Progress Daily

According to research by Kerwin Kofi Charles, Erik Hurst and Nikolai Roussanov (”Conspicuous Consumption and Race“), conspicuous consumption serves less to establish the owner’s positive status as affluent than to fend off the negative perception that the owner is poor. The richer a society or peer group, the less important visible spending becomes.

An African American family with the same income, family size, and other demographics as a white family will spend about 25% more of its income on jewelry, cars, personal care, and apparel. For the average black family, making about $40,000 a year, that amounts to $1,900 more a year than for a comparable white family. To make up the difference, African Americans spend much less on education, health care, entertainment, and home furnishings. (The same is true of Latinos.)

The researchers hypothesized that visible consumption lets individuals show strangers they aren’t poor. Since strangers tend to lump people together by race, the lower your racial group’s income, the more valuable it is to demonstrate your personal buying power.

To test this idea, the researchers compared the spending patterns of people of the same race in different states — say, blacks in Alabama versus blacks in Massachusetts, or whites in South Carolina versus whites in California. They found that, all else being equal (including one’s own income), an individual spent more of his income on visible goods as his racial group’s income went down. In places where blacks in general have more money, individual black people feel less pressure to prove their wealth.

The same is true for whites. Controlling for differences in housing costs, an increase of $10,000 in the mean income for white households — about like going from South Carolina to California – leads to a 13% decrease in spending on visible goods.

This suggests why emerging economies like Russia and China, despite their low average incomes, are such hot luxury markets today.

Conspicuous consumption, then, is not a universal phenomenon. It’s a development phase that declines as countries, regions, or distinct groups get richer.

In The Middle-Class Millionaire, Russ Alan Prince and Lewis Schiff analyzed the spending habits of the 8.4 million American households whose wealth is self-made and whose net worth, including their home equity, is between $1 million and $10 million. Aside from a penchant for fancy cars, these millionaires devote their luxury dollars mostly to goods and services outsiders can’t see: concierge health care, home renovations, all sorts of personal coaches, and expensive family vacations.

“Inconspicuous Consumption,” by Virginia Postrel

The biggest investment boom in history is under way. Over half of the world’s infrastructure investment is now taking place in emerging economies, where sales of excavators have risen more than fivefold since 2000. In total, emerging economies are likely to spend an estimated $1.2 trillion on roads, railways, electricity, telecommunications and other projects this year, equivalent to 6% of their combined GDPs — twice the average infrastructure- investment ratio in developed economies.

Morgan Stanley predicts that emerging economies will spend $22 trillion (in today’s prices) on infrastructure over the next ten years, of which China will account for 43%. China has spent more (in real terms) in the past five years than in the whole of the 20th century.

Never before has infrastructure spending been so large as a share of world GDP. Even at the peak of Britain’s railway mania in the 1840s, total infrastructure investment was only around 5% of GDP; China is already spending around 12% of its GDP.

The World Bank estimates that a 1% increase in a country’s infrastructure stock is associated with a 1% increase in the level of GDP.

Goldman calculates that a 1% increase in the share of people living in cities leads to a 1.8% increase in demand for installed electricity capacity. A 1% rise in income per head leads to a 0.5% increase in demand. Putting this together, electricity capacity may have to surge by 140% in China and by 80% in India over the next decade.

A 1% increase in income per person leads to a 1.4% increase in the number of passengers travelling by air, so the number of air passengers could jump by more than 350% in China and by 200% in India over the next decade.

“Building BRICs of growth,” The Economist

According to a new report from a UN commission, 2 in every 3 people (some 4 billion in total) are “excluded from the rule of law.” Around 40% of the developing world’s five-year-old children are not registered as even existing. Later, people will find that the home they live in, the land they farm, or the business that they start, is not protected by legally enforceable property rights. Even in the rare cases when they can afford to go to court, the service is poor. India, for example, has only 11 judges for every 1m people.

Because they are outside the rule of law, the vast majority of poor people are obliged to work (if they work at all) in the informal economy, which is less productive than the formal, legal part of the economy. According to the report, this is one of the main reasons why so much of humanity remains mired in poverty.

“The law poor,” The Economist

A new study by Luigi Guiso, Paola Sapienza, et al. (”Culture, Gender, and Math“), took data from the 2003 OECD Programme for International Student Assessment (in which some 280K 15-year-olds from 40 countries took the same math and reading tests) and compared the results, by country, with each-other and with various measures of social sexual equality (such as the World Economic Forum’s gender-gap index).

On average, girls’ maths scores were lower than those of boys. The gap was largest in countries (such as Turkey) with the least equality between the sexes, & vanished in countries with the most equality — except for geometry scores, which had no relation to sexual equality. The researchers did some additional statistical checks to ensure the correlation was material, and not generated by another, third variable that is correlated with sexual equality, such as GDP per person.

The gap in reading scores not only remained, but got bigger as the sexes became more equal. Average reading scores were higher for girls than for boys in all countries. But in more equal societies, not only were the girls as good at math as the boys, their advantage in reading had increased.

This may explain why, despite girls’ rise to mathematical equality in some countries, women in those countries have not invaded math-heavy professions, such as engineering. Economic optimization is about comparative advantage. The rise in female reading scores alongside their math scores suggests that female comparative advantage in this area has not changed.

“Vital statistics,” The Economist

According to a new report by Marilyn A. Brown, et al., (”Shrinking the Carbon Footprint of Metropolitan America“) each resident of the 100 largest US metropolitan areas is responsible on average for about 2.5 tons of carbon dioxide in energy consumption each year, 14% below the 2.9 ton national average.

Those 100 cities (where two thirds of the people in the US live) still account for 56% of the nation’s carbon dioxide pollution. But their greater use of mass transit and population density reduce the per-person average.

Emissions of carbon dioxide are highest in the eastern US, where people rely heavily on coal for electricity. They are lower in the West, where weather is more favorable and where electricity and motor fuel prices have been higher.

“City dwellers dubbed ‘green’,” by H. Josef Hebert

Women constitute only about 1/5 of US engineers, 1/3 of chemists, and 1/4 of computer and math professionals.

Joshua Rosenbloom surveyed hundreds of professionals in information technology, a career in which women are significantly underrepresented (”Why are there so few women in Information Technology?”; pdf file here). He also surveyed hundreds in comparable careers more evenly balanced between men and women.

The lower numbers of women in IT careers weren’t explained by work-family pressures, since computer careers made no greater time demands than those in the control group. Ability wasn’t the reason, since the women in both groups had substantial math backgrounds.

Using a standard personality-inventory test, Rosenbloom found that men and women who enjoyed the manipulation of tools or machines were more likely to choose IT careers - and it was mostly men who scored high in this area. Meanwhile, people who enjoyed working with others were less likely to choose IT careers. And, on this, women scored higher, on average.

The researchers calculated that preference accounted for about two-thirds of the gender imbalance in the IT field.

According to Susan Pinker  (in The Sexual Paradox), the countries that offer women the most financial stability and legal protections in job choice, have the greatest gender split in careers. For example, in countries with less economic opportunity, like the Philippines, Thailand, and Russia, the number of women in physics is about 30%, versus 5% in Canada, Japan, and Germany.

“The freedom to say ‘no’,” by Elaine McArdle

If you take Wikipedia as a unit — every page, edit, talk page, & line of code, in every language — that represents something like the cumulation of 100 million hours of human thought (according to Clay Shirkyon & Martin Wattenberg).

Television-watching represents about two hundred billion hours, in the US alone, every year. That’s 2,000 Wikipedia projects a year. Americans spend 100 million hours every weekend just watching the ads.

Imagine that people replace only 1% of the their TV time with the production & sharing of online content. The Internet-connected population watches roughly a trillion hours of TV a year. One per cent of that is 100 Wikipedia projects per year worth of participation.

“Gin, Television, and Social Surplus,” by Clay Shirkyon

Justin Wolfers and Betsey Stevenson analyzed all the major post-war happiness studies data (.pdf file here), including new data from the Gallup World Poll, which contains detailed data on subjective well-being for 132 countries in 2006. Contrary to previous researchers using less complete date, they found that: 1) Rich people are happier than poor people. 2) Richer countries are happier than poorer countries. 3) As countries get richer, they tend to get happier.

The following chart takes the average levels of satisfaction reported on the Gallup Poll’s 0-10 scale, and plots it against G.D.P. per capita (note the log scale):

The correlation between average levels of happiness and average incomes is very high — greater than 0.8.

The relationship between happiness and log income appears nearly linear. Thus, a 10% rise in income in a rich country like the USA appears to increase happiness by about as much as a 10% rise in income in Burundi — in fact, the slope appears to get steeper above $15K!

A 10% rise in income in Burundi requires one-sixtieth as much income as a 10% rise in income in the USA. Thus, even if the slope is three times as steep for rich countries as poor countries (as Wolfers & Stevenson estimate), this still means than an extra $100 has about a twenty-times-greater effect on happiness in Burundi.

“The Economics of Happiness, Part 1 & Part 2,” by Justin Wolfers

Robert J. Barro and Rachel M. McCleary (”Religion and Economic Growth Across Countries” & “Religion and Political Economy in an International Panel“) researched the relationship between religion and development.

Their cross-country analysis shows that per capita gdp has a significantly negative effect on religion, both in terms of beliefs and participation. This tendency is gradual as countries grow richer. A steady pattern of secularization has only applied to a few countries, such as Britain, France, and Germany.

For a given level of religious participation, increases in core religious beliefs — notably belief in hell, heaven, and an afterlife — tend to increase economic growth. In contrast, for given religious beliefs, increases in church attendance tend to reduce economic growth. In other words, the main growth effect is a positive response to an increase in believing relative to belonging (attending).

A certain amount of participation in religious activities is positive, in that people acquire useful beliefs. But if people spend too much time in religious activities, there is a negative effect on economic growth.

Religious participation is correlated with a lower probability of substance abuse, juvenile delinquency (Michael J. Donahue and Peter L. Benson, “Religion and the Well-Being of Adolescents“),  and depression (”Immigrant Generation, Assimilation and Adolescent Psychological Well-being“), and positive attitudes toward marriage and having children (Elaine Marchena and Linda J. Waite, “Re-assessing Family Goals and Attitudes in Late Adolescence”).

Overall, urbanization has a negative effect on religiosity, particularly in terms of participation.

“Religion and Economic Development,” by Rachel M. McCleary

The tallest quarter of the US population earns 9-10% more than the shortest quarter, according to two recent studies. Nicola Persico, Andrew Postlewaite and Dan Silverman (”The Effect of Adolescent Experience on Labor Market Outcomes“) think this is because height gives adolescents self-confidence. Anne Case and Christina Paxson (”Stature and Status“), on the other hand, argue that people who grow to their full potential are smarter, on average.

“Feet, dollars and inches,” The Economist