Saturday, January 3, 2009
God Bless the Rich Who Spend Their Own
As the black friday sales turned into holiday specials and then limped into early January clearance bins it became clear to even the most novice investor that the economic problems are leading to a glut of supply and a dearth of demand. This is a familiar tale in times of woe...cash flow insecurity leads to hording and our economy continues to flounder because it's built on capitalism, not paying down bills and hiding $100s in the mattress.
The supposed bright spot in this mess should be the super rich, those elusive creatures whose net worth can withstand anything short of a media meltdown or ponzi scheme. While its become harder to find these mega rich types now that Russian oligarchs are selling off their assets and Palm Beach royalty have collectively become Palm Beach paupers, the irony is that the only people left with money to spend are ostracized and demonized for their expenditures. The New York Times and The Daily Beast both feature the burgeoning trend of secret shopping. Blog posts on Gawker and New York Magazine's Daily Intel about $14,000 a table debutante balls and Hermes purchases disguised in discreet white shopping bags are littered with lengthy commentary, both editorial and otherwise, about the selfish, wrong,and out of touch nature of these baubles and balls. And I get it, it can be decidedly unpleasant to watch Marie Antoinette eat cake. But this isn't pre-Glorious Revolution France, and the coffers weren't emptied by greedy royalty while the peasants stood helpless. America is a capitalist country, historically believing in the invisible hand and the economic benefit of self interest. The best thing about these beliefs is that they just might work.
The government's desire to provide its constituents home ownership resulted in Fanny May and Freddy Mac and oversize balloon mortgages. The "hockey moms" and "Joe Six Packs" wanting mcmansions they could ill afford led to their acceptance of loans that, even prima facie, seemed too good to be true, and bankers eager to rise from first years to managing directors in record time cheerfully bought, bundled, and resold the debt all in time to collect 150% bonuses and a penthouse designed by Armani. Everyone's guilty, but as Shakespeare once penned, "some will be pardoned and some will be punished", and in the court of public opinion, it seems that a high net worth endangers one to immediate suspicion of greater wrong doing. Are the bankers more to blame because they have 6 figure bonuses in the bank to pad their severance packages? Are foreclosed upon home owners blameless now that they have to choose between new shoes and their heating bill? Should Franny and Freddy be forgotten and forgiven since they've been dissolved anyway? Why is it that not being a complete loser makes you the enemy?
We need the spending. The dressmakers and hair dressers and waiters and chauffeurs hired for that "elitist" deb ball earned a paycheck and given that it was the holiday season, it seems likely to extrapolate that at least a little of that money went into retail registers. That's how a stimulus works. That's how capitalism works. People want things so they earn money to spend money to procure them. The refrain is often "why don't the rich just donate their money", and while charity is important(and a portion of the much vaunted deb ball's proceeds did go to just that), its not a sustainable profit model. If the rich donate they bolster a family or cause temporarily, but when they spend regularly and lavishly they're keeping businesses open and people employed because of their own self interest and those people will do the same, perpetuating a cycle known as a "growing economy". So next time a celebrity drives off the lot in a new Range Rover or a socialite sails out of J. Mendel with a sable, remember that their unnecessary excess is exactly what the crippled global markets need. When even Paris Hilton has to wear an outfit twice, that's when we'll know we're in a depression.