Are Hermes handbags and Patek Philippe wristwatches considered Veblen goods?

Dear Hipster:

Here is one thing that simply doesn’t make sense to me. So much of the hipster scene revolves around elevating supposedly “lowbrow” culture over what we might call “highbrow” culture. But at the same time, hipster stuff is always super expensive compared to the non-hipster version of more or less the exact same thing. For example, maybe a plate of french fries is worth five or six bucks at a restaurant, but if you sprinkle some truffle salt on them and tell us the name of the particular potatoes you used, then all of a sudden they’re worth $10. Hipster coffee can be legit double the price of Starbucks, which is already kind of pricey. But even though being cool is so expensive, cool people are always super concerned with how “street” and unpretentious they are. How can hipsters claim they rally to the banner of the everyman when they’re living in the 1%ers world?

— TRent M.

If a $6 cup of coffee puts you into Rich Man Territory, call my financial planner, because I’d like to buy myself some private islands! The gulf that separates the real 1% from garden variety “sprinkle some truffle salt on my fries” folks like you and me is vaster than most people realize. Let’s face it, you’re not really rich until you can think about buying Veblen goods, and hipster commodities are definitely not Veblen goods.

You’re probably thinking, what are Veblen goods and why do I care? Veblen goods are things — typically super-exclusive luxury items with a very limited supply — for which demand increases as price increases. They are things that people buy because they are expensive, not despite their expense. Accordingly, because the number of available goods is kept artificially low, demand wildly outstrips supply; which is why you have endless wait lists for Hermes handbags and Patek Philippe wristwatches. Weirdly, if the price of these things went down, people would buy fewer of them, at least in the long run, which is interesting because it appears to defy the economic law of demand.

Under ordinary conditions, the normal rules of microeconomics state that demand for goods decreases as price increases, and vice-versa. In other words, as the price of hipster coffee increases, coffee drinking hipsters will buy less coffee overall. Every hipster has a kind of implicit budget for coffee, and he won’t generally spend more on coffee than he can afford (or is willing) to spend. The local hipster coffee shop economy puts out single-origin pour-over roughly at a level to meet the aggregate desire of local hipsters for hipster coffee, and the price of hipster coffee stabilizes at a point of economic equilibrium.

You’ll find the hipster economy generally reflects that kind of economic rationality. Sure, hipster goods may command a modest price premium over mainstream goods, but it’s totally controlled by ordinary market forces. Your garden variety hipster is willing to pay a little bit more for something because he values it a little bit more than he values something else, and the people in the business of selling tend to make more of something when people are willing to pay more for it. But when you’re a real deal 1%er, all that goes out the window, and the entire thing starts working backwards. Hipster coffee may feel snooty sometimes; but at least it isn’t irrational!