Politically Incorrect Blogging

Alex Tabarrok points us to a study indicating that Bill Cosby may have been right:

Several years ago Bill Cosby chided poor blacks for spending their limited incomes on high-priced shoes and other items of conspicuous consumption instead of investing in education. Cosby was widely criticized but I went to the numbers, specifically Table 2100 of the Consumer Expenditure Survey and found the following for 2003:

Average income of whites and other races: $53,292.
Average income of blacks: $34,485.

Expenditures on footwear by whites and other races: $274
Expenditures on footwear by blacks: $440.

As I noted then "to do a proper comparison we would have to correct for income and other demographic variables." The correction has now been done by three researchers in an NBER working paper (non-gated version). The results didn't surprise me. How about you?

Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large.

To give the authors credit where credit is due they also show that the differences in conspicuous consumption are large and important. The differences in spending on clothing, jewelry, and cars, for example, can explain half of the differences in wealth between the races (conditional on permanent income) and a significant share of the differences in education and health spending.

This is indeed significant: half the differences in wealth accumulation between the races are explained by this phenomenon (so it isn't all George W. Bush's fault after all, I guess). Tabarrok guesses that this is best explained in terms of signaling: an upper-middle-class white collar worker receives less of a marginal social benefit from conspicuous consumption than do lower-class citizens. Since average incomes for whites are higher, whites may be less inclined as a group to spend it all on physical goods in order to convey status; instead, they may spend it on getting their child into a high-profile private school, or on a larger suburban home. Meanwhile, blacks may be more inclined as a group to purchase goods which convey outward signs of high status such as cars, clothes, and jewelry.

In other words, Brad DeLong might be right: much of our consumption might be nothing more than a hopped-up East African plains ape pissing contest.