The Rich are Spending Again...How About You?
"The rich are spending again; the more conspicuous the consumption, the better" according to Bloomberg's Caroline Baum recently. Ms. Baum then provides some appropriately outrageous examples of mega-spending by the mega-rich, along with the suggestion that perhaps this signals that the worst is over for the global economy.
Whether the worst is over or not remains to be seen, although things certainly do seem to be looking up for the wealthiest among us. (Just read some of the examples Ms Baum provides here.) As for the rest of us, it's a mixed story.
For example, a record number of Americans now qualify for food stamps - over 40 million and climbing. That means that almost 15% of Americans rely on government assistance to eat. That strikes me as a rather shocking number in what is reputedly the richest country in the world; more so in a country that once prided itself on the economic self-reliance and independence of its citizens - the proverbial "land of opportunity."
But we non-gazillionaires aren't all hungry and looking for handouts. In fact, many charities are showing pretty good fund-raising results this year. I just returned from my board meetings at an independent college and we're having a record year. My guess is that the stock market appreciation over the last couple of years has given people not only high cost-basis stock that they want to donate for tax reasons, but also provided some of that good feeling that the so-called "wealth effect" causes. It can loosen the purse strings for charities and other non-essential spending.
But, of course, it also depends on who you talk to when it comes to people feeling wealthier. The mega-rich may be spending their money right now, but they tend to spend to one degree or another even when the stock market's not climbing as it's been for a couple of years. After all, one of the attributes of being mega-rich is that you have lots - TONS - of surplus money. That's money that you can pretty much burn if you run out of logs for the fireplace, or just want to light a cigar with a hundred-dollar bill to impress - well, I'm not sure who'd be impressed, but it's never stopped some conspicuous spenders in the past, so why should it now?
As for the rest of us, it's a mixed bag. Some are really hurting and have pretty much hunkered down with their spending based on barely being able to pay the mortgage or rent plus feed their families. Others who should be hunkering are simply wearing blindfolds and ignoring their reduced circumstances and continuing to run up credit card balances simply because facing reality is just too painful.
One item that does surprise me is that the savings rate hasn't been higher. It's up for sure, but I don't think we've quite reached the stage where you'd imagine we're ultimately headed: greatly increased savings rates and even more significantly reduced spending, caused by a recognition that the "good times" of the past 30 - 50 years are pretty much over. To tack some recent numbers onto this, consumer prices in February were up 0.5%, which implies an annual rate of inflation of 6%. Wages are not increasing. Relative to increasing consumer prices, our wages are, in effect, declining in terms of purchasing power. We're still reluctant to fully face those facts and adjust our behavior accordingly.
Meanwhile, with the mega-rich throwing their money around, it's going to help the so-called "luxury" economy, but really, there's little "trickle-down" happening if that's what you're waiting for. Sure, if you live in Mumbai you might pick up a job working for the domestic staff of India's richest magnate, Mukesh Ambani, who reportedly has 600 people working at his - get this - 27 story home (situated, by the way, in what may be the largest city of desperately poor people in the world).
(It certainly dwarfs all those noveaux-riche guys who flash gold chains and diamond pinky rings I've met from time to time.)
But since most of us won't qualify as a domestic servant or a yacht salesman, I guess we'll have to continue to muddle through an economy that's really not getting any easier, for the most part - not as far as I can see, anyway.
Now excuse me while I google this guy Ambani's 27-story monstrosity...oh, there it is. And yes, it's quite monstrous. I think I prefer my comfy little space, thank you.
Whether the worst is over or not remains to be seen, although things certainly do seem to be looking up for the wealthiest among us. (Just read some of the examples Ms Baum provides here.) As for the rest of us, it's a mixed story.
For example, a record number of Americans now qualify for food stamps - over 40 million and climbing. That means that almost 15% of Americans rely on government assistance to eat. That strikes me as a rather shocking number in what is reputedly the richest country in the world; more so in a country that once prided itself on the economic self-reliance and independence of its citizens - the proverbial "land of opportunity."
But we non-gazillionaires aren't all hungry and looking for handouts. In fact, many charities are showing pretty good fund-raising results this year. I just returned from my board meetings at an independent college and we're having a record year. My guess is that the stock market appreciation over the last couple of years has given people not only high cost-basis stock that they want to donate for tax reasons, but also provided some of that good feeling that the so-called "wealth effect" causes. It can loosen the purse strings for charities and other non-essential spending.
But, of course, it also depends on who you talk to when it comes to people feeling wealthier. The mega-rich may be spending their money right now, but they tend to spend to one degree or another even when the stock market's not climbing as it's been for a couple of years. After all, one of the attributes of being mega-rich is that you have lots - TONS - of surplus money. That's money that you can pretty much burn if you run out of logs for the fireplace, or just want to light a cigar with a hundred-dollar bill to impress - well, I'm not sure who'd be impressed, but it's never stopped some conspicuous spenders in the past, so why should it now?
As for the rest of us, it's a mixed bag. Some are really hurting and have pretty much hunkered down with their spending based on barely being able to pay the mortgage or rent plus feed their families. Others who should be hunkering are simply wearing blindfolds and ignoring their reduced circumstances and continuing to run up credit card balances simply because facing reality is just too painful.
One item that does surprise me is that the savings rate hasn't been higher. It's up for sure, but I don't think we've quite reached the stage where you'd imagine we're ultimately headed: greatly increased savings rates and even more significantly reduced spending, caused by a recognition that the "good times" of the past 30 - 50 years are pretty much over. To tack some recent numbers onto this, consumer prices in February were up 0.5%, which implies an annual rate of inflation of 6%. Wages are not increasing. Relative to increasing consumer prices, our wages are, in effect, declining in terms of purchasing power. We're still reluctant to fully face those facts and adjust our behavior accordingly.
Meanwhile, with the mega-rich throwing their money around, it's going to help the so-called "luxury" economy, but really, there's little "trickle-down" happening if that's what you're waiting for. Sure, if you live in Mumbai you might pick up a job working for the domestic staff of India's richest magnate, Mukesh Ambani, who reportedly has 600 people working at his - get this - 27 story home (situated, by the way, in what may be the largest city of desperately poor people in the world).
(It certainly dwarfs all those noveaux-riche guys who flash gold chains and diamond pinky rings I've met from time to time.)
But since most of us won't qualify as a domestic servant or a yacht salesman, I guess we'll have to continue to muddle through an economy that's really not getting any easier, for the most part - not as far as I can see, anyway.
Now excuse me while I google this guy Ambani's 27-story monstrosity...oh, there it is. And yes, it's quite monstrous. I think I prefer my comfy little space, thank you.
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