Monday, January 14, 2013

Do the Wealthy need the Middle Class?

Can the Wealthy, by Themselves, Sustain the Demand of an Economy?
Can the wealthy own too much?

Paul Krugman, back in 2008, could find:” … there’s no obvious reason why consumer demand can’t be sustained by the spending of the upper class — $200 dinners and luxury hotels create jobs, the same way that fast food dinners and Motel 6s do. “

What we are seeing today, with the combination of rising income inequality and  unemployment, is the inability of the wealthy to do this. They cannot, of themselves, provide enough demand to keep the economy at full employment.  We are also seeing it in Europe, with the economic damage inflicted by wide spread austerity.  After all, the wealthy, including many wealthy bondholders, are unable to sustain economic demand in the face of shrinking payrolls and public expenditures.

In order to sustain demand, the wealthy would have to spend almost as much as they earned, even as does much of the middle and lower class.  And they would have to spend it mostly on the productive economy, and not just on real estate and such.  That would just be the churning of existing assets, and add a minimum of jobs. And this production would necessarily involve the massive production of useless, or at least unused, artifacts. That is, this production would largely have to be economic waste. The wealthy already do the best they can to be wasteful, with their yachts and multiple mansions, luxury hotels and yes, $200 dinners, but they are already failing, and it is only going to get worse, as income becomes increasingly concentrated and mal-distributed.

Indeed, we can characterize wealth by the extravagance and wastefulness of its expenditures.  Since this extravagance represents an economic loss to the rest of the economy,  the greater the concentration of wealth and its expenditures, the greater the waste, and the poorer the economy. (So there is a tax multiplier not just on the quantity of wealth, but on the quality of its expenditures.)

The wealthy are actually poorer if they keep this wealth and income to themselves.  After all, they basically control the government, so all public goods are essentially already under their control. So the decline of infrastructure is a decline of their wealth. The only thing missing is the formal privatization of ownership. Thus the progression is not just the increased concentration of true wealth, although there is some of this, but the increased individuation of ownership of the assets of society. That is, the wealthy already hold in common the essential assets of society, including the so called public ones, if not formally then informally.  However, they seek to exploit these assets in a non-sustainable way, thus destroying the commons on which all depend.  

And because of the multiplier effect, the synergy of common effort having results greater than the sum of individual efforts, much of their own wealth depends on the perpetuation of this commons.

Consider what the rich already own.  The increased concentration of wealth can only constitute, collectively, an essential meanness among the wealthy, or, if you will, a meanness of the system, seeking to take from those who have much less, even what they have.  

We can suppose that everything is owned by the rich, and is just to service the rich.  It then comes down to how much the rich are willing to pay the help.  And the answer seems to be, among our current crop of wealthy, not much. They keep insisting on paying less. The fact is, with the economy in a shortfall of demand, even with the ability to pay more, our wealthy will not.

The further problem is that by depleting the middle class, they are also destroying the market required for  most of those individually owned assets to have a positive return.  After all, it is rich people who own fast food restaurants and Motel 6s, and from whose profits they buy their yachts. They will not profit if no one has the money for fast food restaurants, or Motel 6s. If we look at a ghetto, all of those ruined buildings were once owned by wealthy people, either for dwelling or for income.  If they cause the ghetto-ization of their world, they will not be the wealthier for it. 

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