Category Archives: Business and Economy

McMansions and the “inconspicuous consumption” of the 1990s

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One aspect of McMansions that is frequently discussed is the tie between such houses and larger patterns of excessive consumption. Here is a quote from a CEO of a Pennsylvania construction company that does just this:

“The new-home industry will have to respond to the market for smaller lot size and efficient home construction,” Wagman said. “We’re past the building of McMansions. That type of inconspicuous consumption is so ’90s.”

To be honest, I didn’t quite know what this term “inconspicuous term” meant. I know what conspicuous consumption as it is a common sociological term first introduced by Thorstein Veblen in his 1899 work The Theory of the Leisure Class. So I went digging around Google for the meaning of this term and how it relates to Veblen’s term. This piece from The Economist in 2005 argues that conspicuous consumption is now much more complex in wealthy, Western societies and so inconspicuous consumption still shows off wealth but in more subtle ways:

As well as traditional conspicuous consumption and “self-treating”, Ledbury Research identifies two other motives that are driving buying by the rich: connoisseurship and being an “early adopter”. Both are arguably consumption that is conspicuous only to those you really want to impress. Connoisseurs are people whom their friends respect for their deep knowledge of, say, fine wine or handmade Swiss watches. Early adopters are those who are first with a new technology. Silicon Valley millionaires currently impress their friends by buying an amphibian vehicle to avoid the commuter traffic on the Bay Bridge. Several millionaires have already paid $50,000 a go to clone their pet cat.

Who knew that spending lavishing to show off one’s wealth and status had become so difficult? In 2008, Virginia Postrel says something similar:

The shift away from conspicuous consumption—from goods to services and experiences—can also make luxury more exclusive. Anyone with $6,000 can buy a limited-edition Bottega Veneta bag, an elaborately beaded Roberto Cavalli minidress, or a Cartier watch. Or, for the same sum, you can register for the TED conference. That $6,000 ticket entitles you to spend four days in California hearing short talks by brainy innovators, famous (Frank Gehry, Amy Tan, Brian Greene) and not-so-known. You get to mingle with smart, curious people, all of whom have $6,000 to spare. But to go to TED, you need more than cash. The conference directors have to deem you interesting enough to merit one of the 1,450 spots. It’s the intellectual equivalent of a velvet rope.

As for goods, forget showing off. “If you want to live like a billionaire, buy a $12,000 bed,” says a financial-planner friend of mine. You can’t park a mattress in your driveway, but it will last for decades and you can enjoy it every night.

So we’ve moved away from garish displays of spending to more exclusive but somewhat more hidden ways to display wealth.

If we return then to the quote from the construction CEO, what exactly was he getting at? A few thoughts:

1. If he is adhering to a similar definition as The Economist piece or Virginia Postrel, then he is suggesting that McMansions were a more subtle display of wealth. But it seems that a lot of the criticism of McMansions comes from the idea that the owners are trying (desperately) to flaunt their wealth in the form of their large, garish house. So is McMansion buying a conspicuous or inconspicuous act? Might there be different opinions if we talk to the buyers/owners of such homes (after all, people need to live somewhere) versus McMansion critics (but people don’t have to live in mass-produced, poorly designed homes)?

2. He suggests that the inconspicuous consumption of McMansions took place during the 1990s. The late 1990s is where the term McMansion started to take off but the houses themselves seemed to receive the most attention from roughly 2000 to the start of the current economic/housing crisis. Perhaps the 1990s get singled out here because of a good economy in the latter half of the decade but much McMansion building and purchasing was still taking place until recent years.

(3. I wonder if he simply didn’t mean to say “conspicuous consumption” and said “inconspicuous consumption” instead.)

(Amazon also has a 1997 book that uses this term as a title: Inconspicuous Consumption: An Obsessive Look at the Stuff We Take for Granted, from the Everyday to the Obscure. Interestingly, it is written by Paul Lukas, the mind also behind Uni Watch, a blog with the tagline of “The Obsessive Study of Athletics Aesthetics.” It appears Lukas is still writing about the same topics for ESPN.com but I haven’t seen his material featured in years. When it was more prominently featured, I would read his thoughts quite often.)

A call to collect better data in order to predict economic crises

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Economist Robert Shiller says that we would be better able to predict economic crises if we only had better data:

Eventually, these advances led to quantitative macroeconomic models with substantial predictive power — and to a better understanding of the economy’s instabilities. It is likely that the “great moderation,” the relative stability of the economy in the years before the recent crisis, owes something to better public policy informed by that data.

Since then, however, there hasn’t been a major revolution in data collection. Notably, the Flow of Funds Accounts have become less valuable. Over the last few decades, financial institutions have taken on systemic risks, using leverage and derivative instruments that don’t show up in these reports.

Some financial economists have begun to suggest the kinds of measurements of leverage and liquidity that should be collected. We need another measurement revolution like that of G.D.P. or flow-of-funds accounting. For example, Markus Brunnermeier of Princeton, Gary Gorton of Yale and Arvind Krishnamurthy of Northwestern are developing what they call “risk topography.” They explain how modern financial theory can guide the collection of new data to provide revealing views of potentially big economic problems.

Even if more data was collected, it would still require interpretation. If we had the right data before the ongoing current economic crisis, I wonder how confident Shiller would be that we would have made the right predictions (50%? 70% 95%?). From the public narrative that has developed, it looks like there was enough evidence that the mortgage industry was doing some interesting things but few people were looking at the data or putting the story together.

And for the future, do we even know what data we might need to be looking at in order to figure out what might go wrong next?

Altoona, PA to become “POM Wonderful Presents: The Greatest Movie Ever Sold”

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It is not just businesses that don’t mind being part of a film that negatively portrays product placement. Tomorrow, the city of Altoona, Pennsylvania will get a new name: POM Wonderful Presents: The Greatest Movie Ever Sold. Why Altoona? Sheetz is a key sponsor of the film (paying at least $100,000 to Spurlock) and the company is based in Altoona:

Sheetz said it was Spurlock’s idea to have a secondary premiere, hopefully in a town that would name itself after the movie. Sheetz helped sell the idea in Altoona, and the locals seem enthused by the concept…The locals needn’t worry too much. The name change is ceremonial — meaning people won’t have to address mail using the movie’s title. The film was in the can before the naming rights deal was approved earlier this month by city council, on which Bruce Kelley serves as vice mayor. The money is going to the police department.

[Vice mayor Bruce] Kelley said he’ll leave it to marketing experts to debate how much advertising is too much, but said the city is solvent and doesn’t sell the naming rights to anything other than trees people can pay to have planted in someone’s honor.

“So we’re all going along with the gag. We’ve become part of the shtick,” Kelley said.

“But you’re not going to see ‘POM Wonderful Presents: The Greatest Movie Ever Sold’ on the side of our fire trucks.”

So, at least there are some boundaries! Seriously though, the city is getting $25,000 to be renamed for a short period of time and the money seems to be going to a good place.

But there are some larger issues that this article could or should address:

1. Aren’t there other communities that have done similar things in the past? Truth or Consequences, New Mexico (Wikipedia explanation) is a classic example.

2. The vice mayor says Altoona is solvent but I wonder what their budget status really is. Many communities are experiencing budget issues and I wonder how many might go through with something like this to get some quick cash. The CTA seemed to indicate that it is interested in such efforts.

3. This vice mayor suggests “marketing experts” should figure out how far is too far in the selling of commercial advertising. Perhaps we need a national survey on this: when Americans are presented options about how the Federal government or more local governments should raise money (or cut spending), why not include a questions regarding the option of selling advertising rights? While we have some commentators who seem up in arms about this practice (including Spurlock), what is public opinion on this issue? For example, Apple sponsoring a Chicago El stop drew some initial attention but I haven’t heard anything since.

Americans buy a lot of stuff they don’t need

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Americans are known for being consumers. In fact, Americans spend quite a bit of money on non-essential goods:

This Easter weekend, Americans will spend a lot of money on items such as marshmallow peeps, plush bunnies and fake hay, begging a question: How much does the U.S. economy depend on purchases of goods and services people don’t absolutely need?

As it turns out, quite a lot. A non-scientific study of Commerce Department data suggests that in February, U.S. consumers spent an annualized $1.2 trillion on non-essential stuff including pleasure boats, jewelry, booze, gambling and candy. That’s 11.2% of total consumer spending, up from 9.3% a decade earlier and only 4% in 1959, adjusted for inflation. In February, spending on non-essential stuff was up an inflation-adjusted 3.3% from a year earlier, compared to 2.4% for essential stuff such as food, housing and medicine.

It would be helpful if this post had more details about the “non-scientific study” and what data is being examined. Nonetheless, it is interesting to see this story at Easter time: isn’t Christmas supposed to be our most commercial holiday? There does seem to be more stories in recent years about the increased spending at Halloween and Easter. Perhaps we just like holidays because they are excuses to spend!

Here are two possible conclusions regarding this data:

The sheer volume of non-essential spending offers fodder for various conclusions. For one, it could be seen as evidence of the triumph of modern capitalism in raising living standards. We enjoy so much leisure and consume so much extra stuff that even a deep depression wouldn’t – in aggregate — cut into the basics.

Alternately, it could be read as a sign that U.S. economic growth relies too heavily on stimulating demand for stuff people don’t really need, to the detriment of public goods such as health and education. By that logic, a consumption tax – like the value-added taxes common throughout Europe—could go a long way toward restoring balance.

Interesting options: we spend so much on these things because we can (conspicuous consumption?) or we frivolously throw our money away at things that don’t really matter while ignoring important issues. Neither sound particularly good. The second one does seem to be at the root of most advertising: make a pitch so that the consumer thinks they “need” a product. Don’t people need iPhones, new cars, and lots of beer?

Ultimately, we might need some more numbers to settle this debate. How does the discretionary spending of the American individual compare to that of other nations? (During this recent recession, we have heard about how Americans had a lower savings rate than past Americans going into this period but how do we compare to other countries?) What are the total costs of living in such an economy (which certainly must help create jobs and generate wealth for someone) vs. one that does put more money into education or infrastructure? How much do average Americans think they should be spending on non-essential items and if given the choice, would they want to spend more?

h/t Instapundit

Negative emotions in the workplace

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A recent Time magazine piece discusses the role, or lack of a role, of negative emotions in the workplace:

In the binary shorthand we use to compartmentalize modern life, we think of home as the realm of emotion and work as the place where rationality rules — a tidy distinction that crumbles in the face of experience. As management scholar Blake Ashforth has written, it is a “convenient fiction that organizations are cool arenas for dispassionate thought and action.” In fact, in the workplace we are bombarded by emotions — our own and everyone else’s. Neuroscientists have demonstrated over and over in empirical ways just how integral emotion is in all aspects of our lives, including our work. But since companies have generally avoided the subject, there are no clear protocols about emotional expression in the office.

The only instance in which we acknowledge emotion is when doing so is seen as obviously beneficial, both personally and professionally…

But we’re still largely clueless about how to display and react to more commonplace emotions such as anger, fear and anxiety, so we handicap ourselves, trying to check our human side at the office door.

As the last paragraph of the article suggests, not being able to express these emotions leaves employees as less than human. It is one thing to be able to act professional or courteous in the workplace but another to suggest that people have to bottle emotions that we all have from time to time. In high stress environments where the personal identity of employees is often closely tied to job performance, negative emotions are bound to come up.

This reminds me of Arlie Hochschild’s concept of “emotion work.” While there are certain professions that require a public performance of cheerfulness (such as a flight attendant or waitress), this article suggests that most employees have to do some form of this. Just as Hochschild suggests, this is also a gendered issue: women are judged differently when expressing emotion.

So how could companies allow employees to express these emotions in positive ways?

Tim Horton’s as “a place where Canadian values are articulated”

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Politicians are well-known for visiting local restaurants and meeting with potential voters. In Canada, this means that politicians head to Tim Horton’s:

As we enter the home stretch of the election, the most dangerous place to be is between a politician and a Tim Hortons photo-op.

In recent weeks, the doughnut chain has become the parties’ preferred shorthand for patriotism, with leaders battling to sell their image as the Everyman with each double-double…

“It’s not just a coffee shop; it’s a place where Canadian values are articulated,” explained Patricia Cormack, associate professor of sociology at St. Francis Xavier University. “Tim Hortons is connected (through marketing) to community and sacrifice and immigration and family — all those themes that politicians want to attach themselves to.”

The restaurant, in a way, has become the Canadian equivalent of what former vice-presidential nominee Sarah Palin called “Main Street USA.” Only in this case, it’s a $2.5-billion multinational personifying the people — an irony not lost on those following the campaign online.

This sociologist makes it sounds like politicians want to ride the coattails of Tim Horton’s effective marketing campaigns. As one might imagine, this close identification with a particular large corporation rubs some people the wrong way. The story cites one citizen that suggests more candidates visit Starbucks. There is only one problem: Tim Horton’s is much more popular than Starbucks in Canada.

A 2009 Harris-Decima survey found Tim Hortons people outnumbered Starbucks people by a ratio of 4-1 in Canada, with the former brand traversing age, class, gender and even political philosophy.

So Starbucks is not the answer, at least not for the politician that wants to connect with the “average Canadian voter.” The American equivalent might be going to McDonald’s or Walmart but I don’t think these companies have the popularity that Tim Horton’s has in Canada.

In thinking about this, are there other countries that have something like a “national corporation”?

(I have had one Tim Horton’s experience: it is the only time I have had a combo meal with an apple and a donut.)

Companies still willing to pay for product placement, even in a film criticizing product placement

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Watch television or movies and it is not hard to find examples of product placement (some more obvious than others). But even with the negative attention this draws, companies are still willing to pay for it even when their placement is in a film criticizing product placement:

Though the film takes an all-out jab at this advertising trend, advertisers are on board. Morgan Spurlock’s “POM Wonderful Presents: The Greatest Movie Ever Sold,” opens Friday, and it’s the real deal.

Among the companies that participated, Chicago-based Hyatt Hotels Corp. paid $700,000 to “sponsor” the film, knowing it was buying into a documentary devoted to how stupid and awkward product placement can be. (Nearly every interview in the movie takes place at a Sheetz gas station where every beverage other than POM Wonderful is blurred.)…

“There are more and more attempts to avoid the commercial break,” said James Pokrywczynski, associate professor at the Diederich College of Communication at Marquette University in Milwaukee. “We use the remote control to change channels, we DVR shows or edit out the commercials or fast-forward through them.”

As a result, spending for product placements in TV, film, Internet and video games more than tripled between 2004 and 2009, from $1.1 billion to $3.6 billion, according to Stamford, Conn.-based media research firm PQ Media.

In the long run, the companies will take the negative attention as long as a media outlet puts their product in front of people. This seems to go along with the idea that “all publicity is good publicity.” And with more organizations looking for money, like Chicago being willing to have corporate sponsors for CTA stops, even this new film won’t be able to stop the trend.

Just out of curiosity, I would be interested in knowing the sales figures of the new Kindle with a cheaper price due to “special offers.”

Another article on declining homeownership rates

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Bloomberg Businessweek highlights how American’s view of home ownership has changed in the last few years:

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”…

“If we’ve learned anything from this mess, it’s that housing is not a risk-free investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Everyone knows someone underwater in their mortgage or struggling to sell a home.”…

The U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade, according to the Census Department. The rate probably will retreat another percentage point by 2013, according to Meyer, of Bank of America Merrill Lynch, and Lea, the finance professor. That would put it back to a 1997 level.

“People will still aspire to own their own homes,” Lea said. “They’ll just be a lot more practical about it.”

This article tends to focus on the money side of things (housing as less of an investment, tighter credit, lots of people with underwater mortgages, a future with a reduced or no involvement from Fannie Mae and Freddie Mac, etc.) but I think the key (or exciting) information is in the last two paragraphs I cited above:

1. The homeownership rate has dipped but not a whole lot. Even in the housing boom of roughly the mid 1990s to the mid 2000s, the US homeownership rate increased from 63.6% in early 1993 to 69.2% in late 2004. So over an eleven year stretch of relative prosperity and increasing home values, homeownership rose about 6.5 percentage points. From this peak in late 2004 (69.2%), the homeownership rate had dropped to 66.5% for the fourth quarter in 2010. In a six year stretch, the rate had dropped 2.7%. If you look at the historical data since 1965 (all of these figures are from an Excel table on the Census website – Table 14 on this page), before the 1990s, the homeownership rate moved fairly slowly either up or down. Perhaps what is not so unusual about homeownership is not that it has fallen in recent years but rather that it rose so much between 1993 to 2004.

2. Additionally, this is all tied to American aspirations: do they still aspire to own their own home? While this article (and many others) highlight how this might now be more difficult, this key part of the American Dream still seems to be intact. Even if future neighborhoods or suburbs look different (like this article suggests they might), the interest in owning one’s property still appears to be high. While there is no guarantee that more and more Americans will be able to own their own homes (how high might the American homeownership rate realistically go anyway?), it will likely take more than this what has happened in this particular economic crisis to cast a new vision of American fulfillment that doesn’t include a single-family home or space.

The current state of Zipcar

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The Infrastructurist provides a quick overview of the current state of Zipcar. Some of the things you should know:

Zipcar went public last week, and how. On its first day of trading, the company raised $174.3 million and finished up 56 percent. All told, Zipcar sold 9.7 million shares of stock at $18 a pop and earned itself a market value of $1.21 billion, according to Bloomberg…

The 11-year-old company currently operates in 14 cities — 12 in the United States, plus Vancouver and London — and 230 college campuses. Its fleet stands at around 8,000 cars, and its membership at 560,000.

Robin Chase, the company’s founder, has been known to say: “Infrastructure is destiny.” The business world is more concerned with whether profits are destiny. So far, for Zipcar, they have not been. Last year the company generated about $186 million in revenue but still posted a net loss of roughly $14 million…

Zipcar’s biggest problem, writes the Wall Street Journal, may be growing competition from traditional car rental companies…

In the end Zipcar’s success may hinge on how transportation evolves in the near future.

This overview is pitched as a look at whether Zipcar is “a good investment.” This would be the business angle: the company has not turned a profit even as it seems like investors are at least somewhat confident that they could make some money down the road.

But there are plenty of other questions to ask (the answers to these questions would have an impact on the business side but are more interesting to me): is this company on to something regarding infrastructure and the use of cars? In recent months, there is some data to suggest Americans want to live in more walkable environments (which could presumably lead to less interest in owning a vehicle). Is this model sustainable even in these cities, let alone less dense cities? It would be interesting to see Zipcar usage data regarding less urban college settings (like the Zipcars at North Central College in Naperville, Illinois – currently, there is a Toyota Matrix and Toyota Prius available on campus) compared to the big cities. Ultimately, is a car-sharing model the end goal or a middle step between gasoline powered vehicles and vehicles of the future that will be powered by something cleaner and cheaper?