Saturday, November 28, 2009

Can America afford the 'vanity tax'?

The LA Times opinion editorial "Can America afford the 'vanity tax'?" (November 27th, 2009) neglects to acknowledge basic notions of pleasure in its lambast of American leisure.

Although bemoaning taxes is the true national pastime, the one tax nobody really considers is this "vanity tax": the difference between what a thing needs to cost (to fulfill a given function) and what it ends up costing (after being artificially inflated by imperatives besides function).
Of course, our economic system is not structured around functional necessity, but rather around functional happiness.  That is to say, the most fundamental objective of the American consumer is to maximize his own well-being, not to maximize his usefulness to society.  If, as the author seems to suggest, we should build an economic system structured around necessity, it would be important to understand why we would do so.  Replacing every housewife's earrings with a new pair of gardening gloves, every child's toy with a multiplication book, may in the long run make America stronger against its enemies, but what gain have Americans really made?  If we are switching to function-value for another reason, we should ask ourselves, "what is that reason?"  Corrections cannot think of one.

Responding to a critic who called Twitter useless, the founder replied, "So what?  So is ice cream."  We eat ice cream for a reason beyond its "functional value" of eating calories--we enjoy it.

Even if we accept, for some reason, the author's barren, function-only world, we should not forget that luxurious goods have a purpose.  Economists define "Veblen goods" as those goods that grant their purchaser increased status, so the value of a Veblen good to a consumer is always tied-up in its price.  For example, a ferrari would not be valuable to most of the men who purchase expensive cars if it cost only $1.  This is because a ferrari has a function beyond its own use.  Veblen goods publicly display the wealth of those who purchase them and are often the same goods that signal high matching status.   One result of the ability to distinguish oneself from one's peers is to be able to signal (wealth, taste, sophistication) and gain information that allows optimal marriage market matchings.  In this sense, the red Ferarri might be worth as much as its sticker price to "society" since it allows an increase in matching efficiency.

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