Just over a week ago, the final instalment of Gilmore Girls arrived on Netflix. I mention this because my first encounter with a Birkin bag was an episode where Rory Gilmore receives one from Logan, her rich Yale boyfriend. Rory has no idea what a Birkin bag is (“Oh cool, a purse!”). But not Emily Gilmore (her grandmother). Emily, like any true East Coast WASP, knows a positional good when she sees one.

Then I listened to a Planet Money podcast episode about Birkin bags this weekend. Which is why you’re getting this post.

Begging to buy it

Here are some examples of exclamations that I hear a lot:

“Oh my word – I could never spend that much money on a painting! It’s just paint on canvas, for goodness sake. Anyone could do that!”

“You spent how much to eat at that place?! I could never justify that. I just can’t.”

*open-mouthed stunned silence at the price of a handbag*

The problem is: this is back-to-front.

Yes, there are some things that are expensive.

But then there are things that you can’t just ‘buy’, even if you had $60,000, or whatever the price-tag is. The shop assistant would look at you, sniff, and tell you that they’re out of stock. Or the restaurant would never have a table. Or the art work is ‘unavailable‘ or ‘already on reserve‘.

In a curious reversal of circumstance, you instead have to beg to be allowed to buy it.

The economics of positional goods

Most of us have some awareness of demand and supply, and we’re familiar with the idea that everything has a price. Which is why we’re so taken aback by outlandishly-priced items that seem to have no real practical purpose:

• Why pay thousands of dollars for an original ‘photograph’, when your wall would look just as good with a nicely-framed poster of said photograph?
• Why spend hundreds of dollars to eat at a restaurant when you’ll just leave hungry anyway?
• Why part with tens of thousands of dollars for a basic-looking handbag, when a cheap one would do the trick of carrying your iPhone, wallet and chapstick?

And it’s true that if you base your value hierarchy on practical needs, then these things make no sense.

But most people don’t have value hierarchies based on practical needs. Once you have a place to live, food to eat, and your general good health, then you don’t really have a lot of practical needs. Instead, you have desires:

• If needing food is no longer a question of sustenance, then you can start to ignore nutritional content and buy things that taste good.
• If needing shelter is no longer a question of protection from the elements, then you can start to get a bit frivolous with the interior decorating.

Then once you’ve satisfied all those hedonistic desires, you can move on to having aspirations.

And nothing is quite as aspirational as a possession that not everyone else can have.

Also, aspirational goods can exist at most levels of society. For a lower-middle class couple, perhaps an ‘aspirational good’ would be their prized Nespresso machine, which no one else in their neighbourhood possesses. For someone poor, it could be a television set.

But I do agree that the super-rich take it to a new level – mainly because they have reached the point where everything that they do or have or consume can be turned into some form a positional good.

Alternatively, you can take aspirational bets

If you don’t like the idea of aspirational consumption, then that doesn’t have to stop you from buying a Birkin bag. All you have to do is be convinced that rich people, in general, are going to be committed to the idea of having what other people can’t have. Then you can buy it as an investment.

Baghunter.com has some statistics on this:

And if you compare it to the S&P 500 and Gold, it seems that taking a bet on the long-term rise of the plutocrat was not a bad one:

Always assuming, of course, that you could actually snag a bag.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.