Posts Tagged ‘conspicuous consumption’

2019 was a very good year for the world’s wealthiest individuals. The normal workings of global capitalism created both more billionaires and more combined wealth owned by those billionaires.

According to Wealth-X, which claims to “have developed the world’s most extensive collection of records on wealthy individuals and produce unparalleled data analysis to help our clients uncover, understand, and engage their target audience,  as well as mitigate risk,” the size of the global billionaire population increased strongly in 2019, rising by 8.5 percent
to 2,825 individuals, while their combined wealth increased by 10.3 percent to $9.4 trillion.

To put that into perspective, the world’s real Gross Domestic Product grew by only 2.9 percent (International Monetary Fund) in 2019—while the value of global equities, which is key to billionaires’ wealth, soared by more than 25 percent (MSCI World Index).

The United States still leads the list of the world’s billionaire population and their wealth. In 2019, the number of American billionaires rose by almost 12 percent to 788 individuals, accounting for 28 percent of the global billionaire population (China has the next highest share at 12 percent). Cumulative billionaire wealth in the United States increased by 14 percent to $3.4 trillion, more than the combined net worth of the next eight highest-ranked countries and equivalent to a 36 percent share of global billionaire wealth.*

What about the novel coronavirus pandemic?

According to Bloomberg, only two of the world’s 10 richest people have seen their wealth decline in 2020: luxury mogul Bernard Arnault and Berkshire Hathaway Inc.’s Warren Buffett. Everyone else, whose wealth is tied to technology holdings (except for Mukesh Ambani, the Indian billionaire who chairs and runs oil and gas giant Reliance Industries), has seen their individual and collective wealth increase—none more so than Jeff Bezos (the Amazon.com Inc. founder who has seen his net worth soar by $63.6 billion this year) and Elon Musk (whose net worth has more than doubled to $69.7 billion on the back of surging Tesla Inc shares).**

On a global level, billionaires tied to technology businesses have outperformed all others, especially those whose wealth is tied to the automotive, shipping, media, textiles and apparel, and aerospace (less so defense) industries. They, of course, are the ones who most want to see a quick solution to the pandemic and a reopening of economic activity around the world.

In general terms, wealthier billionaires are more exposed to the ebbs and flows of the stock market, while those at lower tiers tend to have more of their wealth in private holdings, likely to be their primary business. For example, those in the two highest billionaire wealth tiers—above $10 billion— hold between almost half and more than three-quarters of their assets in public holdings. These individuals have withstood significant volatility in their wealth as stock markets first fell considerably and then rebounded equally dramatically—this past Friday, to a new record high in the United States—since the beginning of the pandemic.

So, what are the world’s billionaires, in the United States and around the globe, doing with their wealth in the midst of the pandemic? We know they’re not particularly worried with the same problems as their predecessors, the Robber Barons, whose enormous economic power in the United States created a fierce counter-reaction, in militant labor unrest and the adoption of reforms that once seemed radical, like the Sherman Antitrust Act and a federal income tax.

At least so far. . .

Instead, according to Wealth-X, they are

working with their wealth advisors and planners to ensure their financial holdings and wealth plans (whether concerned with investment diversification, wealth transfer or philanthropic aims) remain up to date and in the best possible state given the evolving global situation.

They’re also concerned about their own safety and new forms of luxury consumption. According to the Wealth-X Global Luxury Outlook 2020. “The wealthy’s mindset around what luxury is has changed—their priorities have shifted towards their families,” Jaclyn Sienna India, CEO of luxury travel company Sienna Charles, said in the report. “Luxury now includes a second passport, access to healthcare and the freedom to go when and where they feel safe and secure.”

“Quite a few wealthy people are looking for exclusive safe havens in the form of second homes—safety has become a priority for them,” Alistair Brown, CEO of Alistair Brown International Real Estate. “But with this purchase, they expect access to established locations often via residency and additional passports as well as access to medical help.”

Additionally, the wealthy have become increasingly accustomed to purchasing luxury goods online since the pandemic, as high-end brands expand their digital offerings, the report said.

“The wealthy continue to value luxury as they did prior to Covid-19. However, the way they buy luxury has changed, with more having moved to making their purchases online,” Winston Chesterfield, principal of luxury watch company Barton.

Meanwhile, what is everyone else supposed to do? Well, they have to stay as safe as they can at home and on the job—as they are subjected to the second or third wave of the pandemic—and try to obtain sufficient food, remain in their shelter while not being able to keep up with their rents and mortgages, and pay for their healthcare—in the midst of widespread pay cuts and soaring unemployment.

And, perhaps, begin to sharpen the twenty-first century equivalent of pitchforks. . .

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*That’s my quick (and, I understand, overly simplistic) argument against the rise of fascism in the United States: billionaires and the other members of the group of ultra-wealthy individuals don’t need it, since they’re doing quite well the way things are.

**Currently, five of the largest American tech companies—Apple, Amazon, Alphabet, Facebook, and Microsoft—have market valuations equivalent to about 30 percent of U.S. gross domestic product. That’s almost double what they were at the end of 2018.

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The release of the so-called Paradise Papers confirms, with additional names and more salacious details, what we already knew from the Panama Papers and other sources: the world’s wealthy increasingly use offshore tax havens to engage in conspicuous tax evasion.

That’s on top of their participation in conspicuous consumption, conspicuous philanthropy, and conspicuous productivity.

According to Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, in a study published before the release of the Paradise Papers, the equivalent of 10 percent of world GDP is held in tax havens globally—and that’s only counting bank deposits, not the portfolios of equities, bonds, and mutual fund shares that wealthy individuals entrust to offshore banks.

And, as it turns out, offshore wealth is extremely concentrated: the top 0.1 percent of richest households own about 80 percent of it, while the top 0.01 percent own about 50 percent of offshore wealth.

So, how does it work? There is a great deal of evidence that the vast majority of offshore wealth, both legal and illegal, is not reported on tax returns. That’s because offshore wealth is done “by combining trusts, foundations, and holding companies, so as to disconnect assets from their beneficial owners.” Thus, tax authorities won’t be able to observe or collect taxes on either the wealth or investment income earned or reported offshore, except in rare circumstances (e.g., a taxable and properly declared inter-generational transfer of assets).

That means the tax burden is shifted onto the rest of us who don’t hold offshore wealth and aren’t able to—or choose not to—engage in conspicuous tax evasion.

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Not surprisingly, accounting for offshore assets increases the top 0.01 percent wealth share substantially. However, the magnitude of the effect varies a lot across countries.

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In Scandinavia (Norway, Sweden, and Denmark, the blue lines in the charts above), which does not use tax havens extensively, the top 0.01 percent wealth share rises from about 4 percent to around 5 percent. Offshore holdings have a much larger effect on wealth inequality in Europe (the United Kingdom, France, and Spain, the red lines), where by the estimates of Alstadsæter et al. 30-40 percent of the wealth of the 0.01 percent of richest households is held abroad.

In the United States (the green lines in the charts), offshore wealth also increases inequality but the effect is much more muted than in Europe. That’s only because the U.S. top wealth share is already very high—9.9 percent, without offshore wealth in 2010, compared to 11.1 percent when offshore wealth is included.

Clearly, the world’s wealthiest individuals—including those who call Scandinavia, Europe, and the United States home—have plenty of opportunities via their offshore paradises to engage in conspicuous tax evasion.

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What happens when you combine conspicuous consumption and conspicuous productivity?

You get Barracuda Straight Leg Jeans—complete with “crackled, caked-on muddy coating”—on sale for $425 at Nordstrom.

When Thorstein Veblen invented the term “conspicuous consumption,” in his Theory of the Leisure Class (pdf), he was referring to late-nineteenth-century America as having entered the “predatory phase” of culture, when the people at the top obtained their goods by seizure and imputed indignity to the “performance of productive work.”

The clothing of the leisure class reflected this distancing from the world of work—conspicuous consumption combined with conspicuous leisure and conspicuous waste.

In dress construction this norm works out in the shape of divers contrivances going to show that the wearer does not and, as far as it may conveniently be shown, can not engage in productive labor. Beyond these two principles there is a third of scarcely less constraining force, which will occur to any one who reflects at all on the subject. Dress must not only be conspicuously expensive and inconvenient, it must at the same time be up to date.

Nordstrom’s muddy jeans are therefore a perfect example of contemporary predatory culture, when those at the top are afforded the luxury of ironically quoting—but not actually doing—any productive work. Instead, they capture a portion of the surplus and use it to purchase clothing that—in the form of conspicuous consumption, leisure, and waste—shows they are exempted from the exigency of work imposed on everyone else, who are of course required to dress in neat and clean uniforms, just like the servants of the first Gilded Age.

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Now, in the latest stage of predatory culture, those at the top can purchase fake mud-stained jeans while McDonald’s employees will now wear uniforms reminiscent of the Hunger Games.

What’s next, corsets?*

 

*Here again is Veblen:

The dress of women goes even farther than that of men in the way of demonstrating the wearer’s abstinence from productive employment. . .

the woman’s apparel not only goes beyond that of the modern man in the degree in which it argues exemption from labor; it also adds a peculiar and highly characteristic feature which differs in kind from anything habitually practiced by the men. This feature is the class of contrivances of which the corset is the typical example. The corset is, in economic theory, substantially a mutilation, undergone for the purpose of lowering the subject’s vitality and rendering her permanently and obviously unfit for work.

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First, it was conspicuous consumption. Then, it was conspicuous philanthropy. Now, apparently, it’s conspicuous productivity.

According to Ben Tarnoff,

the acquisition of insanely expensive commodities isn’t the only way that modern elites project power. More recently, another form of status display has emerged. In the new Gilded Age, identifying oneself as a member of the ruling class doesn’t just require conspicuous consumption. It requires conspicuous production.

If conspicuous consumption involves the worship of luxury, conspicuous production involves the worship of labor. It isn’t about how much you spend. It’s about how hard you work.

And that makes a lot of sense, for at least two reasons. First, CEO salaries in the United States continue to be much higher than average workers’ pay—276 times as much in 2015. CEOs need to publicize the long hours they work in order to attempt to justify the large gap between what they take home and what they pay their workers. As Tarnoff explains, “In an era of extreme inequality, elites need to demonstrate to themselves and others that they deserve to own orders of magnitude more wealth than everyone else.”

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The problem, of course, is many American workers are working long hours these days. According to the Bureau of Labor Statistics, in 2015, employed persons ages 25 to 54, who lived in households with children under 18, spent an average of 8.8 hours working or in work-related activities and the rest sleeping (7.8 hours), doing leisure and sports activities (2.6 hours), and caring for others, including children (1.2 hours ).

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And, on a weekly basis (taking into account public holidays, annual leaves, and so on), U.S. workers put in almost 25 percent more hours—or about an hour more per workday—than Europeans.

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The other reason why conspicuous productivity matters is because, in comparison to the First Gilded Age (when Thorstein Veblen first invented the term conspicuous consumption), a larger share of the surplus captured by the top 1 percent takes the form of labor income during the Second Gilded Age. They get—and deserve—that large and growing share because they work long hours.

The problem, of course, as I showed the other day, that composition of income has changed since 2000. Since then, the capital share of their income has bounced back. Thus, the “working rich” of the late-twentieth century are increasingly living off their capital income, or are in the process of being replaced by their offspring who are living off their inheritances.

This was my conclusion:

It looks then as if those at the top have either turned into or been replaced by rentiers, thus joining the existing owners of capital at the very top—thereby mirroring, after a short interruption, the structure of inequality last seen during the first Gilded Age.

That’s perhaps why conspicuous productivity was invented. Increasingly, those at the top are able to capture a large share of the surplus not because they do, but because they own. But if they can hide that by boasting about the long hours they work, they can attempt to defend their class power.

Or so they hope. . .

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We know the rich are getting richer in the United States. And, as it turns out, people are well aware of how rich people are flaunting their growing wealth.

One Reddit [ht: sm] thread last week (which, last time I looked, had over 19 thousand comments) started with the question, “What’s the most obscene display of private wealth you’ve ever witnessed?”

Here are some of my favorites:

I used to be a nanny to celebrities and high profile New York financial families. . .The CEO and his model wife of a famous athletic wear company paid for an entire wardrobe for me to keep at their home because they didn’t want “outside clothes” contaminating their house or infant. I was to take my street clothes into the bathroom near the entrance, take them off, change into my “house” clothing, and then only change back after I was finished with the baby for the day and was getting ready to leave. They also had a safe of cash that I was to use exclusively for my meals, drinks and take out food, and then leave the receipts in the safe.


I work for a luxury home builder. Very big, very expensive houses. We are building a home for this guy & he calls freaking out at me because AT&T would only provide him with 9 DVRs when he needs 11. They would provide him with more, but he would need to open a second account to do so. I don’t know why, I guess they had some kind of weird limit at the time. I’m the CTO of the homebuilder, so he expected me to get AT&T to change this policy so he could have a TV with DVR in every bathroom as well as the normal TV-viewing rooms. I obviously couldn’t do this, so he cancelled his contract with us thru his lawyer & never spoke to us again. His deposit was non-refundable, in fact we had already spent most of the money on the initial part of the build. So he walked away from over $100,000 we wouldn’t give him back without ever saying a word to us. It was no biggie to him I guess. It also made NO SENSE.


I was driving for Uber in a college town and picked up a group from one of the richer frat houses to take them to a club. The girls were discussing how one of their friends was upset and went on a huge shoe shopping spree where each pair cost roughly $2,000 except for one. This one pair costed $7,000. One of the girls casually expresses that “$7,000 is really not a bad price to pay for shoes, they should’ve just been a little bit prettier. I would’ve paid $5,000 for them.” Why they called an Uber instead of a limo, I don’t know.


My boss owns a 15+ million dollar cottage. He likes to “entertain” and throws some pretty wild parties. His wealthy neighbours down the lake complained about the noise and frequently called police. One day they saw him on the street and told him smugly that they had a generous offer on their cottage and they were moving. I know, said my boss, I bought it.


A party at the CEO’s house for Halloween. Insanity. I thought I was going to get kicked out of the neighborhood because I was only driving a 30k car, not a 300k car. Anything you can think of, he had at this party – staff with signature cocktails at the door, a fully staffed bar for liquor, a fully staffed bar for wine, an entire table made of ice with ice shot glasses and ten different vodkas. He was wearing a costume made of leather that his wife commissioned for him, handmade in France. The 400 yard bridge to his private lake was strung up with extra lights, and the dock had a separate bar for those who wanted to sit on the lake.


My mother owned a small home-based business doing a whole bunch of different shit, including silk floral arrangements and other artificial plants. Occasionally, she would be hired to do the floral component of some big interior decorating job.

One time, she was hired by a local home builder to do just such an interior decorating gig at his mansion.

He did have a private helicopter pad in his backyard, but someone elsewhere in this thread has already mentioned another one of those.

The conservatory flooring was walnut parquet tile. It was lovely, except that the mogul’s wife had recently had a party where, of course, many of her guests were wearing stiletto heels. These heels made a kajillion tiny divots in the walnut parquet tile, ruining it. Mrs. Homebuilder was unconcerned; she was simply going to replace it.

I think, though, what stands out to me the most was the foyer, mainly its Corinthian columns gilded in 24 karat gold. Who the fuck does that?


Building a house for some rather wealthy people. While they “rough it” in their $1.5M barn waiting for us to finish. The horses they own have their individual quarters being completely cleaned around the clock. There is fresh new hay brought in by the truckload which is then sorted through in front of a fan where the dirt is blown out leaving only clean hay. The floors in each stall are constantly being covered with a bed of imported wood chips/shavings from somewhere in Northern California (we’re in central TX). The chips and hay are brought in by the truckload every week. Each horse is fed a Snickers Bar before bed. They live in a climate controlled area of the “barn” where they are fed filtered water. Hot water during the winter and ice water in the summer. None of these horses are pure-bred or rare/special other than the fact that they were chosen. One day while working we saw one of the barn workers hauling ass through the field so naturally we waited and watched to see what he was doing. He was running to our portopotty. We didn’t think much of it at first. Then we got a phonecall. “Have you guys seen one of the mexicans over there? He asked to use the bathroom and has been gone gone for 7 minites when he’s only allotted a five minute break.” She then proceeded to ask if we’d find him and send him back before he goes pilfering through the construction supplies and tools. These people made a ~45 yr old grown ass man, with kids and shit, haul ass across a field, about 300 yards, in the dead of summer in TX to take a shit…while they timed him. This lady once asked some hispanic concrete workers to move from under the shade of her giant oak tree because they may kill the root system with their boots. When we told her they were just eating luch and that it was hot her reasoning was that “mexicans don’t feel heat anyways”. Money makes people weird. I could go on for hours.

Well, you get the idea. There are plenty of other stories—about neighbors, roommates, and so on. The ones I’ve chosen (and there are many more) are all from or about people who have worked for the tiny group at the top.

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Back in 2014, in a post on inflation, I revealed my suspicion that

the real rate of inflation for consumer goods is higher than the official rate of 2.2 percent (over the past 12 months), thereby understating the extent to which working people are facing rising prices for the commodities they need to purchase in order to maintain themselves and their families.

Well, as it turns out, I was right. According to some recent research by Xavier Jaravel, the rate of inflation faced by high-income households is lower than for low-income households.

Why’s that? Because, with rising inequality, firms in the retail sector introduced more products catering to high-income consumers, and competitive pressure in that segment of the market drove down the prices of those products.

And why does it matter? Well, for one, any overall measure of inflation (like the Consumer Price Index) tends to understate the rate of inflation facing low-income consumers. That’s the point I made back in 2014.

The other implication is that, because households with different amounts of income face different prices for the goods they consume, economic inequality is actually worse than we thought.

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So, here we have another vicious cycle: nominal economic inequality leads to different rates of product innovation (thus leading to different levels of consumer prices), which in turn worsens the degree of real inequality.

That vicious cycle of escalating inequality is, unfortunately, part of the normal workings of our current economic institutions.

 

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I got this one from a former student, who wrote: “So many wild things happening at one time in that story. This (capitalist) system we live in is just so bizarre sometimes!”

And he’s absolutely right.

According to NPR, in 2014, the Wu-Tang Clan produced a 31-track album, Once Upon A Time In Shaolin, destroyed all the copies save one, placed the only extant version in a hand-carved silver and nickel box, along with a 174-page leather-bound book of lyrics, anecdotes and credits (in addition to a $55,000 pair of speakers and a “gold-leafed certificate of authenticity”), which they locked in the vault of a luxury hotel in Marrakech, Morocco, set it up on an online auction house, and then sold it to the highest bidder—none other than the “infamous, price-gouging pharmaceutical executive Martin Shkreli — and he hadn’t even bothered to listen to it.”

Bloomberg Business notes that Shkreli is a fan, of sorts:

“Shkreli was taken by the Wu-Tang song C.R.E.A.M., which stands for ‘Cash Rules Everything Around Me.’ It includes the often-repeated phrase ‘Dolla dolla bill, y’all!’ “

It wasn’t fandom that drove his purchase, though. Shkreli liked the idea that owning the album would give him an in with celebrities and rappers, he told Bloomberg.

He didn’t listen to excerpts meant to verify the purchase — he had an employee check for him. And he reportedly still hasn’t played the album. He tells Bloomberg Business he might consider putting it on … if Taylor Swift wants to come over and hear it with him.

It should come as no surprise, I suppose, that Forbes exhaustively documented the creation and sale of Once Upon A Time In Shaolin.

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Special mention

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Last week, in our discussion of The Theory of the Leisure Class, we decided to add “conspicuous philanthropy” to Thorstein Veblen’s conspicuous leisure and consumption. I used Bill Gates as an example.

One of the students just sent me a link to Linsey McGoey’s article on a relatively new dimension of philanthropy, the “business of altruism”—the growing trend of foundation grants directed towards private corporations.

And, as it turns out, the Gates Foundation is there, too:

In 2014, the Gates Foundation announced an $11 million grant to Mastercard to establish a financial inclusion “lab” in Nairobi, Kenya. The grant will last three years, after which Mastercard has indicated that, should the venture prove sufficiently lucrative, the company may be willing to foot the bill for further financial expansion in the region.

Mastercard’s management rationalized the grant in economic terms: investing in developing nations such as Kenya is risky, and there’s no guarantee that investments will pay off. As Mastercard explains in a press release, the money from the Gates Foundation enables the company to reach “new markets that may otherwise be commercially unviable.”

The gift to Mastercard — and it is a gift, rather than a loan or an equity investment — is the latest in a long list of donations that the Gates Foundation has offered to the world’s wealthiest corporations. From Vodafone, a British company notorious for paying zero corporate tax in the United Kingdom, to leading education companies such as Scholastic Inc., the Gates Foundation doesn’t simply partner with for-profit companies: it subsidizes their bottom-line. . .

The Gates Foundation has insisted that the private sector should play a stronger role in global development and now regularly subsidizes corporations who want to turn education, health care, and poverty alleviation into business ventures. A few years ago it seemed outlandish that a highly profitable company like Mastercard was receiving philanthropic grants.

But the the role of foundations is evolving rapidly and soon it may seem odd that charity was once designated for those living in poverty; those who have no housing; those fleeing situations of domestic abuse; those reliant on food banks; those bankrupted by skyrocketing medical bills, and not to a multinational company taking a taxpayer-funded bet on the idea that what the poor really need is a new credit card.

This new gospel of private-private justice, “with a nod to Adam Smith that market expansion is a naturally philanthropic process,” puts conspicuous philanthropy in a whole new light.

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Special mention

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