Conspicuous consumption plays an important role, even in our flailing economy. See the NYTimes, “Even Marked Up, Luxury Goods Fly Off Shelves”:
Nordstrom has a waiting list for a Chanel sequined tweed coat with a $9,010 price. Neiman Marcus has sold out in almost every size of Christian Louboutin “Bianca” platform pumps, at $775 a pair. Mercedes-Benz said it sold more cars last month in the United States than it had in any July in five years.
Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price.
In the Theory of the Leisure Class, Veblen wrote that a major force driving economic activity was competition in the pursuit of higher status: to drive the nicest car, wear the most expensive clothing, go on the most exotic vacations, so that others would see your status. Veblen wrote that this conspicuous consumption led to irrationality in purchases and wasteful spending. This article is a great reminder of how economists could progress by looking backwards once in a while.