How do you build a macroeconomic model of a "Big Wedding" culture? Do Big Wedding cultures spend too much on consumption and too little on saving and investment? If so, what's cause and what's effect?
I don't know the answer. I don't even really need to know the answer. But this question has been stuck in my mind for the past couple of days, so I'm writing this for self-therapy.
Questions always come from somewhere. Here's where this one came from.
There's a young couple, friends of my daughter. Life didn't deal them a great hand, but they are trying hard to play it as well as they can. She works in a field where the work is steady but the pay is low. He works in a field where the pay is better but the work is irregular. They are trying to save and invest. Sometimes they make mistakes, like getting suckered into buying new furniture on installments. Sometimes stuff happens, like the bus strike that cost her money and nearly cost her her job, because she couldn't easily get to work. But they are mostly on the right track towards slowly getting to where they want to be.
They want to get married and have kids. But they can't afford a big wedding. Or, they could afford it, but only by blowing their savings and going into debt. But they both come from (different) Big Wedding cultures. They can't not have a big wedding.
I don't want to model that by just assuming a different set of culturally-determined preferences for big weddings. And not just because it's a methodological cheat and vacuous. ("People in Big Wedding cultures have big weddings because they like having big weddings" doesn't really explain anything). These two people don't want a big wedding. The assumption is false.
Hmmm. Maybe nobody in Big Wedding cultures actually wants big weddings. But then why would people buy something they don't want to buy? Or, more accurately, buy more of something than they want to buy? And I don't think we can blame a capitalist advertising conspiracy in this case.
The first model that comes to mind is the positional goods arms race. What matters is not how big your wedding or SUV is, but how big your wedding or SUV is compared to other people's wedding or SUV. So there's an externality. When I buy a bigger wedding or SUV, I increase my utility, but lower everyone else's utility. What's individually rational is collectively irrational, just like Prisoners' Dilemma. We would all be better off with an arms control agreement on the size of weddings and SUVs.
Now some people jump to the conclusion that since there's too much consumption expenditure on positional goods, savings and investment is therefore too low. That does not follow. When we decide how much to save, we are comparing the marginal utility of present consumption with the marginal utility of future consumption. Consumption of positional goods has a higher marginal utility for the individual than collectively. But that is true equally for future positional goods as for present positional goods. Unless positional goods somehow distort our rate of time preference, our telescopic faculty, this means we consume too many positional goods, and too few non-positional goods (including leisure?) both today and in future. There's an upward bias towards consuming more positional goods today, but an equivalent upward bias towards saving to consume more positional goods tomorrow.
The second model that comes to mind is the overlapping generations model. In particular, those overlapping generations models of stable Ponzi schemes like money, chain letters, and unfunded pensions. Perhaps a three-generation version. You benefit from being a guest at big weddings when young; pay for a big wedding when you are middle-aged, and benefit again from being a guest at big weddings when you are old. But then who exactly pays for the wedding? Is it the couple, or their parents?
Unlike positional goods, it is well understood that if you introduce money, chain letters, unfunded pensions, or big weddings, into an overlapping generations model then savings and investment can be affected. The capital stock can be lower if each generation of young pays for the pensions of the old, and so the young will invest in less real capital assets for their old age. But this does not necessarily mean that people are made worse off. Utility can sometimes be higher for all cohorts with an unfunded stable Ponzi Scheme.
I think the overlapping generations model of big weddings captures something that is missed in the positional goods model. People in a Big Wedding culture will feel an obligation to have a big wedding. It's your turn to pay now. Don't break the chain. Even if nobody wants to live in a Big Wedding culture, no single cohort can escape without repudiating their debt to older or younger cohorts.
The third model that comes to mind, though it isn't really a macroeconomic model, and it's one I know almost nothing about, is the Gift Economy. The wedding guests get a party, but give a gift in return. This is like having someone else choose not only what particular goods you will consume, but also choose how much you will consume, and you are obligated to reciprocate. It's like a macroeconomic model where you can't choose your own consumption function. And certain goods are more appropriate as gifts than others. $50 towards the downpayment on a house probably wouldn't cut it, even if it's what the couple needs most.
The value of the gifts you give, and the value of the wedding you throw, are positional goods in an overlapping generations model. Somehow I think you would need to bring all three models together to make sense of the macroeconomics of Big Wedding cultures.
But it's back to monetary economics for me.