Why do we like big diamonds?
November 1st, 2009 | Published in Economics idea | 6 Comments
Are big diamonds prettier than smaller ones? For that matter, are diamonds more beautiful than close substitutes such as cubic zarconia? Part of the allure of diamonds is that they are rare and hence costly. Not everyone can have a big diamond. It is a symbol of financial success to own one.
Imagine what would happen if scientists found a way to cheaply manufacture flawless diamonds. Their value would drop to that of costume jewelery. While some people would still wear them, most people would move on to find other exotic gems to lust after.
While it is natural to like things that are rare or unusual, liking rare things creates an interesting economic problem. Most people think economic growth is a good thing. If, however, a significant part of the allure of luxury items is their scarcity, producing more of them may not make us better off. We all end up working harder to produce ever more exotic trinkets that are all of little intrinsic value.
Is it sensible to have armies of miners toiling away looking for diamonds? People are willing to pay the high prices, so it seems the answer is yes. It is worth it. Consider this, though. If diamonds suddenly ceased to exist because of some quirk of physics, would we be any worse off? Not really. Somehow all this work is ultimately for nothing.
People want to feel good about themselves. They want to be able to show the world that they are successful. Buying things like diamonds is one way to do that. Given the effort involved and the inevitable environmental degradation from mining, wouldn’t we be better off finding other ways to prove our worth?
Instead of proving our value by buying a big house, a fancy car, and a big diamond ring, perhaps we could define our worth through service to others. If that takes too much altruism, I’d even settle for sports contests. Almost any other outlet for our desire to best our neighbors would be better than buying more stuff.
Unfortunately, the human brain seems to be wired to like rare things. The question is how far we will go trying to out-rare our neighbors before we give up and come to our senses.
November 3rd, 2009 at 3:54 pm (#)
Interesting idea.
I agree that diamond rings are not especially functional. Diamonds ARE used for industrial applications, but I assume that’s not what you mean. I’d say the appeal of diamond rings is their novelty and their aesthetic appeal, plus the status of being expensive. Some people feel happy to wear a diamond ring but may not get the same happiness with a cubic zarconia.
What about other un-practical things that people like? Should we get rid of artists and musicians? Video games and television shows? How about fashion designers. A lot of people spend a lot of time on fashion design, but one pair of pants is normally just as functional as the next. Ditto architects and furniture designers. And we can scrap Disneyland, too – it makes people happy, I guess, but they should spend their money elsewhere.
I could probably make a longer or better list, but I think this gets my point across. At what point do we restrict people from doing and buying things that they like? Can we mandate people to buy more practical versions of the items they use?
Eric
November 3rd, 2009 at 7:39 pm (#)
Eric.
I may not have made my point as clearly as I wanted to. The point isn’t that diamonds are un-functional. My point is that they are valuable BECAUSE they are expensive.
If you like going to Disneyland because it is fun, I’m okay with that. We can build more Disneylands and more people can have fun. If you enjoy going to Disneyland because it is expensive and a sign of status to go to Disneyland, I have a problem. Building more Disneylands won’t help. Going won’t be fun if everyone goes. Worse, perhaps building the first one wasn’t necessary if it is only a status symbol.
When people use the goods and services they buy to gain status, it’s a zero some gain. One person’s gain is another person’s loss. It’s pointless for us all to strive to consume more than our neighbors.
November 5th, 2009 at 1:00 am (#)
That’s fair. I was responding to the unfunctional part. I’ll have to think a little more about liking something because it’s expensive. What are some other examples?
November 5th, 2009 at 7:38 pm (#)
Eric.
Other examples of positional goods:
Expensive wine – most people can’t tell the difference.
Luxury cars – are they really much better or different?
Designer clothes – Why does the label matter?
Housing in some desirable neighborhoods.
Starbucks coffee
Penthouse apartments
Purebred dogs
There are more. These are what come to mind off the top of my head.
November 12th, 2009 at 12:34 am (#)
I’ve been thinking about this off and on. I see it as an inefficient use of economic resources, but not as too horrible a thing. There are lots of inefficient things we do.
Also, I’m not sure what we can do about this one. We could either try to legislate against diamonds or try to somehow change human nature to not like diamonds. If either was successful, I don’t think we’d be much farther ahead as people would just find something else to covet.
Eric
November 12th, 2009 at 7:24 pm (#)
Eric.
I agree that there may not be too much that can be done to address this problem. If it’s human nature to covet things, maybe we are stuck with devoting resources to ultimately futile pursuits.
The bigger question is how much we really benefit from economic growth. If a bigger economy means we build bigger machines to search ever farther for shinier diamonds that are ultimately of no more value than the smaller ones, maybe we don’t need economic growth. Maybe it would be better to cap economic production to limit the damage to the environment.
People would still pursue silly things. That’s okay. They just wouldn’t be able to make quite as much of a mess in the process.