In his 1999 review of Robert Frank’s Luxury Fever, a book that worries itself to death about competitition for status and relative position, Jack Hirshleifer, quoting Adam Smith to good effect, aptly points out that taxes meant to supress competition over income level is probably just a case of pushing the lump around the rug.
Overall, however, the biggest status game in town is not big spending but acquiring power over other people. In short, politics. So a likely consequence of sumptuary legislation would be more and more intense contests over the perennial question, “Who shall be king?” As usual, Adam Smith said it best, in The Wealth of Nations: “It is of the highest impertinence and presumption…in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”
Earlier on, Hirshleifer makes the excellent point that advocates of higher taxes and bigger government, who are appalled by economic inequality, are well-nigh blind to the rather more objectionable inqequalities in political power that are a necessary part of their schemes. If the objection is that consumers have irrational preferences, so that they are lead into self-defeating, utility minimizing status competitions, then the objection applies equally to the political class:
In fact, one could well argue–Adam Smith certainly did–that those charged with public spending are likely to be even more interested in conspicuous spending than private persons. Think of the tax-financed white-elephant ballparks, the ornate federal office buildings that have sprung up not only in Washington, D.C., but just about everywhere, the hypertrophied public transit systems lacking nothing but riders, the Agriculture Department’s wildly wasteful irrigation schemes. Simple corruption is very likely the major explanation, true, but politicians’ desires for “monuments” (Hoover Dam, J.F. Kennedy Airport, the Sam Rayburn Office Building) are a big part of the story behind such travesties.
Arguments for new or bigger government initiatives driven by a charge of irrational or self-defeating preferences almost always make an implicit, arbitrary, exception for the ruling class. There’s no good justification for invidious comparisons between ideal coercion and non-ideal agency, and vice versa. If you think the pattern of voluntary interaction “fails” according to some standard due to some psychological foible, you’ve taken on a burden to demonstrate that the same foible does not imply that state action will lead to an even more serious failure. This is the burden the Frank/Layard-style statist rarely carries, explaining why their conclusion is so often a destination that can be reached only by a leap of faith.