Conspicuous consumption and economic growth

A paper of mine has just been published in the Journal of Bioeconomics - Sexual selection, conspicuous consumption and economic growth (pdf).

I posted about this article when the working paper was first released, and that post still does a good job of explaining the motivation behind the paper. In that post I wrote:

Around ten years ago, I was rummaging through books in a bargain bookshop under Sydney’s Central Station when I came across a $2 copy of Geoffrey Miller’s The Mating Mind. It turned out to be a good use of my $2, as The Mating Mind is one of the most important books in shaping my thinking, and it was one of the first books I put on my economics and evolutionary biology reading list.

Miller’s basic argument was that sexual selection shaped the human mind. Whether through runaway selection or the brain acting as a fitness indicator, female choice led to increasing mental capacity and shaped our propensity to be humorous, create art or engage in other displays of mental fitness.

As I read the Mating Mind, it occurred to me that the growing mental capability and tendency to display it would have direct economic effects. It would be possible to argue that sexual selection shapes economic growth. Ten years after that idea, my latest working paper (co-authored with my supervisors Boris Baer and Juerg Weber) seeks to flesh out one element of it. The working paper provides a theoretical model for the hypothesis that sexual selection and the resulting propensity to engage in conspicuous consumption has economic effects, and in particular, the desire to engage in conspicuous consumption is one of the pillars underlying the emergence of modern economic growth.

The concept behind the hypothesis is relatively simple. Men who signal their quality through conspicuous consumption have higher reproductive success, as the conspicuous consumption provides a reliable signal of their quality to potential mates. To engage in conspicuous consumption takes effort by the men – whether in the form of art, humour or entering the labour force to acquire resources to consume conspicuously. As the prevalence of males who conspicuously consume increases, the total level of these activities also increases. The increased participation in productive activities results in a scale effect, whereby the greater number of people involved in creative and productive activities results in increased technological progress, which underlies economic growth.

The evolutionary part of the model is more interesting than the economic as there is minimal feedback from the economy back into the evolutionary dynamics. The lack of feedback also means that it is not very representative of modern society, as conspicuous consumption in modern societies is of limited threat to survival. Still, the model provides a starting point and I have a few ideas to take it further.

I have been introducing my talks on the paper with an example from Robert Frank’s Luxury Fever, in which Frank held up Patek Philippe’s Calibre 89 watch as an example of conspicuous consumption. Only four were made, with the first selling for $2.5 million and the latest auction price being over $5 million. Frank mocks the watch for its need for a tourbillon, a mechanism to account for the earth’s rotation, when his cheap quartz watch does not require such a mechanism, as gravity does not affect the vibrations of the crystal.

Now consider the innovation and thought that went into the Patek Philippe watch, including that tourbillon. This watch has 1728 components, gives you the date of Easter each year, and unlike most mechanical watches, will not record the years 2100, 2200 and 2300 as leap years while still recording 2400 as one (as per the order of Pope Gregory XIII in 1582). If you look at Patek Philippe’s list of patents, you get a feel for the innovation involved in making watches for what is largely conspicuous consumption.

When you also consider the innovation undertaken by the potential buyers as they seek to amass the wealth necessary to obtain such a watch, the positive angle to conspicuous consumption grows. As a result, curbing conspicuous consumption may have costs (although, I still prefer taxing consumption to income). If nothing else, we should appreciate the historical role of conspicuous consumption – competition for sexual partners is a driving force for many productive activities, and one generation’s conspicuous consumption is another generation’s day-to-day tool.

In its life as a working paper over the last few years the paper has received a variety of comments, including from Matt Ridley in The Wall Street Journal, Rob Brooks in The Huffington Post and Chris Dillow at Stumbling and Mumbling. The major difference between the working paper and published version is that the simulations have been shunted into the electronic supplementary material for final publication.