Monthly Archives: September 2014

Hiding your riches

Yesterday David Brooks recommended that the very wealthy should avoid excessive spending. (Actually this is  only one part of Brooks’ sermon and it is overall one of his better columns.) Today, in his blog, Paul Krugman had some fun with that idea and I enjoyed it  You might too, so here is what he said:

David Brooks is getting some ribbing for suggesting that the wealthy should “follow a code of seemliness”, by not living the lavish lifestyles they can afford. I don’t want to join in the jeering; instead, I want to talk a bit about the economics of flaunting your wealth (which was actually a topic I was working on before David’s last column).

The first thing to say is that expecting the rich not to flaunt their wealth is, of course, unrealistic. If your sense is that the rich were more restrained in the 50s and 60s, well, that’s because they weren’t nearly as rich either absolutely or relatively. The last time our society was as unequal as it is today, giant mansions and yachts were every bit as ostentatious as they are now — there’s a reason Mark Twain called it the Gilded Age.

Beyond that, for many of the rich flaunting is what it’s all about. Living in a 30,000 square foot house isn’t much nicer than living in a 5,000 square foot house; there are, I believe, people who can really appreciate a $350 bottle of wine, but most of the people buying such things wouldn’t notice if you substituted a $20 bottle, or maybe even a Trader Joe’s special. Even really fine clothing derives a lot of its utility to the wearer by the fact that other people can’t afford it. So it’s largely about display — which Thorstein Veblen could, of course, have told you.

So why go after this display, as opposed to taxing away some of the income? You could say that taxes reduce the incentive to get rich; but so would sumptuary laws, which would undermine the point of getting rich, and so, in fact, would a “code of seemliness”, which would again reduce the fun of flaunting it, which is a lot of what people want lots of money for.

Wait, there’s more. If you feel that it’s bad for society to have people flaunting their relative wealth, you have in effect accepted the view that great wealth imposes negative externalities on the rest of the population — which is an argument for progressive taxation that goes beyond the maximization of revenue.

And one more thing: think about what this says about economic growth. We have an economy that has become considerably richer since 1980, but with a large share of the gains going to people with very high incomes — people for whom the marginal utility of a dollar’s worth of spending is not only low, but comes largely from status competition, which is a zero-sum game. So a lot of our economic growth has simply been wasted, doing nothing but accelerating the pace of the upper-income rat race.

And now it’s time for me to make my seemly way to the office, on foot and mass transportation, where I will gloat in my moral superiority and sneer at people who haven’t won as many academic honors. Oh, wait.

Sex Differences

The Telegraph has an interesting article on on the genetic differences between men and women, based on a recent book by a developmental biologist.  Despite the objection of some feminists, it disagrees with the contention that all differences between the sexes is due to social conditioning. Many are, of course, but some are not. (Of course most of the presumed differences that were used to justify male dominance of women were nonsense, hence the reaction of some feminists.)

I once read a fascinating book by Robert McElvaine, Eve’s Seed: Biology, the Sexes, and the Course of History (2001). He argues that misperceptions about sexual difference and procreative power have, along with misleading sexual metaphors, been the major forces in human history.  The male sex does not fare too well in it. It has an interesting interpretation of the first chapter of Genesis.





Medicare Spending

Conservatives, in general, have shown a remarkable ability to avoid seeing the future. But they have been insisting for years that the Medicare and Social Security programs are going to break the bank years from now. Then, these people who cannot see the coming climate change a all, have insisted that the possibility of future danger requires that we take action NOW, to reduce the effectiveness of these two very successful government programs. (Their success has earned conservative hatred, because they know that government can do no right.)

It has been obvious for years that our health care system is highly inefficient and wasteful, so that the potential for reigning in Medicare costs has always been there, awaiting the political will to take action through governmental means. Surprisingly this seems to be happening to a degree. The NY Times this morning reports that Medicare costs per person covered have actually started to fall, rather than rise each year. Not enough to solve the long term problem, but a very significant step. More to come but that scary future trend seems already to be going way.

The incredible hysterical opposition to Obmacare by conservatives should remind us that Reagan and his fellow troglodytes were equally hysterically opposed to Medicare, which they similarly claimed would lead to the loss of our liberties. I’m too biased to seriously try to challenge my conclusion that conservatives are always wrong. (I know,that can’t really be true. Counter-examples?)