This preview shows page 1. Sign up to view the full content.
Unformatted text preview: he
race for status comes with certain
opportunity costs, one of which is
lost leisure. If we try to leapfrog
each other, we work harder and Page 379 longer to achieve a status position
we could all achieve at lower cost.
Another opportunity cost of the
race for status may be that society
has to do without certain goods that
it wants. For example, suppose society wants the government to spend
more money on medical research,
education, and infrastructure.
Currently, three individuals—A, B,
and C—are locked into a race for status with the other two. A is richer
than B, and B is richer than C, so A
can buy more status goods (big
houses, fancy cars, etc.) than B,
who can buy more status goods
Suppose the government proposes that it increase taxes on each
of the individuals by 10 percent. A,
B, and C argue against the higher
tax rate because it reduces their
ability to buy status goods. They fail
to realize, however, that even
though higher tax rates may make it
less likely that each individual can
buy as many status goods, their relative positions in the race for status
will not change. After the higher
taxes are paid, A will still have a
higher after-tax income than B, who
will have a higher after-tax income
than C. Higher taxes will not stop the race for status, nor will higher
taxes prevent anyone from showing
off. The higher taxes simply reduce
the amount of money that the individuals can spend in their race to
Are any benefits derived from
the higher taxes? According to
some economists, the additional
tax revenue can finance more medical research, education, and infrastructure. In other words, some
benefits may come from using
higher taxes to slow down the
race for status.
One criticism of this reasoning is that the additional tax
funds may not be used in the
way people want them to be
used. The funds may go for
“public conspicuous consumption,” such as expensive federal
buildings, and other similar things.
The critics also point out that higher
taxes dampen people’s incentives
to produce, which may lead to less
economic growth and wealth in the
future. Finally, the critics point out
that if the race for status is hobbled
by higher taxes, the race will not
slow down; it will simply take a different form. Instead of competing
for status in terms of goods, people
will compete for status in terms of
power over others. In the end, the
critics argue, it may be better to
have people compete for status by
buying goods than by trying to control others.
ABOUT IT Do people in your high
school try to achieve
status by purchasing certain goods?
If so, what goods? Section 2 The Budget: Deficits and Debt 379 14 (364-389) EMC Chap 14 11/18/05 10:59 AM Page 380 t the Congressional Budget
you will find a host of budgetary data (data on tax revenues, government spending, etc.). Go to the site. Once there, click on
“Current Budget Projections.” Next, scroll down the page
and find the following: (1) Projected individual income tax
revenue in 2010; (2) Indi...
View Full Document
This document was uploaded on 01/16/2014.
- Winter '14