A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut. The little house now makes it clear that its inmate has no social position at all to maintain, or but a very insignificant one; and however high it may shoot up in the course of civilization, if the neighboring palace rises in equal or even in greater measure, the occupant of the relatively little house will always find himself more uncomfortable, more dissatisfied, more cramped within his four walls.
That's Marx from Wage Labour and Capital, as quoted in Tom Slee's No One Makes You Shop at Wal-Mart. McMansions evidently were getting people worked up as far back as 1849.
By the way, if you want an enjoyable, leftist-ish critique of markets, I recommend Slee's book. It's an attack on "MarketThink," his vaguely Orwellian term for the belief that markets and consumer choice always produce the best result. (The title of the book is ironic -- the people who say such things are his targets.) His main point is that everyone's choices are tangled together, so that each person's choice affects everyone else. As a result, there's no guarantee that even perfectly rational individual choices will make you happy.
Slee sets up his share of straw men. Still, his book is a clean, elegant exposition of different types of market failures. Some of them are almost trite, such as the "tragedy of the commons"-type market failure that causes congested roads and littered parks. Others are fresher. When buyers can't get reliable information about product quality until they buy the product, low-quality products may drive high-quality products out of the marketplace. This, he claims, explains why fast-food restaurants, with their predictable but mediocre food, drive higher-quality local restaurants out of business. Network effects may force consumers to choose sub-optimal products -- e.g., business people use Microsoft Word because everyone else uses it, not because it is necessarily very good word processing software.
He uses McMansions to illustrate wasteful "arms races." Over a certain size, he argues, homes are "positional" goods -- the only purpose of building a bigger house is to signal higher status (hence the Marx quote). A homeowner who replaces a small home with a larger home triggers an arms race among his neighbors. If the neighbors want to maintain their relative status, they must also replace their small homes with large homes. They must do so even though they would not otherwise be willing to pay for the extra space. Everyone is worse off. (I've covered this argument before.)
The problem with this argument, of course, is that a larger home is not merely a positional good; there is real utility in having extra space, at least for many homeowners. If you concede that, and you believe that status anxiety causes significant disutility, then replacing all of the small homes with larger homes may be the most efficient outcome, with the small homeowners who don't care about the extra space selling to buyers who do. (I don't think this is true, but then I don't think status anxiety is a sound justification for regulation.)
The book's main flaw: Slee argues that market failures justify "collective action," but he doesn't offer specifics, much less acknowledge that collective action comes with its own baggage. For example, collective action through regulation tends to be captured by special interests. When a Wal-Mart moves to town, the local shop owners have a large incentive to campaign against Wal-Mart. The vast majority of the citizens may benefit from the Wal-Mart, but not enough to make a political fight worth their time. Politicians may pander to the minority even when the vast majority would benefit more, on balance, than the small minority would lose.
Further, collective action may fix short-term problems but freeze out better long-term solutions. A Wal-Mart might inflict harm on a downtown in the short run, causing it to empty out. It is possible, though, that the cheap space will provide an incubator for quirky stores or antique shops. In the long run, the downtown may be revived as a vibrant environment, but this time populated with stores that do not compete with Wal-Mart. The citizens may get to have their cake and eat it, too.
Of course, this might not happen. It is impossible to tell in advance. What we do know is that freezing the status quo into place guarantees that better solutions won't evolve on their own.
