Book of the Week: Luxury Fever

23 Dec 2014

luxury_fever Luxury Fever was mentioned by one of the books I read. I’m guessing it was from a book on happiness. I found the book too long for what it was. Too many examples, took a long time to get to the point. People spend money on stupid shit. America would be a better societal-wise if we had a progressive consumption tax to keep people from spending money on stupid shit. That’s good to know for policymakers, but what the hell can I do about it? Usually I read books where by the end of it, I learn about ways to improve my life. I’m people, so I spend money on stupid shit too, no matter how rational I may think I am. I know eating that piece of cake isn’t good for me, but it tastes damn good. I’m not going to write about why spending money on luxury goods is bad and why a progressive consumption tax is the solution. You can read the book for that. Income Inequality [caption id=”” align=”aligncenter” width=”602”] Share of pre-tax household income received by the top 1 percent, top 0.1 percent and top 0.01 percent, between 1917 and 2005 (wikipedia)[/caption] People complain about income inequality now, but it was worst when J. D. Rockefeller was alive. Yet despite increasing income inequality, a larger percentage of luxury cars are being sold. It could be that the 1% are buying multiple cars and the poor people are buying cars they can’t afford. Percentage of Luxury Cars Sold | Year
—|—
7 % | 1986
12 % | 1996
17 % | 2014
It’s All Relative

WEALTH. Any income that is at least $100 more a year than the income of one’s wife’s sister’s husband. - H. L. Mencken

The thing about income and perception is that is all relative. If I make $100,000 a year, but everyone else makes $1,000,000 off their recent IPO, I’m a pauper. If I make $50,000 a year in the middle of nowhere, while everyone else makes $25,000 a year, I’m rich. It doesn’t matter how much money you make, it matters if you make more than the whoever is in the local vicinity. Let’s Play A Game There are two people: Proposer - divides $100 between themselves and Responder Responder - choose among two options

  1. accept and both parties get amount proposed
  2. refuse and both get zero.

If the proposer suggests a $99/$1 split, the rational responder should accept it, since $1 is greater than zero. This isn’t want happens though. The responder is likely to refuse, because they feel slighted by the proposer. In life, it is not about what is rational, but about how things make you feel. Game Theory, Good for Individual, Bad for Group

That the conflict between individual and group could lie behind our seemingly wasteful spending patterns follows logically from the existence of other situations in which the rational pursuit of individual interest produces unattractive results.

At the heart of the argument of why the pursuit of luxury is bad is that some things may be good for an individual, but bad for the group. Why does my buddy at a law firm have to work so many hours? It is because there is some other person trying to get ahead and become a partner. If everyone agreed to work less hours, everyone would be better off. Think of OPEC. Individually it is probably good to sell as much oil off as you can, but if you do that, you hurt the group since the price drops. For societal good, OPEC agrees to restrict their output. Cars and Booze, The New Norm Let’s say you buy a nice expensive luxury sports car. After a while, the thrill diminishes, because it sets a new norm. Maybe things surrounding luxury cars will change since millennials are shying away from car ownership and paying money for access to vehicles. When we switch to a society that cars more about access than ownership, will the burden imposed by luxury goods go away? Drinking 18 year whiskey seemed fancy, but when I spotted a bottle of 40 year scotch at Costco (COST), it reframed my whole scale of scotch. 18 year no longer seemed on the high end. “Only 5 bottles left.” I was almost ready to shove money at the manager’s face. I know I cannot afford many luxuries, so I don’t even bother to try them if afforded the opportunity. I’ll know I wouldn’t be able to go back to my pauper world and see things in the same light. This book is about why we can’t have nice things like a good rail system or the hyperloop. Purchase Luxury Fever on Amazon.com or check it out from your local library.