Veblen Goods

Veblen goods are luxury products (services also apply) where quantity goes up with price, contradicting the usual interpretation of supply and demand. They are named for Thorstein Veblen, an iconoclastic economist best known for The Theory of the Leisure Class (1899), where he introduced the idea of "conspicuous consumption." So a Veblen good is a corollary associated with conspicuous consumption; if you're rich, consumption must be high-priced goods. There are psychological tenets related to this, such as the "bandwagon effect" (a item popular with elites must be great), then the "network effect," a large number of buyers increases value. The "income effect" is somewhat similar in that quantity rises with price but without a preference-for-high-price (and called a Giffin good, named with economist Robert Giffen).

Are Veblen goods at the heart of all things bad about American capitalism and politics? The case is not difficult to make. All societies have elites, not many of which fit the bill for "philosopher kings" and their retinue. American elites seem rooted in capitalist wealth creation. Super elites do not seem to be satisfied with income and wealth, not when mega-wealth is on the horizon with a bit of ethically-challenged behavior. Why would a law firm be willing to represent a non-elite (read poor) victim, when a big corporation would be such a great fee-driven client? Note that lawyers are possible Veblen goods: what corporation wants to hire a cheap lawyer? Americans seem to admire wealth and power over principled leadership (boring and pointless?).

This brings us back to diamonds, those luxury goods made entirely from carbon (just like coal). Diamonds seem to be immensely valuable because of great marketing (especially for weddings) and monopoly power (mainly by De Beers). Monopoly (or more accurately oligopoly) power means diamond prices almost never go down, but the resale market is poor (expect only pennies on the dollar). Another win for capitalism over logic.