THE SPENDING EXPLOSION: POSITIONAL EXTERNALITIES AND EXPONENTIAL CONSUMPTION GROWTH
Journal Title: Journal of Applied Quantitative Methods - Year 2012, Vol 7, Issue 1
Abstract
Since the 1960s, The United States has experienced increased income inequality. Economist Robert Frank has argued that this increase in inequality has resulted in an expenditure cascade as people have tried to maintain their relative socioeconomic statuses by imitating the spending patterns of those in their reference groups. Although some researchers have tried to empirically determine the extent to which Frank’s assessment is correct, none have focused on the implications of Frank’s argument for the dynamics of consumption. That is, none have focused on how time series of measures of consumption should look, assuming Frank is right. This paper does exactly that. Drawing on a mathematical model from population biology, it is argued that if Frank is correct, measures of consumption should exhibit exponential growth. It was found that the exponential growth models provided excellent fits to available data on United States consumption measures.
Authors and Affiliations
Michael LEWIS
Keywords
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