By Kevin D. Williamson
Tuesday, January
18, 2022
Item A: A friend in Florida recently noted the very expensive new townhouses
that are going up in his neighborhood, new homes with a starting price of about
$20 million. How is that even possible? he wondered. Who
is buying these? Where do they come from? And why are they coming here? He
concluded that eventually he would no longer be able to comfortably afford to
live in the community where he has long resided. I listened with sympathy, even
though it was a little peculiar to hear a resident of Fisher Island — the
single-wealthiest community in the United States — complaining about gentrification.
Item B: Gentrification at the expense of the gentry is hardly limited to
private islands in the United States. Rich Londoners are finding it difficult
to afford London. In Zurich — which runs neck-and-neck with Hong Kong, Paris,
and Singapore for the title of world’s most-expensive city — they were a little
worried about becoming London, a city where the price of housing in the central
part of the city was driven to astronomical heights in large part by foreigners
(mostly from countries where politics is a lot more exciting than
it is in the United Kingdom) who were in effect using the properties as
depository banks, resulting in the odd situation of blocks of generally empty
flats where no one could afford to live. Londoners worried about being priced
out — as with Fisher Island, it was odd to hear the ladies and gentlemen of
Knightsbridge and Kensington complaining of gentrification, but, there it was.
Switzerland, being much smaller and therefore more sensitive to the flow of
fast foreign money, didn’t want to see that happen in Zurich and its other
major cities, so the Swiss passed a law that makes it very nearly impossible
for a foreigner, no matter how wealthy, to buy a home in Zurich, Geneva, or Basel.
And, playing against the exaggerated legend of Swiss financial secrecy, they
forbid purchasing a house in the name of a company, meaning that Russian
oligarchs and Chinese party bosses looking to sink their funds into a Swiss ski
chalet (foreigners can still buy properties in designated resort areas) will
have to explain where those funds came from, which might prove uncomfortable.
Thus the struggling homeowners of Zurich (median home price $3 million) were
protected from the dire threat of foreign money.
Item C: Many Americans are finding it difficult to buy a new car. The current
wait to buy a Toyota Tundra pickup truck in Southern California is between nine
months and 18 months. Some people who went onto waiting lists to buy 2021 cars
never got them — and won’t. Jeep Wranglers are as scarce as hens’ teeth: A
woman trading in a two-year-old Wrangler in Ohio over the summer was paid more
for the trade-in than the car had cost new. (That’s bad news if you want to buy
a Jeep, but great news if you want to sell one.) But do you know who is
fulfilling their orders? Rolls-Royce, Bentley, Porsche, and, for the most part,
BMW. As the Wall Street Journal explains, shortages of
computer chips and other components caused big automotive conglomerates
(Bentley and Porsche are Volkswagen products, Rolls-Royce is owned by BMW) to
prioritize their highest-margin automobiles over other products. (By the way,
if you are feeling like an underachiever, consider that the average age
of a Rolls-Royce buyer today is a youthful 43 years old.) Rolls-Royce had a
record year, in fact, selling 5,586 automobiles, half again as many as the
prior year. Where is that money coming from? A booming stock market and
cryptocurrency speculation, the Journal reports.
Item D: Supply-chain disruptions — ranging from complex global logistics
challenges to the simple lack of output at factories shuttered because of the
Covid-19 epidemic — have made it difficult to find many very different products
at very different points across the price spectrum: As noted here at National Review, one restaurant menu inspired mirthful attention by advertising chicken
wings at “Market Price,” a
designation more often seen with lobster or other more rarefied protein.
(I do not recall ever having seen anything
sold at “Market Price” at a
vegetarian restaurant, though it may happen.)
But one product that currently stands out
as extraordinarily difficult to find: the high-end wristwatches favored by the
sort of people who are driving up Rolls-Royce sales. Rolex boutiques are almost
entirely empty around the world, while the even more expensive brands have
waiting lists that range from the long to the indefinite, and only favored
customers can get on the waiting list. A couple of months ago, I walked past an
Audemars Piguet boutique that was for some reason paying for retail space and
staff in spite of the fact that the shop had not a single item for sale in it.
This is a place at which you could expect to pay $25,000 for a basic steel
watch (and well into the six figures for something more elevated), and the
inventory was gone. Other high-end makers (Patek, Vacheron Constantin, etc.)
are in similar situations. Who on earth is buying these? Some of it is tulip
mania: As new watches became more difficult to find, “flipping” timepieces
became more attractive (at the moment, a highly desirable Rolex Daytona sold at
the authorized-dealer’s price of $12,550 might go for $40,000 on the secondary
market), which led to speculators snatching up what inventory remained,
creating a kind of vicious circle. Some of it is that the fine Swiss watch is
the (relatively) poor man’s London flat: As one cynical Chinese businessman put
it, it is nice to have on your person at all times something that could
plausibly be traded for a flight to anywhere in the world, if it should come to
that. Some of it is just the same great sloshing torrent of gains accruing to
stock investors and financial speculators.
Item E: In October, somebody paid $2.33 million for a 1991 cask of Macallan
whiskey that came with a specially commissioned NFT — the digital tulip of our
time.
These news items, and others like them,
have the usual people making the usual complaints about the usual villains: the
world’s wealthy. Of course, now we call them “super-wealthy” or
“ultra-wealthy,” partly because almost everybody is so much wealthier than he
was a generation ago, partly because we are stupidly addicted to
pseudo-intensifiers (which is why so many presumably literate professional
writers insist on wrongly calling the center of something the “epicenter,” a
word that means — notice, now — “not the actual center”), and
partly because it is natural to mob politics that the smallest available
minority (say, the “1 percent”) is the preferred enemy of the People. If some
people are having a hard time of it, then it must be because some other people
are having a very good time of it — so the dumb thinking of our time goes.
We keep failing to learn the lesson of the
Battle of the Yacht Tax — one of the many lessons of the 1990s that we should
have taken to heart by now but have not.
Toward the end of his presidency, George
H. W. Bush did something that helped ensure that it was the end of his presidency:
cutting a budget deal with congressional Democrats that raised taxes in spite
of his famous 1988 pledge: “Read my lips: No new taxes!” One of the new taxes
instituted in 1990 was a 10-percent luxury tax on certain targeted rich-guy
(and rich-lady) indulgences such as yachts and furs. You can see the populist
argument: Why raise taxes on regular people who count on a paycheck
every two weeks, or cut spending that benefits them, when you could just make a
wildly expensive yacht a little more expensive? There were a couple of
errors baked into that tax-policy cake: One was the assumption that yacht
buyers are not very price-sensitive, but they are — price-sensitivity tends to
go along with the other qualities of mind that cause people to end up with enough
money to buy yachts and the like. The second error was completely ignoring the
supply side of the equation: Yes, the people who buy yachts are rich as
Croesus, but the people who make yachts aren’t — they are blue-collar workers
and craftsmen. Some of the people who sell yachts end up pretty rich, but most
of them are salesmen and managers with pretty ordinary incomes. And the luxury
tax on yachts pummeled their livelihoods. Overall boat sales fell by almost
half, and the sales of the big boats that would have produced big tax
liabilities fell by 80 percent. Thousands of jobs were lost, many of them in
the states of tax-the-rich Democrats such as Ben Cardin of Maryland, now a
senator but a member of the House at that time.
Just as Senator Elizabeth Warren wants to
pillage the rich except for the ones who make their money manufacturing
high-margin medical devices in Massachusetts, and Democrats at large want to
soak all the millionaires except the ones that have shockingly high
property-tax bills in San Francisco and Greenwich, Democrats who had supported
the yacht tax discovered the hard way that tax policy implicates everybody,
that taxes aimed at the rich hit ordinary workers and middle-class people
rather than just a few Thurston Howell III types.
In contrast, the sale of luxury goods is a
pretty effective way to transfer income from the wealthy to less-wealthy people
who manufacture, sell, maintain, design, market, ship, package, finance, and
insure the things they buy, from the well-off engineer in California who
designs the product to the hourly worker who hauls it up the stairs of the
buyer’s mansion. I recently spoke with the manager of a high-end watch
boutique, an immigrant who studied at the famous Ecole hôtelière de
Lausanne, which sounds pretty fancy but which is, in reality, the Harvard
of hospitality schools, a place where students learn to do the unglamorous work
behind the scenes in glamorous enterprises. Would that manager be better off if
there weren’t people willing and able to pay $50,000 for a watch? I would
imagine that selling $10 plastic watches at Walmart is more work and pays a
good deal less.
The silly thinking of class-war politics
is at odds with the fundamental facts: Boat-builders would be a lot worse off,
and certainly no better off, if confiscatory taxes prevented anybody from
becoming wealthy enough to buy a yacht. A lot of people with very modest
incomes would be desperately poor — or dependents — if we all started cleaning
our own houses and cutting our own grass like good egalitarians, if we all
started eating home-cooked beans instead of going out for the occasional ribeye
— or even wings at “Market Price.”
Today’s staple was yesterday’s luxury:
Jane Austen did not live in a cave, but she wrote at a time when beef was a
luxury or near-luxury often out of the reach of the poor, and now it is
something to be had on the McDonald’s dollar menu. How did that come to pass?
It is not as though some new kind of cow were invented in 1817 that solved the
problem of beef scarcity. The consumption enjoyed by wealthy people spurs
investment in the goods and services the wealthy demand, and markets are often
— though by no means always — pretty good at democratizing consumption. Some of
that is pretty straightforward manufacturing economics: producing the first
widget is pretty expensive but, once you have set up the widget factory,
producing the 10-millionth widget is radically less expensive. Research and
development targeted at high-margin products for the wealthy ends up enabling
consumption of the same goods by less-wealthy people, which is why damned few
Millennials have ever rolled down a car window, and no teenager today knows
what to do with a telephone that plugs into the wall and has a rotary dial.
Jamie Dimon may fly around on JPMorgan’s private jet, but J. P. Morgan himself
never hopped on an airplane for a three-day weekend in Las Vegas the way a lot
of ordinary schmucks can afford to do today. The glamorous connotations of the
term “jet set” may sound faintly ridiculous in a world in which Spirit Airlines
exists, but we have jet service for ordinary people because we had it for
wealthy people first. And if the wealthy in our time prefer to fly private,
that is about $5,000 an hour out of their pockets into the pockets of the
people who make that rarefied luxury possible.
The United States does not suffer from
having too many billionaires. If it suffers from anything, it is from having
too many poor people, which, for some reason, we insist on importing in
considerable numbers — and the Chamber of Commerce now proposes doubling immigration
to solve the “labor crisis.” I am not sure there is a labor crisis.
I am very sure that the labor market has changed in dramatic ways in the Covid-19
era, and that it is much more expensive to fill many kinds of jobs than it was
a few years ago. Some of that is organic and some of it the result of public
policy, including some not very intelligent public policy discouraging work.
(But refusing to police the border and declining to enforce
employment-eligibility rules are policy decisions, too. So is driving the
interest rates on regular savings accounts down to approximately 0.00 percent
while subsidizing the interest rates Oberlin graduates pay on their student
loans. I could go on.) If the changed economic landscape means that wages for
certain labor-intensive jobs goes up, even at the expense of business profits,
then nobody will be better pleased than I.
But it isn’t just Covid and extended unemployment
benefits: As many economists and business leaders have observed, firms looking
to reduce costs by substituting capital for labor (through automation and such)
already have gathered much of the low-hanging fruit, and workers, especially
those in service, are starting to discover that they are not as easily
replaceable by robots as some had imagined. DIY ordering on a touchscreen may
work just fine at a burger joint, but it is not going to fly in places with
white tablecloths and $60 entrees. Self-checkout is great for cranky
misanthropes who would pay 5 percent extra not to talk to a cashier at Home
Depot or Whole Foods (guilty!) but
the people at Neiman Marcus are going to want some human attention.
When it comes to transferring income from
capital to labor, a tight labor market is the best social-welfare program there
is.
In Closing
The treatment of Novak Djokovic enraged
Serbian nationalists, who have taken the great athlete as a mascot. But the
hero of Serbian nationalism is at last safe back at home — in Monte Carlo. Or
was it Marbella? Or Manhattan? Or Miami? These modern nationalists are damned
hard for a rootless cosmopolitan to keep up with.
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