To review: The income effect simply says that, ceteris paribus, the more money you have, the more (of most goods) you will purchase. Somewhat more loosely: The more money you have, the more you will splurge.
Armed with that:
Ikea’s pennywise founder is famous for being cheap. He flies coach, drives a 1993 Volvo and often dines at lower-tier restaurants. He also reportedly furnishes his home with Ikea’s affordable merchandise. [Ingvar] Kamprad was recently quoted as saying that the only luxuries he splurges on are the occasional upscale cravat and Swedish fish roe.
To ABC, such billionaires are “frugal.” To Boing Boing, they are “cheapskates.”
Notice the sour grapes trap such malcontents lay for these hyper-rich individuals (who, for the most part, are self-made entrepreneurs). If they spend their money, they are damned for their “wasteful,” “opulent” “conspicuous consumption” on “positional goods.” If they don’t spend their money, they are damned for being “cheapskates.” All that matters is that they are damned. Details are irrelevant.
Meanwhile, the simple notion that all tastes and preferences are subjective, and that there is generally no “right” or “wrong” way to spend (or not spend) one’s money — no matter how much or how little of it you have — is too difficult a concept for the malcontents to absorb.
3 responses so far ↓
Link Tony // Nov 29, 2007 at 9:07 am
I don't have nearly as many material things as I could, but I grow increasingly convinced that I already have more than I need. Somewhere in my recent past, I hit a plateau where I just don't care as much about stuff. Even though I expect my income to continue increasing, I expect my desire for stuff to continue declining.
To put it in the perspective of the article, I cut my own hair, as well. I haven't paid for a haircut in more than a decade. I like my hair short and boring. Why pay needlessly for that?
However, I find myself more willing to pay for experiences. Even though it's a significant expense, I plan to take part in fantasy camp with the Phillies in Jan. '09. I'll have almost nothing tangible after that, but I'll get to live out a dream, even if it's brief and purchased rather than long and earned.
Link Michael // Nov 29, 2007 at 1:16 pm
I suppose I just don't get it. So he doesn't spend all his money on material things. That is not a cheapskate or even frugal. It is someone who likes a simpler lifestyle. Are the plan trips for pleasure? Then I would think that classifies as a splurge. Does he buy a lot of that "affordable" furniture? There are a lot of people who would consider buying anything new to be too expensive…hence GCF (formerly Goodwill) stores.
I'm with Tony, I've reached my own plateau and am comfortable. Just because I earn a lot doesn't mean I have to spend a lot. I'm saving that to spend later when I don't feel like earning anymore!
Link David_Z // Nov 29, 2007 at 8:48 pm
There are plenty of reasons to discount the mandatoriness of the income effect, not the least of which is diminishing marginal utility for everything coupled with time preference which varies among individuals. Rest assured, Kamprad's unspent income isn't wasting away under a mattress, or in a checking account. It's being saved and invested, increasing the capital stock (and hence productivity) of the rest of the world. The more he saves now, the more (comparatively) he'll be able to buy in the future.