Day 602: Veblens And Giffens And Rich People’s Phones

originally published August 24, 2013

I think it’s safe to say that I will probably never be fantastic with money. After five years of earning the mellifluous bounty of government dronesmanship, my savings account barely contains enough money to pay for the tumbleweeds that would best represent just how barren and empty it is. I took a microeconomics course in college, but all I remember from it is that I can’t stand microeconomics.

But I have accepted this tiny personal shortcoming. I’m aware that my eyes gloss over when I read about someone trying to forecast the Dow Jones or speculate on commodity futures outside of the safe, easily-explained parameters of the movie Trading Places.

But that’s partly why I’m here, slapping a kilograph upon this vast public yonder every day – I’m trying to learn something. Sure, some days I stick to subjects I know, like mixtapes or fugitive glue, but it’s nice to get knuckles-deep in a hearty stew of new information and previously-unexplored concepts. And since the only way I know how to balance a checkbook is on the top of my head (and even then, it’s a longshot), maybe digging into some economic concepts would be good for me.

Maybe this will push me over the edge into the chasm of fiscal responsibility. Gone will be the days of splurging on autographed dental floss or souvenir merchandise from the 1995 movie Batman Forever. Now I’ll crack the code, re-work my investment stratagem and live my life in the black.

It all begins with Veblen goods.

A Veblen good is something which goes in total defiance of the Law of Demand. Even with my irresponsible habit of measuring money in terms of beer-pints and wing-orders, I understand the Law of Demand: when the price goes up, fewer people will want it; when the price drops, more folks want their grimy hands all over it. But a Veblen good works in reverse – when its price drops, fewer people are interested. It’s the very fact that these things are priced so high that puts them in demand.

If you could suddenly buy a Rolls Royce for $30,000, would you? They’re beautiful cars, but do they really cost ten times as much as a Honda Civic to produce? Many of us don’t care. We want to drop the cash on high-end goods, whether or not we’ll feel any more banged for having spent the buck. This is why some people turn their noses at store-brand clothes, no-name batteries or generic crack-cocaine.

But isn’t it all a little ridiculous? The Snob Effect – an actual economics term; you’ll know when I’m making these up – states that certain goods with a high economic value will be more appealing to high-income earners simply because the lesser peons can’t afford it. This is why people will actually pay $675 for the ugly-ass floral-lapel Dolce & Gabbana shirt up there. It’s a cotton t-shirt. A cotton t-shirt that looks like someone slapped swatches from my grandmother’s couch onto it. But it’s part of the brand.

Yes, sometimes paying a bit more will get you an item that will last longer, or feel better. When my wife pays $400 for a pair of shoes, she assures me that she is paying for longevity and comfort, as well as style. Okay, but is there anything but the Snob Effect at work when someone pays $2040 for a pair of Manolo Blahnik tall leather boots? Are you really getting twice the longevity and comfort as you’d find in a pair for $1020?

An obsession with Veblen goods is not a healthy thing. In fact, just writing about them is making my wallet’s faux-snakeskin crawl. Let’s look at another economic concept: the Giffen good.

A Giffen good is something people consume more of as the price rises, again in contrast with the Law of Demand. This tends to happen with low-end goods like staple foods – the stuff that we’re going to buy no matter what.

Let’s say the price of bread doubled tomorrow. For you and I, who snort brand-name crack cocaine off the heels of overpriced Spanish knee-high boots in the back seats of our Rolls Royces, it wouldn’t affect us much. But for those living below the poverty line, this would change everything. For one thing, it’d get them buying more bread, not less. Pricier bread means poor people could afford less meat and fancier foods. So they’ll buy more bread. It sounds crazy, but those bastards at your local bakery could really mess up the lives of the poor if they wanted to.

Rice and noodles have been proven to be Giffen goods in China. Some believed potatoes to have been Giffen goods in Ireland during the Great Famine, but economists who are far more invested in the subject than I am have debunked this. Bacon actually behaved more like a Giffen good than potatoes at the time. I appreciate any economic principle when it is best embodied by bacon.

Giffen goods tend to affect those at the bottom of the economic ladder, so it seems to me that the trick to avoid being impacted by this effect is simply to make enough money to keep your feet at least two or three rungs up from the bottom. I’d much rather spend my time considering the implications of Veblen goods on my life.

And if anything, Veblen goods – or the absence of them in my life – make me feel better about my present situation. I don’t need the goods themselves, but it’s nice to know that I can afford some of them. If I put all my pennies together and sold a few things (like my car, for example) I could head out and buy a Faber-Castell Perfect Pencil made of 240-year-old olive wood and 18-carat white gold for $12,000. I just don’t want to.

Nor do I want the I Am Rich app, which was offered for sale through Apple’s store for one day back in August of 2008. It cost $999.99 to purchase, and consisted only of that glowing red gem pictured above. Pushing the little icon on the corner brings up the text “I am rich / I deserv it / I am good, healthy & successful.” And no, that’s not a typo – ‘deserv’ is exactly how it appeared.

Eight people so deeply immersed in the snifter of the Snob Effect and so scratchingly thirsty for a life in the Veblen glow of worthless trinkets purchased the app. Two returned it (one claimed that they had bought it by accident), but there are still six people out there who are so desperate to display their wealth to themselves and their friends that they were willing to spend a thousand bucks for an app to do so.

Suddenly that chasm of fiscal responsibility doesn’t seem so far away from my reality.

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