My Economics Lesson
A few weeks back I left my sunglasses in Fayetteville—at my son’s house. I knew I’d get them back eventually, but in the meantime, the glare was making me unhappy. So I went to Walmart and found a pair on sale for $3. Guaranteed full UV protection. Great.
The young man at the checkout counter kindly cut off the plastic loop that held the price tag to the glasses—so I could wear them home. He also suggested the glasses might not be all that great, given the price. I understood. You get what you pay for.
But then I wondered if he always judges the value of things by their price. Does paying more for something make it better?
I recently read in the Washington Post about a strawberry—a single strawberry—imported from a luxury Japanese supplier and sold in an individual foam cushioned container for $20. Apparently luxurious single strawberries have been selling like gangbusters.
The journalist investigating the lavishly packaged solitary berry tasted it and had this to say: “Was it good? Of course it was good. Was it ‘worth it?’ Not by my calculations.”
Does anybody truly believe paying $20 for a strawberry guarantees a unique culinary experience? (An experience so profound it merits ignoring the ecological impact of packaging individual strawberries for shipping overseas?)
If paying more for food makes it taste better, we all ought to be experiencing gastronomical wonders from our ordinary shopping trips these days. According to the U.S. Department of Agriculture, “In 2025, prices are predicted to grow at above-average rates for eggs, sugar and sweets, nonalcoholic beverages, and fresh fruits…” But none of us expects our scrambled eggs to taste better now that they’re more expensive.
So, what are the phenomena at work here? Meet Veblen and Giffen. Both were economists who lived around the turn of the 20th century, and each had a category of “goods” named after him. Veblen goods refer to products that become more popular as their prices increase—because consumers buy them for status. A $20 Japanese strawberry. A $5000 Louis Vuitton handbag. A $450,000 pair of gold Trump sneakers. (Really! Look on eBay!)
Our everyday groceries, however, fall under the category of Giffen Goods. We’re not paying more to seek status. We’re paying more because we need them and there is no cheap substitute. We’re talking rice, potatoes, wheat. And yes, eggs.
I’ve never been keen on the study of economics, but I like having Veblen and Giffen in my pocket. (Thank you, Almighty Google.) Now I have some vocabulary to help me clarify my rationale for buying things—or not.
There is something desperately wrong with a society that encourages people to overspend on an item just to prove they can. I’m not saying don’t pay for quality! Investing in an item’s precision or longevity makes sense. But who needs a $5000 handbag or a $20 strawberry? Absolutely nobody. The purchases of these items merely pad billionaires’ pockets, often while jeopardizing the well-being of societies, or even the planet we live on.
But then again, I have a house on the market. And I have a dear friend, formerly a businessman, who tells me if my house is not selling, I should raise the asking price—to make it more desirable. Maybe he’s onto something.
For the record: I retrieved my old sunglasses from Fayetteville—the ones I bought for $15 in a grocery store in Durango, Colorado. Turns out I like the $3 ones better. I wonder if there’s an economist with a name for that phenomenon.