The macroeconomics of vajazzles

The Sun says:

Fans of The Only Way Is Essex have led a £1.4billion high street bonanza.
False nails and lashes, fake tans, vajazzles, white stilettos and watches have boomed as shoppers copy Amy Childs and her TOWIE pals….
The "TOWIE effect" is having a bigger impact than the Duchess of Cambridge — because men are also buying into it. The Sun told this month how women were spending an average £250 each on clothes, shoes and jewellery like Kate's — boosting the economy by £1billion.

Is this true? There’s a good reason to think not. This sort of story is the kind of anecdotal evidence that Jonathan Portes warned us against. Anecdotes might tell us that spending on vajazzle has increased. But this doesn’t necessarily mean the aggregate economy has received a boost. If women are spending more on vajazzles it could be because they are spending less on other things. If so, TOWIE has caused a change in the pattern of demand, but no boost to the economy overall.

Macroeconomic data can’t help us here. £1.4bn is only 0.15% of annual consumer spending, and so is lost in the margins of measurement error. And anyway, we can’t observe two otherwise identical economies, one with TOWIE and one without.

You might think the answer to the question is obvious. Entrepreneurship is good for economic growth. The invention of the vajazzle is entrepreneurship. Therefore, the vajazzle is good for growth.

Not necessarily. Pamela Mueller has shown that, in both the UK and Germany, the formation of new businesses, at least in poor areas, can actually reduce overall employment as it displaces more jobs than it creates; the destruction bit of creative destruction outweighs the creative bit. This echoes Ricardo’s opinion of another form of entrepreneurship, mechanization:

I am convinced, that the substitution of machinery for human labour, is often very injurious to the interests of the class of labourers.

You might object here that these are merely temporary effects and that unemployment should lead to lower wages and thus more jobs.

Not necessarily. From a macro perspective wage cuts mean lower consumer spending which impedes job creation. And from a micro perspective, gift exchange and efficiency wage models tell us that wage cuts are accompanied by lower actual or perceived productivity and hence no more hiring.

So, how can entrepreneurship of the sort that gave us the vajazzle boost growth?

One way it might do so is if spending on vajazzles increases aggregate consumer spending - say, if women reduce their savings or borrow more to pay for the vajazzle. Another way would be if policy-makers respond to job losses in non-vajazzle industries by cutting interest rates and thus boosting growth.

Either way, the vajazzle only boost the economy insofar as financial or monetary conditions permit. In a well-functioning economy, this will be the case. But the point is that entrepreneurship alone is not sufficient for growth.

Comments

[Luis Enrique]

according to high economic theory, the real measure of real output is welfare (utility). Obviously, vajazzles are welfare improving.

[Account Deleted]

Hang about. If that £1 billion is turnover, and the average spend is £250, then we're talking about 400,000 women who have decided to boost the economy as a homage to Kate wotsername.

Given that they've presumably been buying shoes and clothes for some time now (I'm sure I'd have noticed that many of them walking around in the nude), then it can only mean that approximately 1 in 5 women of working age have had a vajazzle.

I find this incredible. On so many levels.

[Keith]

We might also assume The Sun is no more useful as a source of economic theory than of Journalistic ethics. It is obvious that most changes in spending are merely substitution not increases in net demand at market prices. So provide no boost to the economy. Changes in technology and organisation tend to increase productivity net but the exact effect in a given region or area or time period requires empirical study far more rigorous than sun journalism.

[Brendo]

I'd never even heard of vajazzles until I read this column.

Talk about keeping your light under a bush!

[lee]

not bad! thank you for your sharing!