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Monday, June 06, 2005

The Price of Luxury

I have about a dozen posts to go before I'm caught up with the present day. I had a busy year. I'm beginning to worry that having to write so much in arrears lends to verbal diarrhea and loose, watery quality prose. And then there are the current events!

So this is just an intermission.

I have posted about money: a little bit about living off government cheese, giving most of it away, and its effect on relationships. Indirectly, all of these were about what money buys emotionally. Isn't it odd how it can buy opposing emotions? Confidence with women and yet insecurity in relationships. Guilt at a meaningless and jaded existance and yet a charitable conscience. Of course these are all reflections of what is inside me, and it's enlightening to use money as a telescope into the soul.

My observation is that I am much more interested in money and its emotional impact than its practical impact. That's a luxury, and one that I definitely appreciate.

When do you know that you are well off? When you don't have to worry about the practical impact of money. You just don't.

Now that doesn't mean you don't worry about it. I know billionaires that incessantly worry about money. But they don't really have to, and ultimately what they really worry about is its impact on their pride, or arrogance, or confidence. Emotional impact.

Conversely, you are poor when you must worry about the practical impact of money.

Everybody else inbetween is tied to the relationship between emotions and materialism. They are struggling because they have to balance the practical impact of money with its emotional impact. For example, will buying that expensive watch that helps my self image affect my ability to pay for my housing? This is necessary budgeting.

By way of contrast, I only budget because sometimes it makes me feel good that I didn't waste money. But I don't have to do it. And anyhow you might think I am wasting money. Note that these definitions of well-off, poor, and struggling are relatively independent of how much money you have.

  • You could be a $7/hour wage earner but have very low practical material needs. You're happy living in a tree eating nuts and berries. You are well-off. (You may want to check in the mirror and see if you are a monkey, though.)
  • You could be a millionaire who did one too many drug deals in Central America, and you just gotta pay off that drug lord. You are struggling. (You might even be poor by my definition. Certainly you are stupid.)

We tend to focus on morally questionable ones, like branded fashion, but what of charity to needy children or protecting the jobs of your employees? These can cost a lot of money, are really about satisfying an emotional need, but aren't considered morally bad.

My definition of a luxury, is logically related. The definition of a luxury is based on how the good or service is perceived by the buyer. If it principally fills an emotional need, then it's a luxury.

There are a few interesting examples of high-ticket pragmatic spending. For example, a private jet may be a very pragmatic time saver that can enhance business. And sometimes that is truly the main reason why a person buys a jet. So by my definition, that jet would not be a luxury. But an individually-owned high-touch-outfitted GV SP is almost always a luxury; more than half the reason you chose that had to be emotional, since you could buy far less expensive used jets.

Likewise, branded items are almost always luxury goods. Since their markups are high, and their price generally set by desire (mediated by media), they are rarely justified by any pragmatics or necessity. So you bought those Jimmy Choo's because you needed footwear?

So if you are buying implants to make you feel better, or you are buying a yacht to show off around the Med, or buying a date to show off at your high school reunion, those are luxuries.

So what is the price of luxury?

By my definition, you do not look at the price not in dollars, since we've ascertained that doesn't matter. Instead you must look at the price in what the luxury buys in worth: the emotional impact. And there, the economics of luxury are quite interesting:

Scientific evidence shows us that the unchecked emotional fulfilment of materialism is a vicious cycle, like virtually all brain reward-center items that have been studied to date. That is, satisfaction creates more desire, and yet also stimulates a need for variety. So you don't tend to stay satisfied with the feeling (what I am calling the emotional impact), so you seek something more.

This used to be called addiction, but these days the boundry between addiction, compulsion and desire seem to be related to convenience. Put another way, if you remove too much of the emotional cost of acquiring goods by making it too convenient, then you've removed the check and balance that kept the brain reward system from spiraling out of control. This appears to be true whether its pornography or shopping.

This brain chemistry reward system was a good evolutionary trait to keep our societies internally and externally competitive, but in a resource-rich environment with mass communications it also creates our emerging socio-economic troubles: the pyramid of wealth, the excessive impact of brand, personal debt management crises, and the rising levels of anti-productivity sentiment in workers.

Think of it for a moment. The haves have a lot, continue to want more, yet are dissatisfied. Media continuously exposes the have-nots to the material lifestyles of the haves, and advertising (the financial fundamentals of media) make it seem emotionally satisfying. This makes them more likely to be dissatisfied and resentful. And yet as workers gain wealth and material (as have-nots become haves), they realize they are not gaining happiness, which leads to hopelessness and anti-capitalist, anti-productivity, and anti-money sentiments. And finally, because mass communications makes the world "smaller" by fusing many individual societies into one massive one, the base of the wealth pyramid is very large indeed.Which means there are a lot of pissed off resentful people.

All too often these socio-economic travails are blamed on money. But money is a linear, non-contextual value system. It's our own emotional reward circuits that cause these problems. Others blame it on irrational emotions. I don't agree with that either (sorry, Ayn Rand). There is an underlying rationality to emotions (science is slowly discovering underlying processes of emotions, and it is a mechanism). It's not that emotions are irrational, it's that emotions are contextual.

Several people recognize something is wrong and try to develop new measures. For example, Bhutan's metric of Gross National Happiness. Or the paper (PDF) about the value of sex and happiness that I posted last year. But these measurements are misguided because they fail to recognize the contextual nature of this economy. Others partition the problem differently, distinguishing between purchasing material goods and purchasing convenience, without recognizing the systematic effects of continuous arousal from those purchases. (Maybe I'll do a survey of this work some day, but I don't have time right now.)

But all this means emotional price is not as straighforward a metric as monetary price. Not because you can't put a dollar equivalent to emotional satisfaction, but because the exchange rate fluctuates contextually.

So what does this say about the price of luxury? If it is rendered as a personal definition, it makes it difficult to create a global economy from it. Yet eventually I believe this is what science will be able to create, as the underlying principles are discovered. Already we are exposed to some of the first issues from the relationship between this science and the current economic system. For example, the trust spray. Improved lie detectors. Functional imaging, and IR versions of imaging that some day will be portable. And so on.

When we really can measure emotional impact and long-term satisfaction... then what will happen? What happens to relationships, advertising, brand, and goods and services when we have the ability to strip away the cultural and current-economic artifacts and myths and expose our underlying reward circuitry? Will a new global economic system arise with new tradable monies, or will it become balkanized into individualized reward economies that are stitched together by old (or new) cultural artifacts, roles and etiquette? In other words, will emotional currency be the new gold standard, or will we have six billion personal standards?

A century from now, we will know. Economics and human nature make it inevitable.

Thoughts for a future posting.

And thanks to Inifinite Bowel and Jet Set Lara for the inspiration for this topic.


Blogger SBB said...

That "Wealth + Happiness" Article was excellent.

However, need to sharpen my brain in order to properly comment on your piece..

6/07/2005 8:35 AM  

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