ISSN 1842-4562
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The Spending Explosion: Positional Externalities and Exponential Consumption Growth

Michael LEWIS


Spending Explosion, indicators, Positional Externalities, Exponential Consumption Growth


Since the 1960s, The United States has experienced increased income inequality. Economist Robert Frank has argued that this increase in inequality has resulted in an expenditure cascade as people have tried to maintain their relative socioeconomic statuses by imitating the spending patterns of those in their reference groups. Although some researchers have tried to empirically determine the extent to which Frank’s assessment is correct, none have focused on the implications of Frank’s argument for the dynamics of consumption. That is, none have focused on how time series of measures of consumption should look, assuming Frank is right. This paper does exactly that. Drawing on a mathematical model from population biology, it is argued that if Frank is correct, measures of consumption should exhibit exponential growth. It was found that the exponential growth models provided excellent fits to available data on United States consumption measures.