trickle-down consumption

MaryW commented on the word trickle-down consumption

Two economists from the Chicago Booth School of Business, Marianne Bertrand and Adair Morse, found that the trends might be related. They called their theory “trickle-down consumption”: “Households exposed to more spending by the rich self-report more financial duress,” they concluded. They even discovered a positive relationship between the income of the state’s richest households and the number of personal bankruptcies in that state. (It wasn’t just about rising home prices: Their finding was strong even after controlling for that.)

Instead, they found that conspicuous wealth was, well, contagious. When people see others living the high life, they try to buy it for themselves, even when they can’t afford it. Middle-class households in rich states shifted their spending from “non-rich goods”—gas, utilities, food at home—to “rich goods,” like clothing, jewelry, furniture, manicures, and exercise classes. If not for this shift, the non-rich would have saved an additional $800 a year in the late 2000s.

See Marianne Bertrand & Adair Morse, Trickle-Down Consumption (working paper, 2012)

April 27, 2016