Turn on Vh1 in the middle of the day and there is a good chance you’ll catch a show showcasing how great it is to be rich. Some narrator with a smarmy English accent that drips with aristocracy discussing the opulent yachts, mansions, and shopping sprees of America’s rich and famous. Or perhaps you’ve seen the new DirectTV commercial with the rich Russian, choosing between two solid gold busts of himself, picking a diamond studded remote control off blocks of gold while sitting beside beautiful women, and then kissing his miniature pet zebra while laughing maniacally.
This is apparently what it means to be rich in America. Spending millions at the drop of a hat. Buying things that can’t even count as a whim, because they don’t even hold your attention long enough to be classified as such. Forget about being eco-friendly. The rich go green by spending stacks of money like its nothing.
Obviously, Mark DeCambre doesn’t watch Vh1.
In a recent article, Mark DeCambre, of the New York Post, compares the rich to squirrels hoarding their nuts away for winter, not free-wheeling spenders. According to DeCambre, the persona that the other 98% of American have given their wealthier counterparts is a complete fallacy. DeCambre, and the study by Mark Zandi he was referencing, came to the conclusion that tax cuts for the wealthy will do little to help the US economy. The study found that during the tax cuts between 2001 and 2003 the savings rate for the wealthiest Americans underwent a sharp rise.
Saving, according to DeCambre is a very bad thing for the wealthy to be doing. We need them buying oversized houses, putting new 3-D televisions in every bathroom, and frittering money away on miniature giraffes. I could have sworn liberals despised trickle down economic theories? Anywho, he argues that the wealthy are simply pointless if they aren’t stimulating the demand needed to get the economy back on track. Squirreling away nuts may mean they survive the winter, but what about the rest of us?
Such Keynesian arguments in favor of fiscal stimulus ignore the importance and necessity of saving. Saving, unless you’re stuffing money into a mattress, can also have a great impact on the economy. A saver can choose to either deposit it in a bank, which in turn will make it available for working capital for businesses, or can choose to invest it himself. And as Nobel winning economist Henry Hazlitt explained,
“When money is invested it is used to buy capital goods – houses or office buildings or factories or ships or motor trucks or machines. Any one of these projects puts as much money into circulation and gives as much employment as the same amount of money spent directly on consumption. “Saving,” in short, in the modern world, is only another form of spending .”
The value of this “saving” as “spending” reality can be seen in a modern example. Take Facebook for instance. Facebook became the multibillion dollar near-omnipresent entity that it is today largely due to a $500,000 investment made by a billionaire hedge fund manager. Facebook is now worth over $11 billion, it’s annual revenues are around $800 million, and it employees 1,400 people. Even that does not take into account the product tree that has grown from Facebook’s seed. Companies such as Zynga Game Network that began as Facebook applications and is now worth around $2.6 billion. All because the billionaire, Peter Thiel, decided to ignore the impulse to buy frivolities and save their money. As John Tamny, senior economic adviser to Toreador Trading, wrote in Forbes ,
“Facebook’s existence is the certain result of rich individuals choosing to delay their consumption, as opposed to spending current income on fancy cars and mansions. Absent Thiel’s willingness to “squirrel” away his earned income, Facebook, along with every other innovation would not be with us today. . .
Indeed, if the economic truth is acknowledged that entrepreneurs can’t be entrepreneurs without capital, we must then ask what is most economically stimulative: excessive purchases of houses, cars and yachts, or savings that will fund tomorrow’s jobs, cancer cures and software that will enable more efficient and profitable business operations?”
If that is not enough look at the rise of Google. Google received its first funding in 1998 when Andy Bechtolsheim, a cofounder of Sun Microsystems, contributed $100,000. Google’s initial public offering gave it a market capitalization of over $23b. Google now directly employs 21,805 people and had 2009 revenues of $23.651b, over $6.5b in profit, and is now worth over $153.4b.
The trick is to look beyond the very clear and immediate benefactors of frivolous spending. The maker’s of yachts, the builders of houses, etc., and to look at the less-clear benefits of saving – the start-ups that have the potential to hire thousands, the fledgling company that brings incredible innovation, or the undercapitalized entrepreneur who creates a billion dollar company. As Henry Hazlitt so perfectly stated, what we must do is get down to the “science of tracing the effects of some proposed or existing policy not only on some special interest in the short run, but on the general interest in the long run.”
If we can follow that principle, then the mirage that saving is somehow a bad thing fades away.
by Brandon Greife, Political Director and Justin Williams