Contrary to what the Australian tycoon says, consuming 'luxury' goods plays a key role for deprived individuals, write Clement Bellet and Eve Sihr

Bellet, Clement

Sihra, Eve

LSE Research Online

5/22/2017What research tells us about the avocado toast controversyblogs.lse.ac.uk /businessreview/2017/05/22/what-research-tells-us-about-the-avocado-toast-controversy/Australian millionaire and luxury property developer Tim Gurner recently suggested millennials should stop spendingmoney on avocado toasts or expensive coffee so that they could afford to buy property. This comment started aheated debate relative to the way the young – and more generally lower income people – spend their money, andon the morality of conspicuous consumption.The debate has underlined why being a millennial means more than eating avocado toasts while looking for the bestcoffee on Sundays: growing inequality, job uncertainty, rising housing prices, instability of the welfare system, manyrecent phenomena make this world very different from the one in which Tim Gurner grew up.But there is another side to the story. The question re-sparked by Tim Gurner’s remark is an old debate, in which anadvantaged section of the society consistently blames a more disadvantaged group for consuming “luxuries”. In fact,avocado toasts are more deeply linked to inequality than what the first look suggests. From Adam Smith to ThorsteinVeblen, Fred Hirsch or Jean Baudrillard, many researchers have documented that needs are to a large extentrelative, and are set by the richest sections of society. Consumption practices trickle down to more disadvantagedsections; and avocado (or coffee, or smartphones) being more visible than savings, it certainly is more likely to beconsumed as a conspicuous good.Why do people consume conspicuously even when they cannot afford healthcare, or housing? Well, conspicuousconsumption is not wasteful insofar as it helps to restore the relative position of deprived individuals. In moreunequal societies, luxury items become more necessary to the disadvantaged in a desperate attempt to keep upwith the required level to stand in society.Jean Baudrillard writes that this effect could even be stronger when disadvantaged sections know they cannot keepup in wealth level, for example as they cannot access housing property given the current market. They may over-compensate their feeling of powerlessness by spending more on conspicuous goods, or social ones – and so whynot avocado toasts with fancy coffee?1/3Innovative empirical studies in economics are now able to quantity the effect of inequality on consumption patternsof disadvantaged sections of society. Looking at consumption and savings, economists Marianne Bertrand and AdairMorse found that a quarter of the fall in the US saving rate could be explained by inequality and trickle-downconsumption. Our own research has shown that even malnourished households who live under $1 a day in Indiaspend relatively more on luxuries such as clothing, and less on (cheaper) caloric-intensive products such as wheator rice in areas with higher levels of inequalities. According to our estimation, the caloric cost of relative deprivationamounts to 10 to 15 percent of the mean daily per capita calorie consumption of the poor. This effect significantlycontributes to our understanding of the endemic levels of malnutrition in the country.The fact that Tim Gurner is a real estate mogul is particularly interesting, as we also know that housing ranksamongst the most conspicuous items in developed societies. Trying to keep up with housing, however, may notbring more happiness. In recent research, one of us documents that despite a major upscaling in housing size,there was no increase in household’s expressed satisfaction with their homes after the 1980s. Since householdsvalue the relative size of their house, the value of their home goes down when bigger houses are built around them.They are in turn incited to build even bigger houses. In other words, Tim Gurner might be slightly interested thathousing becomes the new avocado. As for the young, they may stop buying avocados in order to buy a house, butthey will likely regret their investment as they realise they are also losing the housing status race.Added by the editor after publication: A reader tweeted this link:@PJDunleavy @LSEforBusiness This article by Bernald Salt started the avocado controversy. RTEvils of the hipster cafe https://t.co/FLKYa9jvnH— GabLLB (@GabLLB) May 22, 2017//platform.twitter.com/widgets.js♣♣♣Notes:The post gives the views of its authors, not the position of LSE Business Review or the London School ofEconomics.Featured image credit: Garlic-rubbed toast with mashed avocado and salsa verde, by Jennifer fromVancouver, under a CC-BY-2.0 licence, via Wikimedia CommonsBefore commenting, please read our Comment Policy.Clément Bellet joined the London School of Economics in September 2016 as a Research Officerat the Center for Economic Performance. He has been examining ways in which inequality affectschoices and wellbeing due to social comparison effects, in India and the United States. Heexplores issues relative to conspicuous consumption and social status, marketing, happiness,inequality and poverty. Clément completed his PhD in economics at Sciences Po Paris and was avisiting scholar at the University of California Berkeley in 2014-2015. He previously worked as aShort Term Consultant for the World Bank.2/3Eve Sihra is completing her PhD in economics at Sciences Po Paris.  She will join the HebrewUniversity to work on the ERC project “International Integration and Social Identity: Theory andEvidence”. Her research aims at measuring the impact of cultural and social incentives onconsumer behavior. She studies the effect of inequality, social interactions, identity and tradeintegration on consumption patterns and preferences. She was a visiting scholar at the FrenchNational Institute of Agricultural Research (2012-2017) and the University of California-LosAngeles (2015).Copyright © 2015 London School of Economics3/3

What research tells us about the avocado toast controversy

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