Hackonomics, Part II
A quick follow up to last week's Hackonomics discussion, where we looked at how little alleged wealth inequality there is in America.
Part of our critique was that dividing the US into quintiles was a variation of the median/average error, and only served to hide the exhorbitantly greater wealth, income and consumption of the top few percent. To that end, there are two peices of evidence I want to point you towards: One anecdotal, and one data driven.
The first one is THE ONE PERCENT, to be shown Thursday night on Cinemax, at 6:30pm Eastern (and throughout the month). The film is directed by Jamie Johnson (yes, Johnson as in the Johnson Johnson & Johnson). Its his follow up to his "Born Rich,” shown on HBO in 2003.
Here's the Cinemax description:
Four years after turning his camera on himself and other affluent youths in his documentary Born Rich, filmmaker Jamie Johnson presents this look at the "wealth gap": the growing divide between the rich and the poor in America. In this film, the 27-year-old heir to the Johnson & Johnson fortune explores the political, moral and emotional rationale that enables a tiny percentage of Americans--the one percent--to control nearly half of the wealth in the entire country. Along the way, Johnson collects the points of view from a wide variety of Americans, ranging from media mogul Steve Forbes and Kinko's founder Paul Orfalea to Florida taxi drivers and Chicago residents in danger of losing their low-income homes. (TVG) (NA)
Looks to be rather intriguing.
One last thing: In the original Hackonomics, I buried the detailed spending habits of the of the upper echelon of wealth in America. I suspect you will find this data a bit more unequal than the quintile nonsense we saw from Alm and Cox.
Here is how this group spent their money as follows:
Dollars Spent Category - 2007 Spending per Affluent Elite Household
Category Category
Spending Spending
Summer Spending * 2007 * 2005 Change 2007/2005
Activity % $ Spent % $ Spent $Change %Change
Yacht Rentals 10.60% $384,000 9.50% $317,000 $67,000 21.14%
Redecorating 44.90% $129,000 30.90% 137,000 ($8,000) -5.84%
Villa Rentals 15.70% $106,000 13.80% $79,000 $27,000 34.18%
Experiential
Excursions 25.80% $103,000 22.70% $79,000 $24,000 30.38%
Jewelry/watches 73.70% $94,000 63.20% $63,000 $31,000 49.21%
Luxury Cruises 47.50% $92,000 43.10% $71,000 $21,000 29.58%
Charitable Giving 97.50% $82,000 98.40% $52,000 $30,000 57.69%
Vacation Home
Rentals 12.10% $82,000 11.80% $64,000 $18,000 28.13%
Out-of-Home Spa
Services 67.70% $61,000 48.70% $49,000 $12,000 24.49%
Summer
Entertaining 93.90% $56,000 92.40% $39,000 $17,000 43.59%
Luxury Hotels 95.50% $48,000 93.40% $36,000 $12,000 33.33%
Luxury Resorts 84.80% $41,000 82.60% $23,000 $18,000 78.26%
At-Home Spa
Services 53.50% $38,000 47.40% $26,000 $12,000 46.15%
Apparel/accessories 92.40% $34,000 86.80% $16,000 $18,000 112.50%
Audio/visual 51.50% $31,000 50.70% $14,000 $17,000 121.43%
Wines and Spirits
for Social
Entertaining 86.90% $24,000 77.00% $19,000 $5,000 26.32%
Wines and Spirits
for Personal
Consumption 84.80% $17,000 74.30% $11,000 $6,000 54.55%
2007 2005 $Change %Change
Total Luxury Summer
Spending/Household $622,202.02 $399,187.50 $223,015 55.87%
*Percentage of those surveyed spending in this category
Survey of Households with Net Worth $10 Million +
Prince & Associates (2007)
Yeah, that consumption spending looks pretty egalitarian to me! I got your top quintile RIGHT HERE.
~~~
Source:
A Gaping Divide: Straddling Capitalism’s Fault Line
By GINIA BELLAFANTE
NYT, February 21, 2008
http://www.nytimes.com/2008/02/21/arts/television/21bell.html
The One Percent
Jamie Johnson
February 19, 2008 | 06:31 PM (EST)
http://www.huffingtonpost.com/jamie-johnson/the-one-percent_b_87459.html
see also
Borrow and Spend
Floyd Norris
NYT, February 11, 2008, 12:42 pm
http://norris.blogs.nytimes.com/2008/02/11/borrow-and-spend/
Consumption and Income Inequality
Economist's View February 10, 2008
http://economistsview.typepad.com/economistsview/2008/02/consumption-and.html
What is wealth?
Saturday, May 22, 2004 | 08:34 AM
http://bigpicture.typepad.com/comments/2004/05/what_is_wealth.html
Thursday, February 21, 2008 | 12:30 PM | Permalink
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Comments
If the majority of people don't benefit, why should they play? There are other games in town.....
Fun with statistics, from Thomas Geoghegan:
"It took ten years—almost all of the 1990s—for the median family income to get to the same level that it was, in real terms, in 1989. But in 1999, when we got to the same income level we had in 1989, the "median" family had to work six more weeks a year."
this was after the "boom years". Wonder what the numbers look like now.
Posted by: Bruce F | Feb 21, 2008 12:44:41 PM
i like the fact they spent marginally more on "wines and spirits" for social entertaining than for private consumption. would want the truly rich to be home, drinking alone. might imply they're embarassed about their new-found semi-fraudulent fortunes.
Posted by: scorpio | Feb 21, 2008 12:44:44 PM
Ask Mexico how well that worked out in the long haul.....
Ciao
MS
Posted by: michael schumacher | Feb 21, 2008 12:50:34 PM
wouldnt want them home, drinking alone. wouldnt.
Posted by: scorpio | Feb 21, 2008 12:50:56 PM
Barry: your lack of intellectual self-awareness astounds me. The Princeton economics department will never hire you unless you learn to pick apart someone else's argument directly. Or are you merely aspiring to become a hackonometrician yourself? What you're saying isn't news to anyone who's lived in Manhattan anytime in the last 20 years. Your entire intellectual value added to the (very serious) issue on inequality in this country seems to be an implicit but unexplored claim that one point on the Pareto curve is somehow more significant than the other.
~~~
BR: I did that the last time:
http://bigpicture.typepad.com/comments/2008/02/dishonest-econo.html
Posted by: John F. | Feb 21, 2008 12:58:59 PM
Interesting that in the last issue of International Yacht (have nooo idea how I got on that mailing list) there was a whole section devoted to "Which helicopter fits your needs and your yachts".
I suppose if your springing $25mm for a yacht, might as well include a $4.5mm chopper!
Posted by: Ross | Feb 21, 2008 1:05:48 PM
Does sound interesting. I really enjoyed his first documentary. Im not so sure that being born super rich gurantees any kind of happiness. I really think it can lower a lot of peoples self esteem and ocnfuse them about what to do with there lives.
Posted by: Shreksodus@gmail.com | Feb 21, 2008 1:16:03 PM
$17K per household in personal swilling for a summer may seem like a lot, but @ $200/bottle that averages out to 85 bottles. If you figure that the summer season is 90 days, then that's less than a bottle per day per household. I think the elite rich are to be commended for their sensibly restrained alcohol intake. Thank god for that, since we wouldn't want our overlords to be completely hammered whilst being helicoptered from summer home to yacht and back.
Posted by: bluestatedon | Feb 21, 2008 1:24:59 PM
This repeated topic seems to be veering towards political screed, of which there is already a vast surplus on the intertubes, and away from capital markets. I can get more than my fill of political rants elsewhere. Perhaps either Barry misunderstands his audience or possibly he should get a diary on daily kos and put this stuff there.
I realize its his damn blog and he can do anything he wants but perhaps he should amend his logo at the top.
Posted by: DoctorOfLove | Feb 21, 2008 1:25:16 PM
How about an analysis of Ackman's rather interesting plan http://www.nakedcapitalism.com/2008/02/ackman-proposes-breakup-plan.html to break up, or rather send down, the muni insurance business from the structured finance insurance business by moving the muni business into separately managed and financed subs of the (now separate) sf insurance cos. This plan is actually legally doable, unklike the various split ups, since the sf insureds and stockholders of the ins cos have no theoretical basis to complain.
You don't like rich people getting richer. Check.
Posted by: DoctorOfLove | Feb 21, 2008 1:32:54 PM
"misunderstands his audience"? Judging from the comments, it seems that a lot of Barry's audience is composed of people who have a strong interest in finance but think today's level of income inequality is unhealthy. And I'd happily count myself as one more in that category.
Posted by: Francis Hwang | Feb 21, 2008 1:33:20 PM
hey Doc, get your own site
Posted by: scorpio | Feb 21, 2008 1:35:18 PM
We'll assume that the 1% have problems that most of us on this blog are unaware of but wouldn't it be at least fun discovering them?
Posted by: Pat G. | Feb 21, 2008 1:44:37 PM
If the affluent elite are spending some of their money on these things, who's taking it from them? Who's providing them these things and services for money?
And what exactly is it that you think those people should
be doing instead of providing all these things and services to the affluent elite for money, Barry?
~~~
BR: Its not for me to tell people how they spend their money, nor for other people to tell me how to spend mine.
The point of this entire episode is to point out the falsity of the claim made by Alms & Cox that there is no financial inequality in America.
As the arguments used to make that claim were so willfully misleading and utterly disingenuous, too also point out the people who made those claims are wankers.
Posted by: Ironman | Feb 21, 2008 1:46:44 PM
Call me dense, but I've never seen anyone make a compelling argument around the income inequality story.
Rich people spend a lot of money on luxuries? Well I hope so. That's what I would/will do if/when I get rich. That's the fun of being rich. That's why I work, save, invest, and I'll admit it, occasionally pay the "daydream tax" (the lottery - $270 million jackpot this Friday!).
Is all this luxury spending bad for the country or the economy? Would we prefer that each rich person buys 35 Chevy's and 45,000 boxes of Cheerios per year? I don't see those as realistic ways of getting the money out of their hands and into the economy.
Posted by: E | Feb 21, 2008 1:58:50 PM
I thought the whole point of the various tax cuts enacted over the last several years was that they would enable the wealthy to use their increased capital productively, ideally in a way that makes our nation stronger economically and more competitive internationally. At least that was the assertion of messrs. Kudlow, Bush, & co. The summertime expenditures of the elite may be keeping people employed, but we're talking about waiters, chauffeurs, pool cleaners, cabin attendants, masseuses, Rolex salesmen, and housepainters. A service economy like this is a perfect machine for general downward mobility.
Posted by: bluestatedon | Feb 21, 2008 2:01:10 PM
I remember stories about how my Grand Father lost his business on Wall Street in 1932.
Seems some despondent banker jumped from the 22nd floor and landed on his apple cart. Killed the banker and destroyed the cart. Just like a banker trying to take the little guy down with him!
Seriously, there was a story about a Florida banker who shot himself after loosing $19mm of his $22mm fortune. Goes to prove it is all relative.
Posted by: Ross | Feb 21, 2008 2:07:57 PM
Ok, let me try it this way.
Rich people may or may not be getting richer relative to the rest of us.
There are two arguments that this is bad.
a) I am morally, religiously, esthetically opposed to rich people, and the notion that they are getting relatively richer makes me crazy. This is not an economics argument, it is a moral, quasi-religious, esthetic statement and is by definition undebatable. You don't like them, so there you go.
b) This is bad because the rest of us are worse off in some economic, measurable absolute sense. The economy is a long-term zero sum game (or almost so), and if the rich have more, I have less. Note that this argument has to confine itself to materialism, otherwise, it becomes just a restatement of a).
Barry attacks the logic of a story that apparently argues something to the effect that the rich aren't really getting proportionately richer. Ok, lets assume they are. So what? Where's the beef? How am I worse off in an absolute material sense because Bill Gates traded in his old and busted Gulfstream V for a new hotness 737?
First you have to show that everyone else is in fact absolutely worse off (not relatively worse of, absolutely worse off), and then you have to show the causal connection between the rich getting richer and everyone else getting poorer. Or you are just making a statement of esthetic opinion.
Which is fine, the intertubes are overwhelmed with esthetic opinions, but Barry's market share of the esthetic opinion blog market is miniscule in comparison with his market share of the capital markets/economics blog market.
Posted by: DoctorOfLove | Feb 21, 2008 2:20:32 PM
"it seems that a lot of Barry's audience is composed of people who have a strong interest in finance but think today's level of income inequality is unhealthy."
I don't know about a lot of people, but I think it's unhealthy. Forget pitch forks and torches, guillotines are coming.
"I've never seen anyone make a compelling argument around the income inequality story." Uh, French Revolution; Russian Revolution.
Jared Diamond's words while speaking to the extreme fit here -- "In the long run, rich people do not secure their own interests and those of their children if they rule over a collapsing society and merely buy themselves the privilege of being the last to starve or die."
Posted by: Gary | Feb 21, 2008 2:21:05 PM
Even if the government were to take the money and redistribute it evenly, it would find its way back to the most productive agents and again be unequal by a wide margin. should we take the profits from successful investors and redistribute it to the crappy ones? I don't think one investor should have better returns than another, I don't care about the work of the investor or his/her advisor - it's just not fair.
Most of the damage done to the economic well being of Americans is self-inflicted through poor decision making whether it is to study/stay in school, saving rather than borrowing, or deciding to be more interested in what *they* should doing rather than what Hollywood/Athletes are doing. While the US may not be a true free market it is free-er than most and that means freedom to succeed or fail.
People should worry less about what others could do for them and think more about what they can do to improve their own lot in life. Whether people want to believe it or not, there is no other place on this planet that offers a better opportunity for economic freedom and the resulting cash than the US.
Posted by: Hack | Feb 21, 2008 2:29:50 PM
Leave us Socialist , Communist , Anti-Rich , Anti-US , Tin-Foil Hat conspiracy theorists to our own devices
Posted by: Doctor of Hate | Feb 21, 2008 2:56:34 PM
There is a real divide that has developed for the first time in nearly eighty years. Usually wealth creation is used by socialistas to bash those who actually have created wealth and achieved economic success. But, this time it really is different. It's different in the sense that history repeats itself and the last time we saw this environment coupled with other contributing factors was the 1920s. It also explains why Wall Street is so disconnected from main street. I have done some pretty heavy duty work around this area. This is a highly overlooked area of economics that seems to float right by without most naybobs even acknowledging it. The outcomes, both positive and negative, are very quantifiable, predictable and substantial.
Posted by: BDG123 | Feb 21, 2008 3:03:39 PM
Gary-
That was beyond hyperbole. The median American's life is amazing in absolute terms -- it would be hard to prove otherwise, unless the only thing that matters is where you stand relative to the wealthiest people in your society. And if that's the case, definitionally, your bound to advocate some form of socialism. And in that case, the real outcome is the wealthy and the productive just move somewhere else -- or at least, arrange it such that they don't pay taxes here.
Posted by: Johnny Debacle | Feb 21, 2008 3:03:44 PM
I just took a closer look at those stastics. What jumped out at me was how much inflation the suffering rich absorbed. Up 55.9% in just two years!
Whaddya mean you want $15,000 a week for that yacht? It ain't even 50 meters...
Posted by: Ross | Feb 21, 2008 3:18:52 PM
BDG - could you expound on that some more? The part about how "it's different this time". I'm not being argumentative - I read and like your blog. I just don't see how existing levels of relative wealth inequality within what is top to bottom the most wealthy society in this planet's history is a big story. We're all well off, even the poorest of Americans, when compared to predecessors or economic peers in other nations.
Posted by: E | Feb 21, 2008 3:19:15 PM
