Sunday, October 21, 2007

Rich and Poor Multipliers Again

Earlier I asked about the multipliers for the consumption of rich and poor people. Let me be a little bit and more explicit. I would assume that rich people spend a lot more on personal services and expensive goods.

Expensive goods tend to have much higher markups. Remember Henry Ford II responding to the influx of Volkswagens observing that mini cars mean mini profits. Expensive branded goods have very high markups, meaning relatively few jobs per dollar of expenditure compared to the spending of the less affluent. Personal services are probably bimodal. Some professional work would probably mean relatively few jobs per dollar of expenditure; some less prestigious work might mean quite a few jobs per dollar of expenditure; for example, underpaid immigrant nannies. Any thoughts?


Anonymous said...

At the moment, only to agree that growing inequality has been a restructuring/redistributing of demand in such way as to further increase inequality.

Michael Perelman said...

As I mentioned before, The Confiscation of American Prosperity analyzes many other linkages between inequality and poor economic performance.

Myrtle Blackwood said...

Well, Henry Ford hit the nail on the head when he said that mini cars mean mini profits. An economy, in his view, is not about the satisfaction of needs but the maximisation of profits for a few.

Should we worry about what folks like him did with the dollars when they rolled in? Yes, I believe so.

Here's how my logic goes. Those in receipt of an entirely too generous supply of money then start to treat it, not as a means of exchange, but rather as a commodity that needs to be subject to constant increase. When money increases in quantity it appears to lose its ability to be (i) a means of exchange and (ii) a store of value.

So, greed causes problems for everyone in that it debases the currency. The drop in the value of money (inflation) then provides incentives to avoid environmental stewardship. Pressure exists in actually to step-up ALL forms of exploitation and abuse.

Human well-being is the *goal*, not a *side effect*, of social and economic life. This seems to be common sense. But few economists can subtract: no consensus exists on how to account for harms done to man or world, or to human potential discarded. How do we get beyond 'wealth' to understand 'value'?
Craig Hubley

YouNotSneaky! said...

"Any thoughts?"

Well, to get all neoclassical about it, what do you think the elasticity of intertemporal substitution is? Or how risk averse are people really?

Robert D Feinman said...

There seems to be some sort of moralistic impulse to denigrate the spending of the wealthy. This goes all the way back to Veblen.

One avenue is to try to apply economic arguments to show that such spending is not a "good thing". I've never seen a convincing set of conditions as to what sorts of spending are better then others that doesn't implicitly assume the answer. Which is "better" a million people spending a dollar for a cheap trinket or one person spending $1 million for an expensive bauble?

Perhaps the question is so difficult to answer because it's the wrong question. What we need to address is spending versus not spending. In the US we have enough wealth that we could provide a decent standard of living for everyone. The issue is not adequate funds, but poor distribution. In other parts of the world the situation is different and the steps needed will be different as well.

If the US redistributed the wealth so that everyone had an adequate standard we would still have more wealth than we need. Could we then adapt to a type of economy which consumes at a sustainable rate? What would the system look like? Capitalism/consumerism is based upon growth and spending. If growth was no longer a goal how would the economy be organized?

This isn't a fanciful issue, the world is running out of key resources and the US is one of the biggest consumers. This will have to change. It would be prudent to discuss options now rather than waiting until external forces make changes that are not optimal.

That no one is willing to address this is a sign that the challenges are still not being acknowledged. The rise in oil prices should be a warning, but so far it hasn't been enough.

I think the professional economists should be taking the lead. The discussions on the variations on the market economy are becoming increasingly irrelevant.

Anonymous said...


i pretty much agree with you. a comment i submitted asking about the social utility of economists seems to have gotten lost. apparently "know thyself" is no longer considered philosophically respectable.

but, and remember i agree with you, that redistribution of wealth thing: not only how to achieve it, but how far to go, and would the results really be desirable?

beyond a certain (high) standard of decency, which seems to depend more on the moral tone of society than actual income distribution, i am not sure that greater goods-consumption is good for people, poor or rich. but as long as the rich generate jobs for the poor by buying stupid luxuries i can't say a priori that uneven distribution of wealth is "bad."

what seems to be inevitibly bad is uneven distribution of power. and a culture that demands insane consumption.

Robert D Feinman said...

You have only shifted the question:
"as long as the rich generate jobs for the poor by buying stupid luxuries..."

Do we know that they create jobs? Perhaps it is just a case of job substitution.

If Bentley was closed down then the wealthy would buy cars from Ford. If mega mansions weren't available then the same construction crews could be building 10 normal sized homes instead.

There have been (and still are) many societies which are not governed by consumerism. Most have no choice since they are too poor, but an examination of their social and economic structure could still be useful. The Polynesian cultures before the entrance of the white man and Tibetan society before the Chinese are examples. Ritual and other non-materialistic pursuits played a big role. All we have is football and watching blond bimbos self-destruct. This doesn't seem like enough...

Anonymous said...

"what seems to be inevitibly bad is uneven distribution of power..."

That's the crux of the issue, as it is with virtually every other economic issue that is discussed on this blog and all others. We need go no further. We need no fanciful theories to suggest how best to structure our economy or any discrete aspect of the economy. Whether it be fair wages, equitable taxation, health care, or retirement, it is the distortion of political power stemming from a distortion of economic power that is the basic cause. Our's is a democracy, but the worst aspects of majority rule is inflammed by the distortion of power and wealth. Control of the media, purchasing political and legislative action are two immediately obvious aspects of the distortion that has grown up in this political economy. Until some change takes place along these lines all these discussions of what is best to do is just so much verbal diarreah. Sorry to be so blunt.

This AM NPR carried a "report" from a scholarly member of the Cato Institute. There was no disclosure of the fact that Cato is a hot bed of corporate zeal, with a board of directors straight out of the highest echelon of the business community. The report was disengenuous in the extrem, having to do with the public's dissatisfaction with free trade. It made clear that this dissatisfaction was ill conceived, and that we were all enjoying a far better standard of lilving than the third world countries whose citizens cry out for the benefits of free trade. It was pathetic in the biased nature of its rhetoric and the obfuscation of the issue, but it was repoprted on NPR. What couold be more enlightening? A shameful performance, at best.

Anonymous said...

I need to add an additional point, or maybe it's just a reiteration to try to make the point perfectly clear. Wealth distribution is at an all time extreme, with the bulk of the income and added capital accumulation occuring at an extreme skew. Wage earners are facing a severe lack of representationin the government. Even the most "liberal" members of the legislative branch are at best centrists with a bias toward the wealthy. Free trade has become an assumption of goodness and prosperity. Nothing could be more absurd. The only thing free is the freedom to exploit and despoil, and corporations have given up any national allegiance in favor of their allegiance to wealth accumulation. While that is everyone's right to do, it is not the role of government to favor one class at the expense of the rest. That would be facism rather than democracy.

Anonymous said...



on the whole i agree, but i can't bring myself to envy the rich.

i'm just not sure an economy would work at all if everyone was like me: all i want is open spaces and free time.

Anonymous said...

Be careful of the manner in which you couch the debate. This has nothing to do with envy of the rich. It has everything to do with avaricious greed, the need of some to have more at the expense of many others.

Anonymous said...


yes. i have seen the greed. unfortunately i see it among both the rich and the poor.

and envy is just greed turned inside out. i can't brag about having no envy. it is a gift. but it is a gift i wish i could share.

i can offer that while i have no envy, i do not have no anger. The rich and the people they put in power are very careless about who they hurt.

It makes me very sorry to see that the loudest advocates of "revolution" are also very careless about who they hurt.

Not quite related to that, I can't convince myself, as someone upthread has, that forcing the rich not to build a beautiful home will "free resouces" to build many claptrap homes for the poor, and lead to more happiness for all.

I suggest we work on building quality modest homes for the poor, and let the rich take care of themselves.

Martin Langeland said...

"Which is "better" a million people spending a dollar for a cheap trinket or one person spending $1 million for an expensive bauble?"
Neither is better IF The million have a dollar and the one has a million.
The current problem of inequality appears to come from the one taking the million from the million with only $1.

ProGrowthLiberal said...

Under my post on this theme, Qrazyqat suggest spending by the rich is titled more towards imports than is spending by the poor. One of this implications of what you are saying would say the opposite.

Anonymous said...

I'm perplexed by your point of view. You have a focus, but your solutions seem unrelated. Langeland's response suggests the nature of the quandry. No one cares how the rich spend their money. The issue is not how it's spent. The issue is how is income and wealth distributed, and how does that distribution relate to fair labor practices and remuniration? If the rich have capital as their primary asset, workers have their labor. One is exchanged for another. If exploitation of one by the other becomes feature of the exchange then the exploited parties would be fools not to protest.

I happened to channel surf, last eveninig, to a broadcast of a congressional debate. The Rep at the podium was Sessions from Tx. I nearly puked at the level of disengenuousness that his comments portrayed. Unions were anti worker and the primary cause of every unsatisfactory business circumstance in the country today. That any working person could be stupid enough to have voted for the man is the greatest flaw in democratic government. Lord only knows what the basis of his popularity may have been.

No, violence is not a worthy process for the achievement of revolutionary goals. History, however, tells us only too well that for what ever the reason in societies wherein the distribution of wealth and income is grossly uneven, and the wealthy live better at the expense of the working class, then the tensions of the exploited class becomes explosive.

Anonymous said...


I am not surprised that you are perplexed, since you don't seem to have understood what I am trying to say (my fault).

We got into this discussion with the relative social utility of the rich spending vs the poor spending. I have tried to suggest that I don't think that is a useful issue.

And I agree with you that THE issue is how income is distributed, and especially about fair labor practices, and, yes, environmental practices. [the poor are usually the first to suffer from criminal environmental practices.]

The exploited parties in America theoretically have the Congress, the courts, and their unions as a means of protest. Sadly, that is only theoretical as there is a lot of criminality under color of law that goes on. This is the place I think we need to focus the fight. Not vague ideas about social justice or revolution. Sadly (again) our biggest enemies in this are the poor themselves who don't pay much attention as long as they are not actually starving.

And yes, I get pretty sick to my stomach when I listen to a Senator or recent President or Congressman.

I don't know that violence is in the cards... not before it is too late. The key, I think, is to convince the rich and powerful that they would be even more rich if they gave the poor a better deal.

I am sorry if this is a little less ambitious than Juan would like, but besides being more doable, my own experience with the poor is that they really are not ready to become the rulers, and would only substitute a new set of crooks worse than the old.

Anonymous said...

not so much less ambitious but reformist, with misunderstandings.

governments may govern but they do not dominate; they merely attempt to perpetuate those (social) relations most beneficial to the dominant class and do so even when doing so is
in the bigger picture not even beneficial to that now becoming transnationalized class. this whole process leads to the state taking a greater role, increasingly as a state for itself, and more rapid shifting into types of state capitalism which, it must be understood, stands against the transnational that it had helped give birth to, so creating still greater tensions, still less legitimacy, from which the tipping over or implosion and upfront choice to accept or reject barbarism.
there are no bloodless revolutions anymore than bloodless counter revolutions.

'the poor' is the working class but why should it, the only group creating the surplus value which 'the rich' depend on be poor. could it possibly have to do with the accepted, imagined reformable, social relations we are in and, having fully internalized, assist in perpetuating no matter the consequences.

the income, wealth and spending 'issue' is in no way disconnected from production and the max profit driven changing composition of capital and associated displacing from productive to unproductive, no way disconnected from one class' struggle to accumulate accumulate at any cost to what is now a world social formation and at any cost to planet. the capital system was, for a period, progressive...if nothing else, the decades of neoliberal killing should make clear that it has lived its life, has become completely reactionary and must be replaced, not reformed.

Anonymous said...


i probably agree with you more than you realize.

i have some doubts about the practicality of any revolution... especially a violent one. I think the New Deal amounted to as good a revolution as you are likely to get. and yes I know that FDR was only saving the ruling class from itself.

But the eroding of the New Deal tells me as much as I want to know about the capacity of the working class for self government. That and the fact that I have lived and worked among them for 65 years.

And while I am all for "sustainable" economies that don't destroy the earth, I have never seen any evidence that the working class would be any more careful than the present ruling class. Indeed your emphasis on sharing the wealth makes me beleive that what you want to do is to give the poor their fair share of raping the planet.

I have lived quite happily on approximately a "poverty line" income all of my life. Where I have not been happy it has been not for lack of money, but from injustice at the hands of the overseers, and stupidity in jobs, or the inability to get a job, or inability to find a decent place to live...

these don't seem to be quite the things you have in mind when you want to make the poor just like the rich.

as far as i can tell your "reforms" would just introduce South American style revolution and repression into the United States where, for the most part, we have avoided that. (andyes i know about US participation in the crimes in South America... why i look for something better than rhetoric for addressing the injustices.)