How Inequality Hurts

Why Living Large Isn’t Easy Anymore

Over recent years, trickle-down economics has flopped miserably. Now that failure is trickling up — to the yacht-and-mansion crowd.

By Sam Pizzigati

Nearly three decades ago, packs of free marketeers gained governing power first in the UK, with Margaret Thatcher, and then in the United States, with Ronald Reagan. In quick order, the new prime minister and president clunked upon their countries a set of policies that would go by the shorthand of “trickle-down economics.”

The more society’s already prosperous prospered, the basic idea went, the better off everyone of modest means would eventually become. This trickle-down — for people on the lower rungs of the economic ladder — would turn out to be a colossal failure. And now that failure is finally trickling up, to the consternation of deep-pockets everywhere.

What’s the problem? Most deep-pockets need some help climbing the consumption ladder. Owners of big yachts, for instance, typically can’t graduate to the even bigger yachts they crave until they sell the yachts they already have. But today, in the midst of spreading global economic malaise, those yacht-owners aren’t finding buyers.

“We’re trying to sell a 94-footer," one yacht captain, operating as an agent for the boat’s wealthy owner, told the Megayacht News late last month. "The guys who would buy it need to sell their 80s and 70s. I’ve had several stand on my back deck and say ‘I’d buy it in a minute if I could sell mine.’”

Entry-level megayachts — boats that run up to $5 million — simply aren’t selling. And the same dynamic is beginning to show up in the mansion market. Mansion sales are slipping, Barrons reported last week.

“From Miami to Beverly Hills,” the business journal notes, “homes with bowling alleys, theaters, steam rooms, heated decks, six-bay garages, and other luxury must-haves are sitting on the market for at least twice as long as they did a year ago, and many sellers are doing what was, until recently, unthinkable: slashing prices.”

In Florida, Southern California, Phoenix, and Las Vegas, luxury home prices have fallen nearly 20 percent off their level a year ago. Barrons is blaming trickle-up. “Would-be buyers” of homes running $5 million plus have become “unable to get rid of their lower-priced digs.”

Those would-be buyers just don’t feel ready to buy. The meltdown of Bear Stearns and the financial sector has them spooked, probably too spooked to appreciate the irony behind their situation. The financial sector is melting because the basic trickle-down policies meant to enrich the rich — deregulation, tax cuts for the wealthy — have nurtured what extreme inequality always nurtures: social and economic instability that borders on chaos.

Deregulation turned the mortgage market into an anything-goes shell game. Tax cuts for the wealthy provided the cash that pumped up the housing industry’s historic speculative bubble. Now the shell game has ended, and the bubble has popped — and the resulting hard times are climbing the economic ladder.

But not all the way up. At the summit, at the level where households count assets in the hundreds, not tens, of millions, life is still going swimmingly. In elite Manhattan, for instance, sales of homes that cost over $10 million have more than quadrupled, from the first quarter of 2007 through the first quarter of 2008.

To make a luxury move up, these sales remind us, some rich simply don’t need to worry about selling off anything they already own. Take. For instance, Alisher Usmanov, the billionaire who just spent $96 million picking up an 11-acre, 168-year-old estate in north London that features eight bedroom suites, a three-bed guest bungalow, eight rooms of staff housing, a six-room pool house, and a two-bed gatehouse.

Usmanov, a natural gas kingpin, only figures to be a part-time Londoner. He still owns a 30-acre estate just outside Moscow, a villa in Sardinia, and a regal 300-acre rural English retreat that he bought for nearly $20 million four years ago.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies.

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