#1423681
White straight men DO appear to be the group that spends the least on clothes.



Very true, my yearly budget for clothes is smaller than let's say, my weekly budget for food. I rely exclusively on the Christmas period for clothing.

Well actually that's probably because i'm too poor to buy what i'd really wish to buy (expensive Italian [email protected] euros/trousers).
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By Rancid
#1423760
I can't agree. It may sound all upstanding to proclaim that money never made anyone 'truly happy' or buying status never made anyone content, but it tends to ignore the facts. For starters, you simply don't get behaviours like conspicuous consumption manifesting themselves unless people get some sort of 'happy' buzz out of them. You can deride the 'quality' of that happiness if you want, but that's a rather subjective value judgement.


oh i agree.. you will get a happy buzz.. i'm just saying.. it won't get you long term happyness
User avatar
By Oxymoron
#1423786
White straight men DO appear to be the group that spends the least on clothes.


What about Italians and Russians? they are white aint they?
User avatar
By QatzelOk
#1423792
I wrote:This might be a characteristic of all minorities, including gays, jews and women. White straight men DO appear to be the group that spends the least on clothes.

The Eternal Commie wrote:Cite your source.


My source for this sentence that starts with 'it might' is "The world around me that I see every day."

I realize this isn't nearly as accurate as a text that I might have dug up, which is why I premised my statement with "might."

After reading the article, The Eternal Commie wrote:Black people in general, according to the article, are not competing with "white hetero males".

Well, from my personal experience, they are. Mind you, black people who have no contact with white hetro males or representations of white hetro males may very well only competing for status with "their own caste," as you seem to have deduced from reading one single article.

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