It’s not a surprise that everybody wants to look good. In some way shape or form, I believe all people want to be admired for something. This can be something tangible such as valuable personal possessions or it can be something admirable like an individual’s ability to speak in public. Deficiency is not something that is uncommon to the human psyche. Everybody has insecurities and the need for acceptance is something that’s fundamental to our nature.

But how much does money matter in this equation? What about when people try to use their money to attract a highly regarded public image?

As it turns out, this is not a newly studied phenomenon. Economists and sociologists have surprisingly been studying the economics of self esteem since the late 19th century. Paying close attention to motives that pertain to social status and fame, academics refer to ego based spending by the title of conspicuous consumption.

Coined by economist Thorstein Veblan in 1899, conspicuous consumption refers to the individual act of spending money in order to publicly display status and power. The central idea is that if used properly, an individuals income can be spent in a way to raise one’s social standing. An individual who believes in Veblan’s theory therefore will use currency in order to make purchases that outshine contemporaries in the same social class.

This behavior is not unlike that of male peacocks who attempt to use the vibrancy of their feathers in order to compete for a female companion. In economics, items that are purchased with this chauvinistic mentality are referred to as Veblen goods. Highly topical in the field of economics, Veblen goods are famous for contradicting standard economic theory.

In a typical economy, the demand for an item is expected to decrease when the price rises. This is because increases in price are known to place constraints on the budgets of consumers who buy.

Luxury or Veblen goods operate differently however, as in some cases demand will also increases with a raise in price. This is likely because when a good become more expensive, the amount of people who are able to afford this good diminishes. Since now there are less people consuming this item, the value of each individual item that still exists in circulation suddenly becomes much higher.

To conspicuous consumers, scarcity is a good thing because lack of availability is one of the key factors that makes certain goods “high status” or “luxury”.

If everybody drove a Ferrari would we still look at Ferrari’s the same way? The fact that the car is expensive and scarce is desirable for certain consumers because driving one allows you to show off wealth in a loud and vibrant way. Being able to acquire items that the normal population cannot afford allows people the venue to psychologically separate themselves from the masses.

Excluding proportionate increases in quality, this may be the reason why people still buy a $30,000 Rolex when they could instead opt for a $50 Timex. Is there a quality difference when you pay more for your goods? Without a shred of doubt there is. But beyond wanting something of a higher quality, people also buy these products to look trendy and well-off.

All of this sounds appealing in theory but how does it operate in reality? I wanted to provide a brief overview on some of the world’s most popular luxury goods in order to see how these markets really work. In this piece, I will be looking into luxury cars, diamond jewelry and branded art in order to explore the global landscape for luxury products. Let’s begin with cars.

Luxury Automobiles

“I’m skinny, but I’m still too big for a Bentley/ You are your car, what could represent me?” — Nas, Nasty

There are many different reasons to drive a luxury vehicle. Beyond just looking trendy, it is undoubtedly true that people purchase luxury vehicles for a whole slew of factors including: comfort, convenience and reliability.

However, my belief is that while luxury products offer a higher caliber of product, it would be hard to argue from a strictly utility-based perspective that you’re getting proportional utility for the knock-you-socks-off price. There must be benefits to having a $200,000 dollar Rolls Royce as opposed to a $25,000 Honda Civic that extend far beyond just mechanical performance.

Data is from: Statista, Participants were told to check all the reasons that apply

One thing that I found to be really interesting was that according to Statista, when Chinese consumers were polled on the main reasons for purchasing their luxury automobile, a mind boggling 59% stated that the car being a “status symbol” was an integral part of the decision making.

“I just spent four Ferraris all on a brand new Bugatti/ And did that cause it’s something to do” — Drake, Pound Cake

The truth is, owning a luxury car has been an entry level sign of ballerhood even long before rappers like Ace Hood were waking up in new Buggati’s. There’s a reason that Drake likes to rap about owning a Phantom Bentley or why 50 Cent would rent vehicles to look richer than he was. Appearing rich to the public is important for some people and for some it can even be a means to make more income. If you want to have this baller persona however a luxury automobile is a must have asset.

To give you a broader look at how many people are following the trend of luxury, let’s again look at numbers from Statista. The estimated 2016 sales of new supercars (which are astonishingly expensive automobiles designed to maximize power, efficiency and luxury) are estimated to be a record breaking 28,493 for the year. This is an incredible 64.1% increase from the 17,365 units sold worldwide in 2010.

What’s even more amazing is that this increase in supercar purchases shows that growth in the highest level of luxury automotive sales is only 15% lower than the 79% increase in the world’s billionaires since 2010. While a 15% difference in growth may be appear substantial, it’s important to note that we are living in an unprecedented global economy. The effects of globalization have been incredibly strong for certain nations, as Business insider claims that every 5 days China gains a new billionaire.

For supercar sales to be maintaining utterly tremendous year over year growth we can draw one or two conclusions. This could shows us that either millionaires are getting really into performance driving (which is a completely valid argument) or that the economic elite are finding more and more tools to flex their public image.

The base model for a 2017 Bugatti Chiron retails for an estimated $2.7 millions USD

While we can never factually know the right answer, we can at least make an educated guess. The truth of the matter is that supercars retail for millions and millions of dollars. Even buying a used Ferrari can run you the same price as an upscale home. As much as these vehicles offer you a better experience when compared to your friendly neighborhood Honda Civic, there is no way that you could ever get back what you paid for in tangible results.

Regardless of what car you drive, the chances are your ETA doesn’t change substantially on publicly regulated roads. The real value behind buying a supercar however beyond the additional utility (comfort, convenience, safety, reliability etc.) comes from psychological motives. This includes things like self esteem, autonomy and status.

What About Art?

Guernica by Pablo Picasso

I bought some artwork for 1 million / 2 years later, that shit worth 2 million / A Few years later that shit worth 8 million / I can’t wait to give this shit to my children. — Jay-Z , The Story of O.J

These days commerce and art seem to be inseparable entities. As much as people buy paintings to appreciate the human existence, art is also purchased with financial and egocentric motives in mind.

Something that always blew my mind was the idea that the fair market value for certain paintings in the 21st century run in excess of over $100 million dollars. From Pablo Picasso to Edvard Munch to Andy Warhol, billionaire around the world are funneling more and more of their wealth towards assets who’s value appreciates merely by way of continued existence.

Beyond banking an investment with a high ROI, owning a piece by Salvador Dali or Calude Monet also boosts ones public persona as highly acclaimed art collectors are vehemently respected and admired when they turn their private collections into public museums.

Famous art auctions such as Sotheby’s are attended by the worlds most elite art collectors and some of its most famous billionaires. From Russian oligarchy’s to Chinese moguls, these events host a great deal of wealth and amassed social status from all corners of the world. I imagine that just attending a grandiose auction like Sotheby’s provides many up-and-coming business professionals a great opportunity to add serious credibility and pizzazz to their name and company. If this kind of financial strategy isn’t considered a work of art, I don’t know what is.

The Card Players by Paul Cézanne

The art piece “The Card Players” by Paul Cézanne is the perfect embodiment of this fascinating intersection between commerce-art and the ego of mankind. Though the actual price paid is unknown, estimates for the sale range between $259 million to $320 million US dollars. Purchased by the Royal family of Qatar in 2011, “The Card Players” is thought to be the most expensive painting ever to be sold in the history of humanity. To give you some perspective, this single transaction represents almost 7% of the total economic activity that is projected to occur this year in Fiji.

Three Hundred & Twenty Million.

Now more than ever art is an investment.

While this may feel like a empty and frivolous purchase to many, I actually find the transaction to be a masterful exchange in respect to the Qatari Kingdom. When it comes to this buy, you have to think about the bigger narrative and how it raises the social status of Qatar as a whole.

Tamim bin Hamad Al Thani (Center) is the Emir (Leader) of Qatar

The Emir of Qatar spent over $250 million dollars in order to purchase something that he may just hang up in his guest bathroom. He may find out that he doesn’t even like this painting and simply place it in his fourth beach house for storage (I’m assuming he likes the beach).

Think about what this signals to countries that rely heavily on Qatar’s economic health. If you place yourselves in the shoes of a sovereign nation that trades heavily with the natural gas giant of the UAE you may see an opportunity here. A purchase like this shows you that the Qatari kingdom has extra money to invest and its willing to take risks about where to put its wealth.

It also shows you that Qatar is current and up to speed with the contemporary art world as well as the modern world in general. This kind of purchase shows you that Qatar is watching the landscape of tomorrow and is savvy enough to put their money where their mind is. Overall this is a move that demonstrates power, status and intelligence: key drivers in the theory of conspicuous consumption.

Picasso is a Brand

I’ll be fully honest. I know nothing about Pablo Piccasso. But if I could own a Piccaso painting? I’d buy it in an instant. I think the ability to link your name in the form of private ownership to some of histories most famous people is a desire that a lot of people have.

Courtosey of ArtPrice

In the decade between 2004–2014, the amount of money spent on fine art went up in absolutely every category. In 2014 alone, consumers spent nearly $10 Billion dollars at public art auctions. This is a jaw dropping $6 billion dollar increase since auction figures in 2004. With a shocking 10 year market growth of 60%, it’s clear that its not just the king of Qatar that’s diversifying his portfolio. Now more than ever art is an investment.

By its very nature it’s clear to see just how much of a Veblen good high art really can be. A three hundred and twenty million purchase can almost never live up to its price tag solely on merit. Intangible and status based reasons must be monumental in purchasing paintings like these as its hard for the untrained eye to decipher between a $320,000 painting and a $320,000,000 painting.

This is especially true when you consider the utility of a high art and a common art is objectively identical. Aside from bragging rights, you can do the exact same things with a painting from a local art college than you can with Picasso’s “Guernica”.

Much like the game of cards that the men in “The Card Players” are partaking in, the economics of high art is a game that’s all about strategy.

Diamonds & Jewelry

Image is everything I see, it got a lot to do / With the way people perceive, and what they believe /Money short so this jewelry is like a weave.

— J. Cole, Chaining Day

Figures I found from: Google Finance

If you are a long term stock holder of Dior, Pandora, Tiffany and other major players in the industry, I envy you. Over the last few decades, the average growth of all three of 3 companies stock price has been a triumphant 370.07%. Can you imagine that?

If you put $1 into the IPO stock of Tiffany alone, you could be taking home almost $24 per dollar spent.

If we look at the average figures, and made the assumption that the IPO for these companies occurred at the same time, a $1 stock investment made in an 18 year span (the average life of all 3 stocks) would be worth an mind boggling $4.70 today. Imagine if you invested $10,000 into this portfolio. Think about how much bling you could buy with nearly $50,000.

Bain & Company

According to Bain, a prominent Business Consulting firm, diamonds specifically are considered excellent investments for investors looking to store wealth. The mineral asset has a strong tendency to retain value in the short term and raise in value in the long term.

This is not unlike how investors diversify in Gold. Arguably one of the most famous long term assets in the history of mankind, Gold has a long term growth that can battle against the S&P 500, an ETF that finance God Warren Buffet himself would invest his after-death-income in.

To be fair, alongside increasing product values you have to also attribute raising stock prices to the successes of the firms that market, refine and sell these products.

In fact, the marketing schemes of companies such as De Beers Jewelry have been so monumental in the 21st century that it is commonplace to see their methods taught in “Intro to Marketing Classes” all across North America.

The reason is because it is believed by many scholars that De Beers was instrumental in convincing North Americans that a diamond ring is an essential pre-requsite for men who wish to propose to their girlfriends.

When it comes to wedding rings, a great deal of focus is spent on maximizing the cut, clarity and size: as though the build of the diamond is synonymous for the level of love that it represents. Diamonds are a woman’s best friend and as such the groom is expected to ensure that the two stay together until death do they part.

Interestingly enough people also seem to be investing more and more of their money into brand name jewelry. I was shocked to discover this as I never believed a brand alone can make a difference on people’s desire to buy diamonds.

Previously it was my understanding that the price of jewelry was based solely on the gem and the metal of the item you intend to purchase. I believed that the jewelry world had one maxim: content is king. The bigger the jewel, the higher the value and the brand name has nothing to do with it. As it turns out, I was wrong.

Extremely profitable economic opportunities are created when intrinsically valuable materials like ruby or sapphire are paired with highly valuable brands like Rolex or Tiffany’s.

The fact that conspicuous consumption carries onward to the jewelry world shocking how even in situations when value can be tangibly and objectively determined, the brand name still matters.

Currently there are no signs of slowing down when it comes to the rapid interest in jewelry as the brand dominated market bolstered $173 billion sales dollars globally in 2013. Projections by McKinsley place the market to reach an insane $291 billion in global sales just by 2020 alone. This is a 68% sales increase that is taking place in just 7 short years.

All in all, jewelry has become an extremely common method for both storing and showing off ones wealth. From the hills of Hollywood to the peak of nobility, diamonds and pearls have constantly stood to represent elegance, asset diversification and status.

The Future of Spending for Status

It seem we livin’ the American Dream / But the people highest up got the lowest self-esteem / The prettiest people do the ugliest things / For the road to riches and diamond rings — Kanye West, All Falls Down

One of my favorite expressions is: Men lie, woman lie, number’s don’t. So while we do not have people running around saying how they really feel, at least we have the numbers.

The numbers actually show us something incredible. They show us that that conspicuous consumption is more than just another theory, its a real way of life. Just by looking at luxury cars, fine art and jewelry we are able to see that its not far fetched to say that people worry about their public perception and use their money to try to smooth their worries.

Nobody knows what the future holds but it’s always interesting to speculate Will consumers always have a desire to consume the fastest and most decorated car? Will I still want to buy a Piccasso?

It will be intriguing to continue observing Veblen goods and how they evolve. As for me, I think I’m going to try and become more conscious whenever I make a purchase in the future.

I think it’s important to always ask yourself “Do I really want this?” as opposed to clinging to the allure and the panache of magazine advertisements.

I’ve never been somebody who actively chases status but none-the-less, just like everybody else, I want to look good.