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Politically Incorrect Paper, a continuing series
Several years ago Bill Cosby chided poor blacks for spending their limited incomes on high-priced shoes and other items of conspicuous consumption instead of investing in education. Cosby was widely criticized but I went to the numbers, specifically Table 2100 of the Consumer Expenditure Survey and found the following for 2003:
Average income of whites and other races: $53,292.
Average income of blacks: $34,485.
Expenditures on footwear by whites and other races: $274
Expenditures on footwear by blacks: $440.
As I noted then "to do a proper comparison we
would have to correct for income and other demographic variables." The correction has now been done by three researchers in an NBER working paper (non-gated version). The results didn't surprise me. How about you?
Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large.
To give the authors credit where credit is due they also show that the differences in conspicuous consumption are large and important. The differences in spending on clothing, jewelry, and cars, for example, can explain half of the differences in wealth between the races (conditional on permanent income) and a significant share of the differences in education and health spending.
Why do these differences exist? Aside from simple differences in preferences, signaling is one possible explanation. Suppose that high income confers status. Other people judge your income based on your conspicuous consumption and your group's income. Under plausible conditions, the authors show that if your group's income is already high conspicuous consumption has a low marginal product. Put differently a black man who wears a very expensive suit gets a bigger increase in status than a white man who wears the same expensive suit because the baseline income prediction is lower for the former.
The theory is plausible but I wonder if other groups haven't converged on more efficient methods of signaling. Some groups, for example, use education as a signal. Other groups like to show how clever they are by writing pithy summaries of new economics research.
Posted by Alex Tabarrok on September 15, 2007 at 07:10 AM | Permalink
Comments
I'm a high school teacher in a school where 44% of our population is low income.
We study pooverty at every inservice. We rely heavily on the research of Ruby Payne.
Her conclusions match the findings in this post. Now, let me ask, is it more
important to look relatively good by buying expensive suits and toys because that
differentiates one or is it better to fit the stereotype that white middle class
think a low income earner should look like while saving for the future? Ms. Payne
also found that low income earners also value entertainment more than their upper
class peers.
Posted by: Mike Fladlien at Sep 15, 2007 7:34:41 AM
If you are Black or Hispanic you need to signal to society, particular white society that you are not a deadbeat. My mother belonged to a emigrant group that faced discrimination when she was young. Until the day she died she never left the house without "dressing up", not even to pick up something at the neighborhood 7/11. She never lost the feeling that she was being judged by her appearance. I noticed the same phenomenon at my children's school. Black children were dressed better that white children, regardless of income. If you are a member of a group that many people assume are lazy, dirty etc. it is rational to spend money signaling that you are not.
Posted by: Joan at Sep 15, 2007 7:58:35 AM
When is white America going to catch up? How are we going to close the sneaker gap? As white Americans, are we going to just settle for another pair of drab NB? Or are we going to start to pick up the slack and do our share?
Posted by: bjk at Sep 15, 2007 8:16:57 AM
I have friends from Nigeria and I get the sense from them that even more of this sort of signaling goes on in Nigeria. Also growing up in a area that was split between Irish and Italians, it seemed that the Italians did much more of this sort of signaling than the Irish. BTW it is not good or bad. You could consider people wearing better clothes a positive externalities.
Posted by: Floccina at Sep 15, 2007 8:43:12 AM
NB: Ruby Payne is wildly controversial in the education world (I take no position on her myself).
This post circles around, but never makes explicit, the point that whiteness itself confers status. For free.
Posted by: Andromeda at Sep 15, 2007 9:14:32 AM
The solution: place a tax on black-conspicuous consumption and give back the receipts to the black community in the form of school vouchers.
Posted by: thought at Sep 15, 2007 9:20:09 AM
Floccina: people wearing better clothes is a positive externality. People spending huge amounts of money on tasteless bling (14k gold spinners on your lifted, diamond-studded escalade) is a negative externality. Good clothes are a combination of taste and money. Just money doesn't result in good clothing. I would be interested to see a study that could determine if the additional conspicuous consumption engaged in by blacks was along the tasteful (must impress the white man so I can get a job) or the distasteful (must impress my peers so I can get laid) lines.
Posted by: Sameer Parekh at Sep 15, 2007 9:39:33 AM
Hmmm... how about the trend among suburban whites to buy really big cars? Isn't that conspicuous consumption as well? Or I-phones, Blackberry's, etc? Isn't the difference between black/hispanic and conspicuous consumption not so much quantitative difference but a qualitative difference?
Posted by: JSK at Sep 15, 2007 9:57:51 AM
Sameer Parekh hit the nail on the head. You can look professional without spending a lot of money. A few nice looking suits can be worn for years, can be purchased for a few hundred dollars and can help you overcome the implicit bias towards being white (as one commenter suggested was an issue). Buying "rims" for your car or gold jewelry (which cost more than a few suits will, BTW) does not help you get a job in "White America" and is probably more about signaling to women that they should do dirty things to you.
Posted by: Josh at Sep 15, 2007 10:00:10 AM
If one can afford such "conspicuous consumption", what's the problem? It should be of no concern to the have-nots or the ne'er do wells. It does become a problem when one cannot afford his lifestyle and blames his more educated, hard-working neighbor who can afford "stuff" without going into reckless debt or who enjoys retirement with ease, because he made better adult choices.
It's become commonplace to blame others and the government for one's poor choices. Grow-up or get a part-time job, for crying out-loud!
Posted by: Mike at Sep 15, 2007 10:14:52 AM
This form of signaling is probably pretty universal. As JSK pointed out, it is just as important among the white population in the US (or in Germany, for that matter - some people spend outrageous sums on their cars). I'm new to this blog, and you might have already discussed Banerjee-Duflo's "Economic lives of the poor" (see http://econ-www.mit.edu/faculty/eduflo/papers ).
They find that the (extremely) poor -- less than $2 ($1) a day -- spend a good deal of their money on weddings, funerals, religious festivals, and literally starve to do so. That's an even more extreme form of signalling.
Finally, just a thought - the "causality" between spending relatively more on conspicuous goods and less on education may well go the other way round.
Posted by: Anja at Sep 15, 2007 10:24:00 AM
I'm unconvinced by the signaling argument, unless it's refined and tweaked a bit. It is unclear what the bundle of goods these sub-groups are buying and, moreover, who the signals are directed to. Are they purchasing outlandishly expensive sneakers? If so, I doubt they are signaling to "white society", since this will probably adversely affect how they are perceived by more affluent segments of society. If they are buying Johnston and Murphy's to complement their Armani suits, then perhaps this hypothesis has merit. If they are signaling to members of their same sub-group, this may hold a bit more water. One wonders whether demonstration effects may provide a more plausible explanation, particularly since much of this behavior is imitating the sartorial choices of prominent musicians who, ostensibly, identify and verbalize the plight of urban residents. This may certainly explain the 'synergy' between recording artists and clothing lines.
Posted by: Marshall at Sep 15, 2007 10:29:06 AM
And some only have bandwith to write comments beneath those pithy summaries.
Posted by: Daniel Klein at Sep 15, 2007 10:37:42 AM
I am curious to know that after controlling for income, whether we will find piano ownership is significantly higher among Asian American families with children than those of any single other race.
Posted by: Yan Li at Sep 15, 2007 10:57:34 AM
Many of the comment made here seem to indicate that many posters think that the majority of black income is controlled by teenagers and pimps, because this is the image that fit their stereotypes of Blacks. There is far more income controlled by Black office workers, salesmen, teachers, repairmen, bank tellers etc., who dress better that whites in corresponding jobs.
Posted by: Joan at Sep 15, 2007 11:00:07 AM
Daniel you are so right. Signaling happens in your immediate environment and is broadcast locally. It is dependent on location and is not necessarily something you should break out. Neither is race! Everything said applies to low income populations.
Something can be said for research into the decision not to signal and whether it is dependent on economic status - I don't think so. I think it has to do with security and stress which makes sense from a survival standpoint. There may even be a correlation with weight.
Posted by: Bob Calder at Sep 15, 2007 11:05:29 AM
My wife came from a very poor upbringing says people who've never been truly poor don't understand how good it made her feel to have something new like everyone else, or even just a clean white t-shirt or non-ratty pair of jeans.
Regarding clothes: In my observations African Americans are generally more stylish than whites.
Posted by: Shane Milburn at Sep 15, 2007 11:29:48 AM
The critical test would be to compare US Blacks from different cultural backgrounds.
(From Thomas Sowell, and others) studies have found that US blacks of West Indian descent have higher incomes and higher educational attainments than blacks of US descent.
I would predict that blacks of West Indian descent would take a more long-termist view in spending their income - with a smaller proportion spent on clothes and other display items.
This topic is an aspect of time-preference/ discounting. A long term view (less time discounting) is (according to Greg Clark's Farewell to Alms - for example) characteristic of populations that have been in stable argicultural societies for many centuries - either for cultural or genetic reasons, or both.
Posted by: Bruce G Charlton at Sep 15, 2007 11:53:44 AM
Signaling and conspicuous consumption are all around us regardless of ethnicity. I take issue with the apparent sloppy use of statistics.
The reported 'average' data are meaningless unless tested as statistically significant to some level of precision. Where are the "median" numbers? Perhaps I missed the statistical tests buried somewhere in the paper. I saw nothing on table 2100.
Posted by: Ed at Sep 15, 2007 12:23:19 PM
In The Code of the Streets, Elijah Anderson states that bling-bling is used by black inner-city youths to signal toughness, along the lines of: "I'm so confident that I could beat you up if you tried to rob me that I'm not afraid carrying all of this expensive stuff around." Might have something to do with it.
Posted by: LemmusLemmus at Sep 15, 2007 12:32:35 PM
Merely being white is a way of signaling wealth. If you don't believe it, visit Peru.
Posted by: neil at Sep 15, 2007 12:42:56 PM
This isn't drug dealers and rappers spending money here - there really aren't that many of those people. These are middle-class black Americans, most likely. Go visit a black middle-class neighborhood or small business and you'll see people dressed quite sharply. Go visit a dot-com, and you'll see the opposite.
Blacks are signalling "I'm wealthy enough to dress well".
Whites are signalling "I'm high-status enough to dress like a bum"
Plus, whites engage in an even more absurd form of signalling, in the form of non-practical higher education.
Given a choice between the parents who buy their daughter a $160k degree in comp. lit, or the parents who buy their kids nice shoes, I'll say the nice shoes parents are a good deal smarter.
Posted by: secret asian man at Sep 15, 2007 12:59:49 PM
I find this yet another example of Puritanism and racism masquerading as research. The unstated bias is that "conspicuous consumption" is morally reprehensible and thus by tying it to race we get the implied result that blacks are just irresponsible.
First, the definition of conspicuous consumption assumes the answer. If one restricts this to things like clothing and cars then you have biased the results. I don't see McMansions or swimming pools as being used as a factor. "Housing" is not the same thing.
Second, the data compares a group with a significantly lower income to one with a higher one. But the white population is not uniform, a more meaningful comparison would to have been to compare only those whites who matched the socio-economic status of the blacks. Then it would have been possible to find if spending on clothing was a racial characteristic or an economic one.
Third, as usual, the mathematics is worthless. Proposing "equations" where the symbols represent an unspecified function is completely meaningless. All that is needed to analyze the data are the standard statistical tests. I find none, except a best-fit straight line drawn through some of the data. There are no error bars, there is no measure of standard deviation and there is no measure of the correlation coefficient.
Eyeballing some of those graphs, one would be hard pressed to see any meaningful statistical relationship.
I don't know who NBER represents, but judging from a number of recent papers the quality of what gets posted under their aegis makes the whole enterprise suspect.
Posted by: robertdfeinman at Sep 15, 2007 1:01:42 PM
Other groups like to show how clever they are by writing pithy summaries of new economics research.
Sweet.
There are obvious cultural differences arising from God only knows.
Go visit a black middle-class neighborhood or small business and you'll see people dressed quite sharply.
Even among the more conservative tastes, among blacks you'll find more items that non-black or hispanic people would consider a tad gaudy.
At a western wear store yesterday (yes, there's an MR reader who wears boots) the employee was proudly showing me pictures of his horses, and giving me anecdotes of how long it took to walk his 40 acres. That the only land he could afford is 2 hours away, and he lives in a double wide trailer was immaterial to him (and me as well btw).
But citing the cultural differences, people want to invest in things that give them a sense of self-worth. Some of those investments make more sense than others.
And I do concur with certain segments of white folks and college. Outside of economics, engineering, medicine etc, college is a self-perpetuating scam.
There is a very obvious pattern in my business. I'm a professional in the aerospace industry, and the engineers are competent and typically pleasant to work with. The average buyer has a bachelors in some vague thing, makes a middle class income and is typically incompetent in a very predictable, union-labor kind of way.
I'd have to write an entire paper to properly expound on that, but the point is that the engineers need college and it does them well of course. The non-descript "business" person that fills the middle management tend to be more and more incompetent the more college they have.
Posted by: Ray G at Sep 15, 2007 1:24:34 PM
RobertDFeinman and a bunch of others get the story wrong. The authors introduce the signaling model to test whether the conspicuous consumption effect is due to preferences that just happen to differ by race or due to income. What they find is that relative income is doing most of the work. That is, whites who are poor behave similarly. Thus, the authors are able to create a number of testable hypotheses. Read the paper for more details.
Posted by: Alex Tabarrok at Sep 15, 2007 3:19:57 PM
