A week or so ago, Ross Clark, the eminently sane columnist who writes for the Spectator, defended globalisation and attacked what he sees as a growing hatred of rich people. We see it in the endless bleating about the supposed Evil of private equity and hedge funds, or of financial speculators generally. Much of the reason, I think, for this hatred, is not that the rich are so much better off in relative terms than the poor – the poor probably don’t have the time or the inclination to spend time hating the rich – but that the rich are a lot better off than the broad middle class. In my experience, many anti-globalistas are middle class intellectuals, not poor folk living in state subsidised housing. As it becomes more difficult for middle class folk, for example, to educate their offspring privately without going into massive debt, and to buy a house for the same reason, naturally the Man on the Clapam Omnibus – or his US version – gets a bit cheesed off if he sees City financiers buying swanky homes or sending children to nice schools with ease.
But this hatred of wealth is dangerous and it draws on economic illiteracy. To demonstrate a good case of such dunderheadedness, in the print version of the Spectator (16 June, page 26), is this letter from a Mr Edward Collier, of Cheltenham, a traditionally genteel spa town in the west of England famed for its posh girls’ school and a rather fine horse racing festival in March:
“Sir, In his article “Hatred of the rich is back in fashion” (9 June) Ross Clark wondered “What about the people who sew £10,000 handbags together – surely the more that the wealthy spend on their handbags, the more they earn?” Does he really believe that the sewers of hyper-handbags earn more than those who sew the mundane totes of everywoman? They’re sewn by the same people, for God’s sake, and for the same pathetic pittance.”
I could quote more from this character, but you get the idea of where he is coming from. So let’s spell it out for this Sage of Cheltenham: if more people spend money on luxury goods, which typically often require more intensive labour to produce, such as fine leather handbags or Breitling wristwatches, this increases the profits of the people who make these things, and in turn, increases the demand for the skilled labour required to make them, and hence, raises the real wages of the persons who make them, and so on. If a luxury leather handbag really does require no more skill to produce than a bag one could buy for a fiver, then presumably this letter writer might have a quarter of a decent point, but he does not. He merely asserts that the “same people” produce high-value goods as cheap ones, and uses this to dismiss the argument that when rich people spend their milions, it recycles wealth back into the economy.
In fact, even John Maynard Keynes’ argument of stimulating demand to encourage production presumably was based on the notion that if people spend money in the shops, it creates jobs, and therefore is a good thing. What this character seems to be saying is that no matter how much money rich folk spend on luxury goods, it makes no difference whatever to the people who make them. Apparently, the money never reaches the poor downtrodden producers, but ends up in a few capitalists’ pockets. But presumably, if more money is spent on goods than before, then, other things being equal, the prices of those goods will rise or output will have to be increased. To argue that none of this process filters through into the living standards of people is quite extraordinary.
Meanwhile, this story, if it is true, is not going to help the blood pressure of Mr Collier, I fear.
I am looking forward to this book by Ross Clark.
Each age generates its’ own swear-words! Our age has ‘R.I.C.H.’ and that other word ‘F.R.E.E.’. Any other four-letter words out there?
Several years ago, as part of a “soak the rich” tax philosophy, the US Congress passed a punitive excise tax on luxury boats. I believe it was 10% on anything over a certain amount, $50,000 or $100,000.
Since this is a fairly small industry, and also a small client base, the results of the tax were very clear cut, and happened rather quickly.
Several of the high-end boat makers went bankrupt or laid off most of their employees as orders were cancelled or didn’t happen at all. The orders went to Europe or Asia, as some comentators had predicted as soon as they heard about the tax bill, and the net return to the US treasury was negative, since not only weren’t the boats being ordered and paid for, but the employment taxes from numerous now unemployed boat workers disappeared.
So, as happens in way too many of these bright ideas, the end results were that the wealthy boat owners still got their boats, the foriegn boat makers made lots of extra money, several US companies went under, and a bunch of middle class boat building workers and artisans were thrown out of their jobs.
The last story I remember reading about this debacle, a little article tucked away on an inside page of the business section, was about the frantic efforts of the reps from the boat building states trying to repeal the tax, and arrange for low cost loans to re-start the ruined companies.
There was an article today about the Sarbanes-Oxley fiasco, and how much it has REALLY cost the US. That legal nightmare was the “fix” for the Enron accounting fuss, if you remember. Another success story right up there with the Smoot-Hawley tariff.
The reason politicians should stay out of the economy is because they are so abysmally misinformed and pathetically inept.
It’s not that capitalism is so perfect, nor that businessmen are so ethical and competent, it’s just that pols are so much, much worse, and all their alleged noble motives, which mostly aren’t anyway, just lead from one shipwreck to another.
That legal nightmare was the “fix” for the Enron accounting fuss…
Ironically, it was government interference in the economy that let Enron get as big as it did in the first place, via subsidies and competition-hampering regulations.
nick g.,
MINE. THe idea of property is fading away. A horrific radio discussion yesterday between representatives of the Ramblers Association, and the Country Land and Business Association [formerly Country Landowner’s Association, but “landowner” is an obscene word too], about the proposals for the entire seashore of the UK to be opened to the public, contained no allusion whatsoever to the idea that the state ought not to be able peremptorily to destroy property rights, that it is a bad thing that landowners are to lose their privacy, or that privacy is the essence of property. The landowners have given up defending themselves and are reduced to pleading for compensation from the taxpayer’s pocket.
Guy, you beat me to it. One of the next will be HOME, as we will be denied the right to alter, extend, heat, paint, arrange, smoke, eat, watch, read what we want to in our own home.
WORK will be subtler, seeing as it will be transformed into indentured servitude initially, then full blown slavery.
I suspect WORK is on its way to becoming foul language; the argument that selling expensive handbags creates jobs falls on deaf ears when all the listener wants to hear is how much he will receive as benefits for not working.
How much of this is due to a character flaw in the British and how much is down to Gordon Brown’s hard work in creating a client state I can’t say.
A question I have for the hate-the-rich crowd is this: what do you imagine the rich do with their money? Stuff their matresses with it? Burn it, just to spite the poor? Or do you think they employ people with it, invest it, and otherwise trickle it down into your savings accounts and pension funds?
The answer should be obvious; I just don’t think the left have the imagination to ask the question.
Rob Fisher,
“Trickle down” is one of those metaphors that conveys different things to different people. It may be intended by the economist originators to signify that the recirculation of funds is quiet and through multitudinous channels, but it was so entirely obvious to them that it was complete (the money has to go somewhere) that they never though to mention that.
To the anti-economists of the left “trickle down” is an enraging concept, because they read the same metaphor as the rest of the world dependent on a few drops escaping from the rich man’s full cup. They have never got used to the idea that wealth isn’t static accumulation (which is the other conceptual underpinning of the fixed-quantity fallacy). For them a security might as well be bars of enchanted gold – guarded of course by dragons that don’t need to eat or sleep.
I just got round to reading Clark’s article yesterday. What made me laugh out loud was his quote from some anti-Globalisation nut not only falling for the broken window fallacy but actually using it in relation to, yes, breaking windows! You couldn’t make it up.
Guy: that makes sense. It’s why it’s so exhausting to debate with them because you have to start from first principles.
This hatred of wealth is really a modern manifestation of merchantilism, the deluded economic theory that dominated the medieval and early modern world, which stated that there was a fixed amount of wealth and trade in the world, so one country or one person can only become rich by impoverishing other countries or people.
Adam Smith’s ‘Wealth of Nations’ of 1776 demolished this argument, and the subsequent prosperity of Britain, then the United States, and then the rest of the world can be put down directly to Adam Smith and his demonstration that the amount of wealth in the world was not fixed, and in the end Paul will be much richer in a free market that he ever could be by impoverishing Paul in a restrictive merchantilist world. In the free market, they can both prosper.
One of the factors leading to the French Revolution was the failure of its still-merchantilist economy, especially in competition with Britain’s newly-liberated one..
This hatred of wealth is really a modern manifestation of merchantilism, the deluded economic theory that dominated the medieval and early modern world, which stated that there was a fixed amount of wealth and trade in the world, so one country or one person can only become rich by impoverishing other countries or people.
Adam Smith’s ‘Wealth of Nations’ of 1776 demolished this argument, and the subsequent prosperity of Britain, then the United States, and then the rest of the world can be put down directly to Adam Smith and his demonstration that the amount of wealth in the world was not fixed, and in the end Paul will be much richer in a free market that he ever could be by impoverishing Paul in a restrictive merchantilist world. In the free market, they can both prosper.
One of the factors leading to the French Revolution was the failure of its still-merchantilist economy, especially in competition with Britain’s newly-liberated one..
I think you would find that people would hate the rich less if each generation started from zero. It’s hard to like or admire people like Lachlan Murdoch and Jamie Packer though. Murdoch’s father started a media empire from one run down rag in the sticks – but he just got born. Great effort son.
Your example about people resenting good schools might speak of more than you realise. When you have a system where the rich can reinforce their position for future generations of their own family constantly, this is not ‘freedom’ so much as it’s feudalism. Expensive schools and universities in particular, and any industry which does business on the “oh, I see you’re wearing the old school tie” basis, are systems which have precisely this effect and which actively prevent the hard working, capable individual from more humble origins from competing.
As for the foreign workers: you are kidding yourselves. In most cases a Gucci handbag is identical to a $20 handbag from a chemist in function and quality, and differs only in one respect, the branding/marketing of its very specific form. The differentiation is not in the manufacture, but in the design and the marketing, which are conveniently enough done by wealthy white men in New York, Paris and Milan. I will concede that a high quality watch is a different proposition, but that is more likely to be put together by a white man in Switzerland now, isn’t it?
An alternative question: why do we enforce health and safety and minimum wage laws in our countries, yet allow importation without penalty of goods from countries that do not meet those standards? Surely it’s not a cynical exploitation of workers in those countries? Surely not.
One might as well argue that resentment would be less if we all started living up in trees. All of us, to greater or lesser degrees, live on the accumulated wealth/culture/mores of the countries in which we live. If you mean that we should all start from the same equal station in life, it would destroy one of the major incentives to accumulate wealth – namely, creating something for one’s offspring. This has been a major driver of ambition down the ages, and also draws on the natural, and commendable, desire to provide for future generations.
It is also hard to like or admire someone who dismisses any achievements of a person on account of their having rich/influential parents. Inheriting wealth is one thing – making it grow and not screwing up is still a skill. Many families have screwed up.
Indeed, and I do not disagree, which is precisely why I favour giving all parents and children the freedoms to choose where they go to school, rather than the current Soviet-style system where schools choose pupils on the basis of some egalitarian/catchment area policy.
I don’t know about that; is it really true that people are held back by the old school tie syndrome: this may have been true in the 19th and for part of the 20th centuries, but not quite the same now.
The answer to the last question may be yes, but then if taxes are used to bash the rich, that would put those Swiss watchmakers out of business. Quite how that is supposed to be a good idea is a mystery. On certain “luxury” goods, it may be true that the main difference is the label, rather than the skill of manufacture (I am often bemused by such things), but if people pay a fortune for leather goods, that will pump money around the system, and it seems odd for the Cheltenham guy to imply that none of this money ends up in the pockets of the poor!
We don’t enforce them, or we impose massive tariff barriers to block imports from those naughty countries paying low real wages. I haven’t further time to point out the absurdity of enforcing Western levels of real wages on countries with lower productivity and less accumulation of human/physical capital. The best way to raise living standards in poor countries is to increase their productivity and hence the real value of their labour.
:… a high quality watch is a different proposition, but that is more likely to be put together by a white man in Switzerland now, isn’t it?.
Uh, no. It’s most likely to be put together by a (supposdly ‘yellow’) woman in China. (Where have you been for the last 30+ years?)
“An alternative question: why do we enforce health and safety and minimum wage laws in our countries, yet allow importation without penalty of goods from countries that do not meet those standards? Surely it’s not a cynical exploitation of workers in those countries? Surely not.”
An alternative alternative question: Suppose the health and safety and minimum wage laws in our countries were imposed upon developing countries?
Answer: they would be deprived of their main competitive advantage and they would cease to develop, resulting in increased poverty, unemployment, starvation, political instability, wars, etc., etc. (In some ways this is an exact description of the fundamental problem in the Arab World, where oil wealth has made possible the sort of regeme you suggest. Result? Almost universal poverty, unemployment, starvation, political instability, wars, etc., etc., )
Is that what you want?
If you spend £10,000 on a handbag that costs 50p to make then probably you need medical attention, not political criticism.
They say governments start wars to distract from economic failure; this lot are starting a class war. It’s not that Private Equity aren’t paying enough…it’s that we are all paying too much. Tax the rich so the govt can spend £3bn a year on management consultants?