[farazbabar]

This is not really Veblen situation. A lot of these are primarily money laundering outfits, the artificially high prices, are simply a means of converting cash into bank deposits. Similar schemes exist in art, sculptures, and jewelry. There are some mom and pop type stores that are legit and some of the money goes to actual artists who make these but the ones in Palo Alto (or similarly unattainable rent neighborhood rug shops), are not that.

[Spooky23]

That’s internet lore. Nobody is buying a $50,000 rug with cash. If any of the people were, the rug guy wouldn’t have a place to bank. Reality is you can move a few rugs a month and make ok money.

There’s a market for these types of businesses. In my area there’s a dude with a company that sells and maintains $50-150k+ Christmas light and decoration displays. He has ~100 customers. The men’s clothing place I go to is a group of guys hanging out having a good time - it doesn’t look busy, but their 4-5 customers a day are dropping $3-10k/visit.

Stores like that are “laundering” money like the rest of the commercial real estate world… by playing games with various (legal) tax schemes. They are no more illegal than a Hampton Inn or AirBnb guy.

Real money laundering places are restaurant/bar, laundromats, arcades, and low income residential.

[farazbabar]

Tax schemes are there to save taxes using legalism loopholes, these places are happy to pay the taxes on "cash" purchases to bank the proceeds. Nobody is buying 50K rugs is correct, most of the transactions are self reported for the purpose of paying taxes and depositing funds. IRS and fincen are not in it together, in fact IRS encourages people to pay taxes on ill gotten gains.

[jrmg]

What kind of dirty money do you believe these stores are laundering? What kind of illegal businesses/schemes are the source of it?

[IAmBroom]

Wrong question. There is no reason to link the sort of dirty money with the type of laundering business. The process of laundering, and need thereof, are universal to criminal industries.