Wednesday, December 13, 2006

quixotic exotics

Catallarchy commenter Sam writes in regards to so-called 'exotic' goods:

"This is an issue for semantics only. A good is not merely a physical commodity, but a commodity acquired for the purpose of providing satisfaction to the consumer. If “$20k Rolls-Royce” and “$60k Rolls-Royce” provide different levels of satisfaction, then they are, in fact, different goods."

From a March 16th 2006 email to Professor Emeritus Walter Block,

"My thoughts about the phenomenon of veblen and giffen goods are such and I would like your comment. In economics, goods can be said to be homogeneous if the units supply the same exact service. If there is any differentiation, even if but a psychological differentiation (such as ice in the winter being a different good than ice in the summer), under the scope of economics they are considered to be two different goods.

So too, "goods" as regarded by economics should not include special categories for either veblen or geffen goods, because the goods in question (either a veblen status-good, or a giffen substitute-good) have essentially transformed into another type of good providing a different array of services. There is nothing special about either of these to qualify for an "exotic good" category, as the theory only gives an explanation why the good transformation should occur.

Any child could come up with examples of goods which transform into other goods and provide a sound explanation; for example, a fur coat in the winter and summer, a pastrami sandwich before and after eating a filling meal, popcorn during a movie and afterwards, a discount coupon before and after making a purchase, etc.

If this is so, would it be correct to ignore such so-called exotic goods, despite the mainstream acceptance of these concepts?"

Sadly enough, he never responded to me on this particular point.

1 comment:

Sam said...

Agreed on the status/veblen effect.

As for Giffen goods, I'm not so sure we can attribute it to psychological effects. Does a poor Mexican worker (to use the typical example) regard a given pound of beef as yielding different satisfaction if its price rises from 3 pesos to 5?

But I don't really know how to account for Giffen goods within an Austrian framework. Clearly the opportunity cost part is going in the opposite direction (price up demand down).

The main problem imho is how the income effect can be tackled within an Austrian ordering-of-desires framework.

Here's my feeble attempt: think of the sacks of grain analogy - you use the first two to feed yourself, plant the next three, and use the sixth to feed your parrot. Within such a framework, I can only think of a good reason that a decrease in the total number of sacks available will result in anyone use having *more* sacks allocated to it: If I lose half a sack of grain, and my parrot can't survive on the other half, I might just consume it myself. Still, this does seem somewhat of a thin explanation for Giffen goods and the income effect in general.