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Monday, March 4, 2024

The Dooh Nibor Economy (that’s “Robin Hood” backwards!)

 

As I'm doing some research, I come across some interesting things.

There's a great WSJ blog called  "The Wealth Report" by Robert Frank, who wrote an excellent book called "Richistan" in which he makes a case that the world's wealthy have essentially formed a shadow (let's call it virtual as it sounds nicer) nation "where the top 1% control $17T in wealth, have their own health care system (concierge doctors), travel system (private jets, destination clubs) and language. (”Who’s your household manager?”)."

As this chart shows, the US is cranking out multimillionaires at a record pace with super-rich (more than $10M) households doubling in the past decade.  What's scary is that doubling the amount of people who have more than $10M per household (from 300K to 600K) means there's $3,000,000,000,000 less available for the other 98% of the of the households as MONEY IS A COMMODITY and can only be possessed by one person OR another.

Another 5M households gathered up $1M of wealth for another $5T and our nation's 1,000 Billionaires added another Trillion desperately needed dollars to their household budgets to pay for, according to travel and liesure; Yacht Rentals, Villa Rentals, "Experimental Excursions", Luxury Cruises, Vacation Home Rentals, Spa Services.. (and have you seen the price of Cristal these days?).  The cost of the AVERAGE high net worth individual's summer spending on these luxury items was $1.2M.

 

Summer Activity Average Planned Spending
Yacht rentals $384,000
Redecorating $129,000
Villa rentals $106,000
Experiential excursions $103,000
Jewelry/watches $94,000
Luxury cruises $92,000
Charitable giving $82,000
Vacation-home rentals $82,000
Out-of-home spa services $61,000
Summer entertaining $56,000

 

While you hear a lot of talk of wealth creation for all, our M1 money supply (before the Fed stopped measuring it's out-of-control growth) was adding "just" $1Trillion a year to the global economy.  If the wealthy households gained $9T in value over the past 10 years, EVEN WITH THE FED MINTING AN AVERAGE OF $500B PER YEAR IN NEW MONEY, then the other $4,000,000,000,000 HAD to come out of the other 98% of US households.

investOne of the great tricks of our economy is that there are avenues of wealth creation that are available to those of us who are already rich that are denied to those of you who aren't.  Only 1% of a Prince and Associates survey of high net worth individuals between $5 and $10M invest in ETFs and only 17% invest in mutual funds, NONE of the investors with more than $20M in assets invested in mutual funds, which are the new "opiate for the masses" but that's a whole other article I will write!  76% of the super-rich (> $20M) invest in hedge funds (Ka-Ching for me!) and another 36% invest in my other enterprise, start-up companies privately and through venture capital firms (and you think I just choose these professions at random).

Obviously, if you have less than $1M in household income you are essentially prohibited from investing in hedge funds due to government restrictions aimed at keeping out the riff-raff protecting the small investor.  This game is rigged so that the bottom 90% are forced to put their money into "safe" investments that return 3-10% a year while the top 10% take that same money and roll it into investments that make over 20% per year.  Just ask a person with less than $500,000 in net worth (there's 295M of them in this country) how much money the dividend tax reduction saved them…

I'm not going to get into a doctoral thesis on the subject but here's a quick example of how the Dooh Nibor economy works:

  • Donald Trump (and no disrespect to The Donald as I love the guy, but he's a good example), one of our 1,000 Billionaires, spends $1.2B to put up 1,000 new condos in Manhattan.  He sells those condos for $2.2M each to 1,000 of our nation's 1.8M people who have $10M or more, pocketing an extra $1Bn for all his hard work. 

    • Since nice condos "only" cost $1M just 7 years ago, the poor multimillionaires must figure out how to come up with an extra 10% of their net worth in order to maintain the "Trump Lifestyle."  Let's say they earn $500K per year and need an extra 50K – doesn't seem like much does it?

      • They in turn raise the prices they charge to 1,000 of their clients (the 150M strong "middle class") by 10%.  These people are the doctors, lawyers, store owners, white collars, etc. that you do business with every day.

        • That forces the middle class, who can barely afford their lifestyle to pass that 10% on to each other, as well as the 120M Americans who have household incomes of less than $48,000 a year, many FAR less than that in the form of vital services they can't live without.

That's how your housekeeper, who spent $3.20 per gallon to fill up her tank in order to clean your house for $10 per hour, ends up paying for the Trump condo she's cleaning.  It's a nickel here and a dime there but when you pick the pockets of 270M people for "just" a quarter a dozen times a day that's $3 x 270M x 365 days = $295Bn a year.   Multiply this petty theft over a 10-year period and that's how you move $3T of our missing $4T from the poorhouse to the penthouse – Dooh Nibor!

All this would be fine if we were equally creating wealth among our lower classes but we are not.  In fact, the median hourly wage for American workers has declined 2% since 2003 after accounting for inflation.  Inflation has, in fact, outpaced income for workers earning up to $80,000 per year, (the bottom 90% of our country).  The top 1%, meanwhile, made "just" 8.7% of all income in 1996 but made 11.2% of it last year, a 28% increase for the decade or $325Bn a year extra going to 1M very happy households.

Should we (assuming you are lucky enough to be one of Mr. Trump's potential buyers) care?  For every one Robin Hood there was a very rich King and his whole court, the wealthy Sheriff of Nottingham and his crew…  even Maid Marion had her own maids – it's human nature, it's the way of the world, it's the natural order of things…

Or perhaps not.  Mr. Frank points out that Bill Gates said in his Harvard address (he is a proud drop-out) "Humanity’s greatest advances are not in its discoveries — but in how those discoveries are applied to reduce inequity.  Whether through democracy, strong public education, quality health care or broad economic opportunity — reducing inequity is the highest human achievement.”

Frank points out that Gates is carrying on in the very sensible tradition of John D. Rockefeller, the wealthiest man of his time, who turned philanthropic later in life in order to address the inequities he saw in the system.  A cynic may say that we (those of us who worry about the well being of the classes below us) are simply trying to escape the fate of the Romanovs, Louis XVI and countless others throughout history who found out there is not enough padding in your wallet to save you when your backs are pressed against the wall by an angry proletariat.

While it's true that there is a certain level of cost-effectiveness in keeping the poor in line (at some point you end up paying more for security guards than you can squeeze out of the angry mob in profits) and that America is the greatest country in history at placating the poor (all you need is a dollar and a dream!), at some point we should, like Gates, seek to lift our brethren off the floor.  It may be a long-range view but, as any chart watcher will tell you, it's good to consolidate your base at higher levels. 

Turning from Dooh Nibor to Robin Hood won't be easy.  Lifting the lower half of our society to new highs will take a huge effort and even some sacrifice on the part of the top 1%, but it will allow more of us who are close to the top to rise as well – and that's a good thing!

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