Tuesday, January 15, 2008

Human Nature or Bad Priorities

I recently read an unpublished study by a group of economists and its findings raised a number of questions for me. The study was designed to see if there was a difference in what blacks and Hispanics spent their money on compared to their white counterparts. For a while now there has been this public discussion about whether blacks spend too much money on “flashy” items instead of on other things, like education and savings. The discussion was brought to a head by the recent comments of comedian Bill Cosby stating that blacks will spend $500 on a pair of sneakers instead of educational toys for their children. There was an outcry from many in the black community denouncing Mr. Cosby. I have to admit that I have also been involved in such discussions and have been ridiculed for making similar statements to Mr. Cosby’s.

The authors of the study entitled, “Conspicuous Consumption and Race”, are Kerwin Kofi Charles, Erik Hurst, and Nikolai Roussanov ; while their empirical data seems sound as with any study the conclusions are open to interpretation. The gist of the study is as follows, using data from the Consumer Expenditure Survey (CEX) and the Panel Study of Income Dynamics (PSID) the authors wanted to compare the spending habits of blacks, Hispanics, and whites of comparable income for things they labeled as “visible goods” (clothes, cars, and jewelry). Do blacks and Hispanics spend more on these items? Based on the results of the study the answer is a resounding yes. On average blacks spend 30% more on these items than their white counterparts of similar income.

The question now becomes why? The conclusion drawn by the authors of the study suggest that it is primarily based on how and where we demonstrate our wealth. In a consumer driven society the mark of one’s status is based directly on the fact that one is consuming and on what one is consuming. All who are able play the game, keeping up with the Jones. It’s just we play it in different ways.

Economists refer to items that we purchase in order to reveal our prosperity to others as wealth signals. But why use sneakers, as opposed to phonics toys, as a wealth signal? First off, for a signal to be effective, it needs to be easily observed by the people we're trying to impress. This includes not just those near and dear to us, but also the person we pass on the street, who sees our sneakers but would have a harder time inferring how much we're spending teaching our kids to read. For a wealth signal to be credible, it also needs to be hard to imitate—if everyone in your community can afford $150 sneakers, those Zoom Lebron IVs would lose their signal value.[1]

So according to the conclusions drawn by the authors, the reason blacks spend more on visible goods (clothes, cars, and jewelry) is because of where we are located. We are trying to impress different groups and each of those groups has different signals. Whites are trying to impress other whites and blacks are trying to impress other blacks. Their argument is as follows: based on median incomes and housing patterns blacks earning 42,500 which is the median income for blacks are surrounded by other blacks and so their income would be considered high on the neighborhood scale. Whites on the other hand making the same amount would be lower on the income scale in their neighborhood (66,800 is the median income for whites) and therefore could not financially take part in the signals game, so these whites are spared from having to spend on these visible goods.

Here is my problem with the conclusions produced from the study by the authors. If this is human nature then why don’t all people do it? The whites that are making the same income as blacks should still be playing the game even if it is on a smaller scale. Why do blacks that are making under the median income still purchase these visible items while whites don’t? Based on their analysis there is still cultural factors in the fact that what blacks are using to impress each other are not the same as the visible items whites are using.

I believe that the reason we see these differences is based on two factors. The first is the length of time blacks have had to accumulate wealth and the second is the cultural messages we have been taught. For many blacks the length of time that they have had to accumulate and handle wealth has been only a few decades. Why is this important? It is important because as we have seen with lottery and other sweepstakes winners people who have not had money blow it very quickly on foolish things. Also, as many of our athletes and entertainers have shown there are certain behaviors that are deeply embedded and acquiring money does not make them disappear. If you or your family has been poor for more than a single generation then your poverty is generational and you are governed by different standards. The things you value are developed by your environment, so in one sense the authors are right. If you are raised in poverty, then you will value wealth signals of that environment. Even after you leave that environment they remain with you. We see it every day on the television; you will have superstar athletes wearing 2 and 3 carat diamond earrings. Do you think a white of similar income would purchase those same items?

The second relates to the things we value as a culture. The reason we would rather spend the money on sneakers rather than books or educational toys is because those things are not viewed as having value. We don’t seem to value long-term rewards. We want instant gratification. The long-term values of having an education or saving money are not promoted in our communities. In other words, it is more important to have the child look wealthy today to impress than it is to invest in the child’s future to become wealthy later which is not impressive. Look at the cultures that value education, what is impressive to them is not flashy jewelry, clothes, or cars. Somewhere we have either chosen or been sold on the belief that these things denote class and wealth, when in actuality they denote neither. One of the main reasons the dope trade is so attractive is that it promises fast and easy money. Why wait and work hard trying to get an education when you can sell poison. The sad thing is that most of these guys aren’t even trying to get rich, they’re just trying to make enough to get a few things.

These are mostly grown folks so what difference does it make what they spend their money on anyway? First, making these purchases reinforces the false notion of wealth. Second, if you are spending more on one thing, then subsequently something is getting less. There is only so much income available to spend. So, if you are spending 30% more on flash, then some other areas are receiving less. There is only so much money to go around and usually according to the study the areas that are receiving less are education and savings. These are the two areas that actually help to build wealth in the long run.

The question now becomes, why are these areas not valued? I remember growing up in an atmosphere of hope and promise for the future, education was promoted even by those who didn’t have any. Children were encouraged to become educated and those that did were given motivation to go further. Have we sunk into a vicious cycle of poverty that begets poverty? Have we been seduced by the “pimp my” syndrome, where the façade is more important than the substance? Where does it end? I had a friend who’s two sons and a cousin, who were by all indications good kids, they went out and carjacked an old couple to go joyriding because her and her husband were not able to get them the gifts for Christmas they felt entitled to. Needless to say they are locked up and three more black boys are lost to the system.

The problem is that we as a nation are spending too much money on things that have no real value in order to impress people who make no difference in our lives. The problem for blacks is that we can’t afford it financially, spiritually, and culturally. Somewhere there has been this disconnect from obtaining things through hard work to this quick and easy idea. I don’t know where it came from, but I know it had better change soon or it won’t matter how much your sneakers cost when you’re laying in the coffin or in prison.

[1] http://www.slate.com/id/2181822

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