Why the Rich Don’t Matter — A Consumer Perspective

I must admit to a bit of hyperbole here. Of course the wealthy matter. It’s true that they invest the money, and they do in fact buy expensive things and lots of them (go look up just how many celebrities buy a massive lot for their family compounds–and all the surrounding lots plus houses that sit empty, for privacy).

But that’s a relative drop in the bucket. After coming across this blog post, a point of discussion occurred to me, especially after reading this:

“Why can’t the conspicuous-luxury consumption sector account for a growing share of employment, as the top 10-15% capture a larger and larger share of GDP growth on account of skill-biased technological change ? Really, why not ?”

Well, forgive me if I missed a tonal shift or an important point of clarification here, but the answer is simple:

Let’s assume that people are going to act reasonably up to a point. That is, even if a rich person wants the most hyphenated cow ever (hand-fed, free-range, etc), they’re not going to have fifty cows each with a personal servant just for their morning cream-and-coffee. A rich person won’t buy a dozen yachts or a hundred diamond-encrusted iPhones. Not only that, no amount of investment will matter the slightest bit if nobody poorer than they can afford their product or service en masse. The end result of technological advance in this sector is massive post-scarcity abundance, when money ceases to have significant meaning. In the meantime, there is basic income.

The best way to get money cycling through the economy is to get it into the hands of people who will spend it the most: the not-rich. Bill Gates can’t do as much as economic good buying a $15m yacht as 600 people can do with $25k apiece, if only because you really only buy the yacht once and maintenance is probably less than cost for a while.

And as for the concept of full-employment, I invite you to read the wonderful Charles Stross’s post about just that.

And I don’t mean to sound as if I am scoffing at the author; a quick perusal of the site shows a much greater depth of examination of the various economic phenomena in question than I, really, care to undertake (I, on the other hand, strive for breadth, and so I tend to see the edges of things; that’s what the experts are for). Rather, I wish only to make the point: a top-heavy economy does not result in as much money moving around in ways that generate the most good as a more middle-focused economy. The paths just don’t line up properly.

3 thoughts on “Why the Rich Don’t Matter — A Consumer Perspective

  1. In that blogpost I was responding to claims that technological innovation will create mass unemployment, as well as commenting on the future as envisioned by Tyler Cowen in his book Average is Over. In that future 15% or so becoming wealthier and wealthier.

    My main point was that you need not have mass unemployment as long as human wants are infinite. But the new human wants need not necessarily come all from the rich. I do in fact briefly consider the scenario in which some kind of “basic income” is guaranteed for the masses ( http://pseudoerasmus.com/2014/09/29/econ-fi/ ).

    However, IF income gets ever more concentrated in the top 15%, I see no reason why the rich can’t sustain the same level of aggregate consumption as the masses. I think you underestimate the ability of the rich to spend ! Otherwise, the rise in income inequality should coincide with a rising rate of savings in the economy, but it doesn’t :

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    • Jomo says:

      Hm, interesting! Thank you for your comment. I’m still not sure how a reasonably stable portion of wealthy people can possibly consume the equivalent of hundreds of millions of regular people who all have to buy food and rent and make payments on their cars. Jay Leno may have dozens of cars, but a hundred million people each having one car outweighs that by a lot, even if Leno’s cars are worth a million bucks apiece. And the wealthy can’t eat much more than anyone else, so there end up being entire industries threatened–unless the rich want to buy dinner for everyone else in the country, which amounts to more or less the same thing.

      I will read your linked BI post when I can. Thanks again for commenting!

      Like

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