Posts Tagged ‘Thorstein Veblen’

billionaires

The timing could not have been better, at least for me. It just so happens I’m teaching Thorsten Veblen’s Theory of the Leisure Class this week. It should become quickly obvious to students that, as I have argued before on this blog, we’re now in the midst of a Second Gilded Age.

This is confirmed in a new report by UBS/PwC, according to which, after a brief pause in 2015, the expansion in billionaire wealth around the world has resumed.

Thus, billionaire wealth rose 17 percent in 2016 (up from $5.1 trillion to $6 trillion), far more than the 5.8-percent nominal GDP growth figure and double the rate of the MSCI AC World Index.** There was also a 10-percent rise in the number of billionaires globally to 1,542. Despite a period of heightened geopolitical uncertainty, the world’s ultrawealthy are flourishing.

The United States still has the world’s largest concentration of billionaire wealth. It grew by 15 percent from $2.4 trillion to $2.8 trillion as billionaires prospered, far outstripping the MSCI AC World Index. Thirty-nine Americans entered the billion-dollar plus wealth band and 14 dropped off.

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Europe’s billionaire population was static in 2016. Twenty-four entered this wealth band, while 21 dropped off.*** There were 342 European billionaires at the end of 2016.

The biggest jump occurred in Asia. Three quarters of the newly minted billionaires are from the region’s two biggest economies—China and India. China had by far the highest number, adding a net 67 to total 318. India’s billionaire population climbed 16 to 100. Taken together, the wealth of Asian billionaires grew by almost a third (31 percent) in 2016, up from $1.5 trillion to $2 trillion.

So, what do the world’s billionaires do with their vast wealth? Most of it is used to capture even more income and wealth. Thus, the 1,542 billionaires in the UBS/PwC database own or partly own companies that directly employ at least 27.7 million people worldwide—roughly the same as the UK’s working population. And, via an array of financial instruments and “club deals,” they manage to siphon off a large part of the surplus created by the rest of the global working-class.****

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Apparently, the world’s billionaires are also becoming major patrons of sports, such as football (both global and American), hockey, baseball, and basketball. According to the report, more than 140 of the top sports clubs globally are owned by just 109 billionaires.*****

One European entrepreneur explains why he owns a sports club in the following way. “Sport is my life and my dearest hobby,” he says. “Further, the publicity you get from the broadcasting is global. The business works according to the theme ‘you win on Sunday and sell on Monday.’ People always identify themselves with winners. A er all, I not only sponsor, whatever I do in this eld must be sustainable and needs to make commercial sense.”

It should come as no surprise that Veblen held a quite different view:

Addiction to athletic sports, not only in the way of direct participation, but also in the way of sentiment and moral support, is, in a more or less pronounced degree, a characteristic of the leisure class; and it is a trait which that class shares with the lower-class delinquents, and with such atavistic elements throughout the body of the community as are endowed with a dominant predaceous trend.

Clearly, the Gilded Age today shares with its historical predecessor a “dominant predaceous trend” that enables the world’s billionaires to accumulate more and more wealth and leaves the rest of us behind.

 

*The title of this post is from the collection of short stories by Mark Twain and Charles Dudley Warner, published in 1873. Apparently, the name chosen by Twain and Warner was inspired by William Shakespeare’s The Life and Death of King John (Act 4, Scene 2):

Therefore, to be possess’d with double pomp,
To guard a title that was rich before,
To gild refined gold, to paint the lily,
To throw a perfume on the violet,
To smooth the ice, or add another hue
Unto the rainbow, or with taper-light
To seek the beauteous eye of heaven to garnish,
Is wasteful and ridiculous excess.

**The MSCI AC World Index is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. It is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets.

***Germany, Europe’s largest economy, also has the most billionaires, at 117. The United Kingdom comes a distant second, at 55, followed by Italy (42), France (39) and Switzerland (35).

****One high-profile example of clubbing together occurred when Warren Buffett’s Berkshire Hathaway group backed the ill-fated Kraft Heinz $143-billion bid for Unilever in February 2017. Buffett has a record of helping the 3G private equity vehicle behind the bid to finance its deals. 3G is controlled by Jorge Paolo Lemann, Brazil’s richest man, and his partners. Buffett has added his financial firepower to 3G’s acquisitions of doughnut chain Tim Hortons as well as Kraft Heinz.

*****The Glazer family, worth an estimated $4.7 billion in 2015, controls 83 percent of my own favorite sports team.

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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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In my experience, most mainstream economists have never heard of much less read a word written by Thorstein Veblen, the author of “the most considerable and creative body of social thought that America has produced.”

But my students (e.g., in Topics in Political Economy) and regular readers of this blog certainly know about Veblen.

Why is Veblen relevant today? Certainly because of his analysis and critique of conspicuous consumption, which is precisely one of the effects of the obscene levels of inequality we’re witnessing.

Veblen is also relevant because, as Adam Davidson explains, Bernie Sanders’s economic ideas are, like Veblen’s, both ruthlessly critical of the mainstream and profoundly optimistic:

Sanders believes that raising the minimum wage, spending a trillion dollars on infrastructure and offering free college will fundamentally shift the structure of our economy toward the poor and middle class. It will inspire such enthusiasm and determination that more people will work harder and invest more, and the country will easily generate the tax income to pay for it. Hence, Sanders’s plans won’t cost money; they’llraise money. Like Veblen, Sanders spends much of his time denouncing the excesses of others, but at heart he is one of the world’s greatest optimists. Sanders obviously understands that his vision of the economy is at odds with the existing way of seeing things. His website and his stump speeches ask his followers whether they’re ready to start a “revolution.”. . .

Of course, for many people who support Sanders, the fact that his ideas run counter to decades of established economics is exactly the point. Some economists, like Dean Baker and Robert Reich, told me they like Sanders not because of his take on any technical debate but because he has forced the profession — and everybody else — to take his issues seriously. No matter what happens in this election, Sanders’s idealism has sent a clear message to traditional economists on the left: They are taking too long to develop answers to the problems of inequality and the corrosive effects of concentrated wealth. It’s a message that institutionalists have been screaming for more than a century. Now, it seems, they are being heard.

Today, Veblen’s most famous book might be reissued (with a foreword by Sanders, certainly one of Vermont’s most controversial figures) and retitled “Theory of the 1 Percent.”

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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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Apparently, Bank of America Merrill Lynch has dubbed a new asset class Vanity Capital, which relates to lifestyle and identity-related purchases. It’s equivalent to the world’s fourth largest economy.

Here is how that spending is distributed globally:

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As Harry Wallop explains,

Lot 25 in the Christie’s auction, Looking Forward to the Past, in New York next month is likely to excite a lot of interest for one simple reason, and it’s not its historical significance nor even the universal fame of its creator. It’s all about the price tag.

Picasso’s Les Femmes d’Alger (Version “O”), painted in 1955 in homage to Matisse, is expected to break the $142 million (£95.3 million) record for a painting sold at auction when it goes under the hammer. If so, it will confirm that the top end of the art market has gone completely crazy.

The week before, Sotheby’s will sell Van Gogh’s L’allée des Alyscamps with an estimate of $40 million, and Roy Lichtenstein’s The Ring (Engagement) with an estimate of $50 million.

“The prices of so many of these artworks are disproportionate to their art historical importance,” says Josh Spero, the editor of Spear’s, a magazine that caters to the yachtowning, Picasso-aspiring classes. “It’s all about ‘my Giacometti is bigger than your Giacometti’ now. Will you really get $140 million worth of pleasure from it? I doubt it. But you know you had to outbid three US hedge fund managers and a Russian oligarch to secure it.”

Bank of America Merrill Lynch may be trying to capitalize on the spectacular growth of the market in vanity goods in the Second Gilded Age. But, if remember our Thorstein Veblen, there’s certainly nothing new about the conspicuous consumption of the leisure class.

 

[ht: sk]

Where’s Veblen when we need him?

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Once again, this coming fall, I’ll be teaching Karl Polanyi’s The Great Transformation in my Topics in Political Economy course.

It’s a course based entirely on books (plus a few political economy films, starting with Charlie Chaplin’s Modern Times). I teach four classic texts of political economy, starting with Adam Smith’s Wealth of Nations and then moving on to different responses to Smith’s theory of capitalism: by Karl Marx (volume 1 of Capital), Thorstein Veblen (The Theory of the Leisure Class), and finally Polanyi.

I match each classic text with a contemporary one: for example, Deirdre McCloskey’s Bourgeois Virtues with Smith, Stephen Resnick and Richard Wolff’s Knowledge and Class with Marx, and Joseph Stiglitz’s The Price of Inequality with Veblen. Next time, I’m planning to teach Thomas Piketty’s Capital in the Twenty-First Century as the follow-up to Polanyi.

The discussion, of course, gets pretty complicated—since, during the semester, the students learn that the various authors are not only responding to Smith (whose text, they also figure out, has been poorly rendered in their other economics classes), but also to each other. Polanyi with Marx, for example. And changes in the world are making those intellectual exchanges even more interesting, as Robert Kuttner understands:

Looking backward from 1944 to the 18th century, Polanyi saw the catastrophe of the interwar period, the Great Depression, fascism, and World War II as the logical culmination of laissez-faire taken to an extreme. “The origins of the cataclysm,” he wrote, “lay in the Utopian endeavor of economic liberalism to set up a self-regulating market system.” Others, such as John Maynard Keynes, had linked the policy mistakes of the interwar period to fascism and a second war. No one had connected the dots all the way back to the industrial revolution.

The more famous critic of capitalism is of course Karl Marx, who predicted its collapse from internal contradictions. But a century after Marx wrote, at the apex of the post–World War II boom in both Europe and the United States, a contented bourgeoisie was huge and growing. The proletariat enjoyed steady income gains. The political energy of aroused workers that Marx had imagined as revolutionary instead went to support progressive parliamentary parties that built a welfare state, to housebreak but not supplant capitalism. Nations that celebrated Marx, meanwhile, were economic failures that repressed their working classes.

Half a century later, the world looks more Marxian. The middle class is beleaguered. A global reserve army of the unemployed batters wages and marginalizes labor’s political power. Even elite professions are becoming proletarianized. Ideologically, the view that markets are good and states are bad is close to hegemonic. With finance still supreme despite the 2008 collapse, it is no longer risible to use “capital” as a collective noun. The two leading treasury secretaries during the run-up to the 2008 financial crash, Democrat Robert Rubin and Republican Henry Paulson, were both former CEOs of Goldman Sachs. If the state is not quite the executive committee of the ruling class, it is doing a pretty fair imitation.

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I have to spend the rest of the day preparing Upton Sinclair’s The Jungle for class tomorrow (for the labor section of my course on Commodities: The Making of Market Society). But before I get to that. . .

The campaign against college players forming unions, as exemplified by Patrick T. Harker in his column today, continues to repeat the false impression that what the “student-athlete-employees” are demanding is to be paid for their efforts. (Even Joe Nocera, who has been very good on exposing the NCAA’s mistreatment of college athletes, makes the mistake.) No, what these employees are asking for is a voice in setting and enforcing the rules that govern their employment in NCAA-supervised athletic competitions—nontrivial things like how much time they are forced to spend in preparing for their sports, what majors and courses they can take, whether or not athletes who are injured will be given adequate medical care, and so on. No one—except the cavalcade of critics—is talking about making the athletes paid employees.

Sure, as Mark Thoma explains, rent-seeking behavior can explain at least some of the rise in inequality we’ve seen in recent decades. But why go through such tortured explanations, which require one or another deviation from perfect competition, when we can explain inequality in a much simpler manner, even when there’s perfect competition: surplus-seeking behavior. Because that’s what we need to focus on: the ability of a tiny minority in today’s economy to capture and keep the surplus being produced by the majority of workers. And how do they manage to get that surplus? Through high corporate profits that flow into CEO salaries, the growth of the financial sector, and capital gains, which in turn are taxed at low rates. And then, on top of those “normal” flows of surplus, we can consider various forms of market power that culminate in economic rents, which make the already-unequal distribution of income based on flows of the surplus even more unequal.

Speaking of inequality, how is it possible to write a paper on “Consumption Contagion: Does the Consumption of the Rich Drive the Consumption of the Less Rich?” in which Marianne Bertrand and Adair Morse [pdf] describe yet another departure from the Permanent Income Hypothesis, and never mention Thorstein Veblen and his Theory of the Leisure Class?

And, finally, under the heading of “let them eat flip-flops and cheap lingerie from Macy’s,” Thomas Edsall does a nice job summarizing the literature that explains why American workers might be wary about the claims that everyone gains from free trade and how the arguments of free-trade zealots like Jagdish Bhagwati ring so hollow these days.

class structure

The latest from Ed Wolff (with Ajit Zacharias, behind paywall) doesn’t really give us the capitalist class. But it is a useful complement to Veblen’s classic by providing estimates of the size and incomes of the leisure class.

It’s not the capitalist class, at least as we might define in terms of appropriating and receiving distributed cuts of surplus labor. But, in measuring households based on wealth thresholds, and thus the extent to which they “reflect wealth levels that would be, under normal circumstances, sufficient to yield a property income that can provide a household with a standard of living that is over and beyond a life of leisure” and include “the so-called rentier class – those who can enjoy a very high standard of living from the mere ownership of their wealth,” we do get a sense of the size of the class that engages in predatory behavior, which permits it both the freedom from having to sell their ability to work and the possibility of using its wealth to dominate the political process.

Thus, we end up with a class that, in 1989, made up 1.1 percent of U.S. households, which doubles by 2000 to 2.1 percent—as against the majority of the population, of skilled and nonskilled workers, who made up 60 percent of all earners in 2000, down somewhat from 64 percent in 1989.

class incomes

As for their incomes, those of the leisure class rose 22.3 percent between 1989 and 2000 while, on average, workers’ incomes went up by only 4.4 percent. It’s clear that, during a decade many want to look back on as one of generalized prosperity, the United States experienced a growing gap between the leisure class and the majority at the bottom who continued to be forced to have the freedom to sell their ability to work for a wage.

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It just so happens, in class this week we’re finishing up our discussion of Thorstein Veblen’s The Theory of the Leisure Class and beginning Joe Stiglitz’s The Price of Inequality.

Is there a better illustration of conspicuous consumption and the rise of inequality in the New Gilded Age than what transpired at yesterday’s auction of contemporary art at Christie’s New York? Not only the record prices but also the sale room itself:

It did not seem especially hard to sell work last night, only a matter of diverting large amounts of cash. Kelly Crow of The Wall Street Journal called attention on Twitter to a new structure in the sale room for all the “discreet $$ coming in,” a sort of ground-level sky box with “one-way glass [that] looks like a duck blind.”

As for the rest of us, who are not members of the leisure class, the best we were able to do is view the Christopher Wool retrospective at the Guggenheim (which I did a couple of weeks ago) and take some “‘selfies’ and ‘Instagram images’ during the brief period in which [Jeff Koons’s] Balloon Dog was installed at Christie’s before the sale” (which I didn’t).