Conspicuous Consumption: the New “In” Trend?

Conspicuous Consumption: the New “In” Trend?

Conspicuous consumption is something that you may or may not know much about, but it happens all around you; in fact, you may unknowingly be guilty of this yourself. Originally defined by Thorstein Veblen, a well-known economist (although not so popular amongst his peers!) from the late 1800’s, conspicuous consumption is exactly what it sounds like: consuming with the intent to be seen consuming that product. And for much of its existence, conspicuous consumption carried a negative connotation, particularly during hard, economic times. For example, during the most recent economic downturn, those who still chose to shop at the high-end stores were scorned when leaving the store for flaunting their money in such a way. This escalated to the point where some of the more pricey stores began to provide their customers with the option of bagging their purchases in nondescript bags. Conspicuous consumption was never the cool thing to do, but the contempt for it tends to worsen as our financial belts begin to tighten.

However, what happens if conspicuous consumption benefits someone in a developing country? As some clever organizations have found out, conspicuous consumption can, in fact, become popular when used for the greater good, even during some of the hardest of times. Instead of a birthday present for Aunt Sally, why not donate $120 to Heifer International where that money will be used to purchase a goat for a needy family somewhere in the world? Or, instead of buying another pair of sneakers, why not purchase a pair of Toms Shoes where for each purchase, a pair of shoes is given to a child in the world who does not own a pair of shoes? Fighting poverty, disease, and hunger in the world has made conspicuous consumption purchases more acceptable. 

Instead of making a purchase that says, “look how much money I have” people are now making purchases that say, “look how charitable I am.” In a time when money is tight, it’s nice to see that charitable donations are not falling by the wayside.

What a positive shift in the application of the conspicuous consumption paradigm.

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Megatons to Megawatts: Plus One for Liberal Internationalism

John Ikenberry must be loving it. The prominent liberal internationalist thinker has expressed his strong desire for nuclear disarmament on numerous occasions. Likewise, he has been a spokesman for cooperation and strengthening economic ties as means of building peace and prosperity in international relations. The Megatons to Megawatts Program between the United States and Russia is a hallmark example of this positive sum thinking. 

The program began in 1993 as part of nuclear non-proliferation and nuclear arms reduction agreements between the two countries. In accordance with the program, Russia began to sell its downgraded nuclear fuel for civilian use in the United States. Russian government subsidiary, Tekhsnabexport, recycles high-enriched uranium (HEU) into low-enriched uranium (LEU), and sells it to the United States Enrichment Corporation (USEC), an agent of the U.S. government. Since the program began, almost 400 metric tons of HEU have been recycled into over 10, 000 LEU, equivalent to about 15, 000 nuclear warheads eliminated. The program's total value is about 12 billion dollars. 

Needless to say, the program is good business for the Russians. But it is also extremely important for the United States. By different estimates, nuclear energy accounts for between 10 and 20 percent of all civilian energy consumed in America. Out of all the nuclear energy consumed, between 40 and 50 percent comes from Russia as recycled LEU. What used to be Soviet nukes is now an integral part of American energy consumption. 

When two states that used to be arch enemies recycle their nuclear weapons and trade in a mutually beneficial manner, it cannot but make a liberal internationalist smile. Hell, if increased security can be achieved alongside economic gain, it can find approval even among some realists. Given the amount of resources that go into the arms production, if more programs of arms recycling were to be conducted, economic gains could potentially alleviate the costs of the reforms that the Obama administration is planning to implement. Maybe it is something to ponder about while sitting under a lamp working on a recycled Soviet nuke. 

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Scary thought: if economists ran the world.

This video raises some questions: 1) how involved are economists in policy-making? 2) Why is it a good thing that economists do not make policy--assuming they don't? I'd love some enlightenment from any economists out there.

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Madoff Light? The New Heavy-Handed Tactic in Securities Fraud Cases.

If you thought it was bad to be a Madoff investor, you were right. But if you were a Madoff investor who happened to take your money out before the scheme collapsed, you would be relieved and home free with your dough. Not all frauds are created equal, however, and not all court-appointed managers of fraud-ridden companies treat investors alike. Here, I present the ugly case of the Stanford receiver, who is pursuing innocent investors’ principal payments, raising questions of how far an unknowing investor would have to run in order to be free from a fraud perpetrated against him (this sounds absurd because it is absurd).

The Madoff scandal broke on December 11, 2008. On February 17, 2009, federal authorities stormed the Stanford Group Company headquarters in Houston, TX; the SEC was convinced that a fraud was being perpetrated by the company and its subsidiaries, with Sir Allen Stanford at the head of it all. The gist of the fraud is that the Stanford Investment Bank in Antigua was selling fraudulent CDs. The CD money was not being “invested”…it was going mostly to Stanford’s pet projects and personal fantasies with a few real estate and other investments sprinkled in. This meant that the people taking money out after their CDs matured were getting money coming in from new investors, not from legitimate interest earned on their initial deposits.

After the SEC made its move, it recommended a “receiver” who was subsequently appointed by the federal district court in Dallas to oversee the $8.5 billion company. In order to preserve assets and trace money, the receiver froze, with the blessing of the court, 30,000 investors’ brokerage accounts, some of which he has released as time has passed. Many of these accounts contained money that investors had withdrawn from Stanford.

The receiver still holds the accounts of some 800 investors (plus about 250 ex-Stanford financial advisors) against whom he is pursuing claims for the money in the accounts. The receiver wants to get all the money out of these accounts in order to distribute it on a pro rata basis to all claimants. Why is this interesting? It’s interesting because the receiver is stepping onto shaky legal ground by going after the entire accounts rather than profit alone. If someone had invested $100 with Stanford and received $110, nobody familiar with receiverships would bat an eye at the receiver going after the extra $10. But the receiver is going after the whole $110.

Right now, the US Fifth Circuit is deciding (while the accounts are still frozen, preventing any access by the owners) whether the receiver can pursue “principal”—that is, the $100 initially invested—in order to distribute it pro rata. Remember, these are people who took their money out. That money was no longer associated with Stanford; it was in their own brokerage accounts. Many of these people are “net losers” because the amount they received from Stanford was less than the amount of principal invested. The trustee overseeing the Madoff assets is not pursuing this type of thing, and no receiver or trustee has ever done so in the history of trusteeships and receiverships. Should the receiver be able to do so in the Stanford case? The district court said no. Now the circuit court will rule on the question, and I predict that it will follow the district court’s ruling. After all, if the court allows these defrauded, innocent investors to be subject to clawbacks, then what about the gardener at the Stanford headquarters whose salary came from some new investor’s deposit? What about the light bill that Stanford paid with fraudulent proceeds? What about somebody that got their money out a year or a decade ago who spent it on their kids’ education or food eaten long ago? It’s true that there’s no fairness in fraud, but there’s even less fairness in arbitrarily pursuing innocents who are already victims.

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