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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