Housefull Economics

Get That Jaguar!

Our weekly explainer on economics using lessons from popular culture. In Installment 34, Mr Sukh-E discovers the Signalling value of Conspicuous Consumption.

Once upon a time there lived a distraught Punjabi rap artist (or as he likes to refer to himself a ‘Musical Doctor’): Mr Sukh-E.

Confused and perplexed about his misery, he decided to write a song about his romantic conundrum:

Kudi kendi baby pehla Jaguar lai lo.
Phir jinna marji pyaar lai lo.

(The girl says,”Baby! Buy me a Jaguar first and then get as much love as you want.”)

An astute rationalist when it comes to purchases, Mr Sukh-E wondered why his lover was so fond of cars from the Jaguar brand. Does it fit more people? Does it deliver a better mileage? Is it a value-for-money buy?

‘No!’ was unfortunately the answer to all those questions.

Mr Sukh-E needed an economics lesson, and Thorstein Veblen, an economist and sociologist writing roughly a century ago, has some answers for him.

Veblen famously coined the term “conspicuous consumption” to explain the demand for luxury goods. When consumers enquired about why they buy expensive jewellery or a high-end watch, they tend to mention material factors such as comfort, aesthetics and functionality. But Veblen proclaimed that, in fact, the demand for luxury goods is driven largely by a social motive: flaunting one’s wealth. A Veblen good is a luxury item whose price does not follow the conventional laws of supply and demand. Usually, the higher the price of a particular good, the less people will want it.

Recently evolutionary psychologists like Geoffrey Miller have explained this phenomenon using  signalling theory. To convey qualities such as health, financial status, or power to others we tend use ‘signals’. In evolutionary terms these signals have been useful for survival and reproduction of organisms for thousands of years.

Israeli evolutionary biologist Amortz Zahavi in his book The Handicap Principle proclaims that these signals, at least the ones required for reproduction, must be costly in order to be reliable indicators of an animal’s fitness as a potential mate and parent. The traits that display these signals are called ‘handicaps’ by him, as an signal of reproductive fitness is often displayed at a cost of survival fitness.

The peacock tail is the classic example of a handicapped signal of male quality Its large size, symmetrical shape and colourful aesthetic make it a fine reproductive signal. But it slows down a peacock in a situation when it is attacked, and is also expensive to maintain, thus immensely reducing his survival fitness. But how is peacock mating relevant to economics?

Here’s how: In buying an expensive Jaguar, one encounters a similar trade-off. The most expensive car in the Jaguar roster, the F Type, has very little boot capacity, only two seats, gets terrible mileage, and is ridiculously expensive to repair. And yet, those who shell out millions of rupees on it are not worried by what a ‘rational’ consumer might call poor practical specifications and excessive spending. The Jaguar is a signal that Mr Sukh-E would remain solvent enough to provide for the sustenance of a potential mate and their progeny.

Economists can learn a thing or two about consumption from Miller’s work in evolutionary psychology. He cynically delivers this brilliant insight in one his papers:

Mass advertising can jump-start a signal-evolution process by showing fake men (actors) driving not-yet-available Porsches, and fake women winking at them. The whole signalling system based around the product can be posited, all at once, in the virtual reality of advertising, before a single product is sold or a single sexual prospect is impressed.

Critics of free market capitalism particularly enjoy bashing conspicuous consumption, labelling it as wasteful or a vulgar symbol of inequality, but conspicuous consumption is a valuable driver of economic growth, creating entrepreneurial opportunities and jobs (the market for luxury goods is growing at a compounded annual growth rate of 25%) — two key economic goalposts that have eluded India in recent times. Progressive taxation of luxury goods also contributes to the government’s coffers.

Also, the argument of luxury goods having no ‘intrinsic value’ falls flat when its utility is looked at from an evolutionary point of view.

Poor Mr Sukh-E might soon realise that he cannot afford to be frugal. He will have to get that Jaguar.

About the author

Archit Puri

Archit Puri is a Programme Associate at the Takshashila Institution. His background is in economics and marketing. Archit is the founder of an award-winning skill development social venture and is interested in behavioural economics, technology and masala chai.

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