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The End of Responsibility

In times of great uncertainty, with the economy recovery still wobbly and unemployment still at over 8%, the struggling rich are juicy targets for writers looking to score some easy points. Who can read about the exotic vacations and the lavish summer homes, $17,000-a-year dogs named Zelda and Duke and the $30,000-a-year adult study groups, and not feel even a twinge of schadenfreude as the lower half of the 1% is forced to cut back?

But beneath all the schadenfreude and finger-pointing is a deeper truth worth noting:

Richard Scheiner, 58, a real-estate investor and hedge-fund manager, said most people on Wall Street don’t save. “When their means are cut, they’re stuck,” said Scheiner, whose New York-based hedge fund, Lane Gate Partners LLC, was down about 15 percent last year.

Definitive statistics on savings rates of the very wealthy are hard to find. The Consumer Expenditure Survey and the Survey of Consumer Finances break down the income spectrum in 20% and 10% increments, respectively, and are therefore not granular enough to tell us much. But as this New York Times article from 2006 calculates (citing a Moody’s economist), the ultra-wealthy don’t seem to save very much at all, and are at the vanguard of the consumption society that has transformed America.

On the one hand, this should give leftie economists pause. From a Keynesian point of view, if the rich really are spending every dime, then raising their taxes will slow economic growth by reducing consumption. Shifting income from wealthy fat cats to poorer folks is supposed to stimulate the economy because the poor (allegedly) are less likely to save their income. But if the rich are already spending it all, nothing economically is gained by redistributing it.

And there is some good news.  If the rich keep spending it as fast as they make it, then we don’t have to worry about the rise of a new plutocratic aristocracy.  They will waste all their money on shiny toys and their kids and grandkids will have to earn their own piles.

It isn’t all good news, though. As I argued earlier this week, 20th century America put consumption rather than production at the core of its value system, and this cannot last. Focusing on consuming at the expense of creating has hollowed us out both economically and morally. Adjustment for the very rich may mean foregoing the upgrade on the Brooklyn brownstone, or lavishing a little less on the bichon frise, while the pain for those relying on the dying blue model will be much much greater. But what has happened to us all, as a nation, is that we’ve ceased to privilege hard work and planning over spending and self-gratification. To succeed in the future, we’ll have to rebalance these values somehow.

Arguably America’s failure isn’t that we have generated a lot of new fortunes; it’s that the owners of these new fortunes aren’t stepping up to the plate by offering thoughtful leadership and innovative philanthropy.  There’s nothing wrong with wealth, but when the rich don’t live up to their responsibilities, society suffers.

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  • Mrs. Davis

    When then powerful don’t live up to their responsibilities, society suffers also.

    Look at the politicians. One of their responsibilities is the dollar. They abdicated that and turned it over to *Ben and his banker buddies. As a result, the dollar was worth around $1.75 in 1913 when the Fed took over, about $1.00 when we de-monitized gold in 1932 and $0.40 in 1971 when Nixon abandoned gold altogether and went to fiat currency. Today it is worth about $0.08. And Ben Promises to depreciate it at 2% per year, but he’s doing much better than that. Even at 2%, today’s $0.08 will only be worth $0.0108 in 100 years.

    And people don’t need to save for anything. The government will provide all the food, shelter, health care and education you need for as long as it thinks you should live. How they missed clothing, I don’t understand.

    It’s a key part of the Blue model, everyman a debtor, make the creditor pay.

    So anyone who saves is a sucker. As is anyone who expects others to act responsibly. Government will give us all security.

  • Superb article, ending on a (IMO) brilliant note. Though, to be frank, I’m not sure we’ve ceased to privilege HARD work. We definitely haven’t ceased to glorify it over the past 16-odd years (I can’t remember when I’VE heard the phrase: “Work smarter not harder”; only that it was a LONG time ago). Maybe what we’ve ceased to value is prudent, unfrenzied, unfanatical work? And maybe that goes hand-in-hand with the lack of planning? And the overconfident, “blowhard” nature of much of the work we’ve done (sort of a “sound and fury, accomplishing nothing”)? Work hard, spend hard – perhaps that should be the maxim of our new hedonism. But then who knows? Maybe if we didn’t work our richest and brightest QUITE so frenziedly (“But my god, you, LOOK AT BEIJING!”), they wouldn’t be tempted to spend quite so frantically. I’ll admit I’m a child – or worse – in these matters.

    “There’s nothing wrong with wealth, but when the rich don’t live up to their responsibilities, society suffers.”

    I suppose the next logical question ought to be: Why haven’t they?

  • Anthony

    WRM, Jeffrey D. Sachs calls it the exclusion of the “mindfulness of self” (The Price of Civilization); he asserts a lack of willingness to examine/understand the sources of our own happiness – beyond take-home pay and consumption of goods.

    “Being a responsible member of political society – by asking not what your country can do for you but what you can do for your country – should therefore not be viewed as a coerced concession of the individual toward society, but as an essential way in which each individual finds personal fulfillment. Our well-being depends fundamentally on our recognizing and nurturing our basic duality: as individuals, with distinctive tastes and aspirations, and as members of a society, with responsibilities to and values shared with others.”

  • Jordan

    “… the ultra-wealthy don’t seem to save very much at all”

    A minor nit, but if you earn alot but do not save, you are not wealthy. There’s a difference between income and wealth.

  • Jacksonian Libertarian

    “It isn’t all good news, though. As I argued earlier this week, 20th century America put consumption rather than production at the core of its value system, and this cannot last.”
    What are you talking about? Production = Consumption, Supply & Demand.

  • Income is not wealth, wealth is not income.

    Forgetting this fact as skewed the entire discussion about the “1%”, since the entire discussion is based around conflating the top 1% of income earners and the top 1% of wealth holders. The top 1% of income earners may be located in places like Wall Street, but the top 1% of wealth holders generally are folks who have spent the last 20 years paying off their mortgages early in places like California and New York, and who have put aside a nest egg to get them through rough times. (Extrapolating the power curve from the wealthiest individuals by net wealth, it seems the entrance level to enter the top 1% of wealth holders is around $1.5 million, give or take–and in Southern California that corresponds to having paid off the mortgage to your nice house in the foothill communities near Burbank-Glendale-Pasadena or along the West Side of Los Angeles, plus some extra savings in a retirement account.)

    Income may mean short-term power as one dines at nice restaurants and take expensive vacations, but the top 1% of wealth holders are able to withstand economic tsunamis, since if you own your house outright and have money in savings you can effectively hunker down for the long term.

    And making a lot of money without saving that money means at the end of the day there is no fortune that can be donated to worthy causes. The 1% of income earners cannot step up to the plate to help because they spent it all on vacations and dinners and car leases and expensive apartment rentals. Whereas, the 1% of wealth holders who spent the past 20 years building up their fortunes can enter old age with a pile of wealth that can then be donated to worthy causes or used to help their children get ahead.

    Which may explain why philanthropy comes from those who are not in the top 1% of income earners–because we’re looking in the wrong place for the true 1% of wealth holders.

  • Eric from Texas

    Anthony @3,

    Perhaps Jeff Sachs framed the argument well, but in the end his prescriptions are for the US to become more like Europe with an enlightened elite like himself running the store. Not only should European demographics give him pause, but it runs against both the collapse of the Blue Social Model in the US and a greater libertarian bent of the public fueled by the explosive growth of information available through the Internet.

    He’s just another academic who shows his contempt for the average citizen. His petty and spiteful comments about those with whom he disagrees – George W. Bush and Charles Krauthammer – tell me everything I need to know about that jerk.

  • Kohl Haas

    I am not sure how Mrs. Davis figures the dollar has declined only 80% since Tricky Dick cut the link to gold. Comparisons of commodity prices and nearly everything else show a much greater decline. Everybody is trying to place blame for gasoline prices on nearly everything but the decline of the dollar. Since late 2009, we have about a $27 – $28 increase in the price of oil attributed by OPEC to the stimulus packages. We are our own worst enemy.

    As Mrs. Davis says the government will provide food, shelter, health care, and “education” (indoctrination) because they are provided here. The Chinese will provide the clothing – until they don’t.

    Rich: Having a lot of money.
    Wealthy: Having what you need when you need it.
    Power: Getting others to provide it for you.

  • Kohl Haas

    An observation: one of the noticeable aspects of big money, the so-called 1%, at least here in Denver, is that the names on the benefactor lists for the symphonies, museums, new buildings at Universities, new medical research facilities, major art events, charitable efforts, and other civic events are oil and gas people – the names of those billionaires from high tech, dot-com, telcom, etc are nowhere to be seen.

    Just an observation. I offer no explanation although I am sure those who vilify oil and gas people will try to find some nefarious plot.

  • Anthony

    Eric@7, Jeffery Sachs quoted as an attempt to interpret WRM’s Quick Take from contextual point of view (his – Mr. Sachs – cultural criticisms, historicisms, etc. I take no position on). In this instance, his quoted material provides depth to considered theme (being a responsible member of political society sans ideology).

  • Eric from Texas

    Anthony @ 10

    Fair enough. Didn’t mean to be critical of your contribution to the discussion. I’m a Ph.D. economist who has been disappointed in a couple of Nobel prize winning economists who consistently use their fame as a platform for ad hominem attacks on their political opponents.

  • Gerald

    I really struggle with the last paragraph of this piece. The inference that the “rich or wealthy” have a responsibility to society to provide thoughtful leadership and/or innovative philanthropy is an assertion that seems akin to the concept of Noblesse Oblige. I have had the good fortune to meet a number of fairly wealthy people, most of whom are from business careers, and I’m not certain that any of them are any more capable of thoughtful leadership outside their fields of expertise than non-wealthy people. I am very confident that they do not perceive broader leadership as a responsibility. As to innovative philanthropy, Bill Gates is a good example.

  • RSC

    Megan McArdle had a good piece up recently:, the point being it’s easy to make fun of the rich’s extravagances, but what gets people into financial trouble is paying too much for “the basics.” Once you start sinking financially, how easy is to get rid of your too-big mortgage in the good school district, or yank your kids out of those good schools? The fixed expenses are the killers.

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