no recession

The Price of Status

Scott's entry and the New York Times's article on Steven Levitt's work at the University of Chicago was fascinating. I really identify with Levitt's work and the questions that come naturally to him. Some may think his work is trivial, for example, his paper on why drug dealers still live with their moms. It's funny reading the title, and on the face of it it would not appear to address some the most pressing questions of our day. But consider the findings: drug dealers live with their moms because, as it turns out, the take-home pay for a dealer is comparable to that of a burger-flipper. If I worked with drug dealers trying to convince them to change their occupation, I would want to be armed with this information. It seems like most gang counsellors try to persuade dealers to quit despite the fact that they would take a huge pay-cut. Well, perhaps the pay cut would not be so drastic after all?

His work of examining the financing of a gang as if it were a corporation gives me some encouragement that there may be a future for my ideas about the price of status. Like some of Levitt's work, it would require "measuring the immeasurable." Economists have shown that when people buy goods, they often are not only purchasing the good itself, but also a secondary good, such as when someone buys fashionable clothes, they are also buying the status that comes along with owning those goods (if anyone can remember where they've seen this, please let me know--I can't remember the title of the paper).

Another important crutch of this idea is the anthropology theories that define our quest for status, similar to animals, in terms of our desire to find a good mate. A lot of it is based on evolutionary biology, but I don't understand all of that too well yet.

So what interests me is that it seems that the price of status is vastly different within different communities. In some cases this price is completely straightforward: among wealthy businessmen, status is very expensive: Italian Sports Cars, ten thousand dollar watches, Italian suits, etc. The high price of status is set by the high income of the community.

But among other groups the status issue is much more interesting. Let's take, for two examles, hippies and young African-Americans in the rap comunity (my biggest problem so far is avioding angering people for using racial stereotypes--I will have to be very careful). Among the hippies, status seems downright cheap, a pair of cords bought at the thrift store for less than $5, an old VW had for less than a couple thousand, or in some cases, a nicer microbus worth as much as $8-10 thousand. However, there's a lot of anthropological research to support this; the community still has to be able to differentiate who's in and who is not. There are a lot of obvious things, like dancing style (if you have ever been to a Phish concert, you know what I mean), language, etc. that take some time to learn in order to be considered a part of the community.

But what I think is interesting is that the the community seems to raise the relative price of status (to put up barriers to define the boundries of the community) in the status symbols themselves. What I mean is, within the style of hippies, there are elements that reduce one's earning potential to where a $5 pair of cords can be a significant investment, and a VW certainly is. The fact that the hippies with the most status have long dreads and do not subscribe to mainstream olfactory tastes (they often smell like a combination of patchouli and natural body odor, but that is not to say they are not clean. The point is that many outside the community think they aren't clean, like potential employers), serves to reduce their earning potential to raise the relative price of status. Also, the value placed on travel, including following bands such as Phish, eats up much of their income, and further reduces earning potential because they tend to not stay at jobs for a long period of time between trips. A second interesting thing about this community is that it gives a comparative advantage to "trust fund kids" who have money even though they have little earning potential, therefore they can consume a great deal of status at a relatively low price.

The Hip-Hop community, on the other hand, is quite different. It seems to me that the price of status is set by the few people with extremely high incomes: basketball players, rap stars, and gangsters (though Levitt's aforementioned study might cause me to revise this), and the vast majority of the members of the community have very low incomes. This creates a peculiar situation (the implications of which I would like to investigate), where status is extremely expensive relative to average income. The community barriers (like language mentioned above) make it even more difficult. Someone who has consumed a lot of status in this community will also have reduced earning potential. He will be perceived to be unprofessional because of his appropriation of the group's language and mannerisms (see How Hip Hop Holds Blacks Back ).

Another barrier in the community (and any community for that mattter) is arbitrary change of status. Among the hippies, this change is extremely slow--what bought you status 5 years ago will buy you just about the same amount today. But in the hip-hop community it changes very rapidly. As a friend who worked in the inner city told me, 10 years ago you needed gold if you wanted status. 5 years ago that arbitrarily changed to platinum, so you had to get rid of all your gold and buy platinum. Now in the last couple of years it has changed back to gold. These changes cause status prices to skyrocket.

So originally my theory was that relative status prices remain somewhat constant because they are set by the imcome of the community that defines the status. But it seems that status prices can vary, especially if the prices are set by a subgroup within the community that has a very different income than the rest of the group, as seems to be the case with the hip-hop comunity. I am interested in whether this is indeed the case, and if so, is it unique to this community, or are there other examples? Also, how do we work to reduce the price of status in order to increase the welfare of the group? Asking this question sort of violates the assumption in economics that one cannot judge the preferences of another--they are maximizing utility based on what they value. But are preferences really exogenous, that is, are they accounted for by something outside the model that we cannot change? Or can we change people's preferences within the model? A reduction in the price of status could be effected by a reduction in its demand (trying to convince people that they would be better off consuming less). Or perhaps by increasing supply (making it cool to wear less expensive things)? or both?

The point is not to change what people wear. The issue is not that black guys should look like white guys because white guys dress better. The problem that I think should be addressed is how can we help lift the African-American inner city population out of poverty by building social capital that will help them make decisions cosistent with the long-term goal of climbing out of poverty. I think that understanding the preferences and goals behind the purchases of popular goods can help us understand the people many of us are trying to help build stronger communities and better lives. The difficulty is that we are dealing with people's identity, not just their stuff.