Rebecca Stropoli in Chicago Booth Review:
In the early days of the coronavirus pandemic, Hollywood mogul David Geffen enraged many social media users when he posted a photo of his yacht, Rising Sun, on calm waters. “Isolated in the Grenadines avoiding the virus,” Geffen wrote on Instagram. “I’m hoping everybody is staying safe.”
The photo of billionaire life aboard a 454 ft., $590 million yacht inspired plenty of outrage, and even a parody song by singer John Mayer titled “Drone Shot of My Yacht.” As an example of conspicuous consumption, the post highlighted stark global inequalities in wealth and opportunity, and didn’t land well with the millions of people stuck at home in lockdown or risking their health and lives performing essential work.
But when it comes to wealth inequality, a billionaire’s yacht is a sideshow, says Chicago Booth’s Amir Sufi. After all, a yacht is rooted in the real economy. A good chunk of the money originally spent on the yacht went to pay workers and buy equipment, and had a multiplier effect as it circulated in the broader economy. The real problem could be that much of the money owned by billionaires and other wealthy people never makes it that far. “People get angry about seeing the rich consuming a lot,” Sufi says, “but that’s better than what they’re actually doing.”
What’s happening, he says, is that disparities in income and wealth have fueled ever more saving by the top 1 percent. But while many economists think more saving leads to productive investment, Sufi, Princeton’s Atif Mian, and Harvard’s Ludwig Straub make a different argument. They find that these savings are largely unproductive, being remade by the financial system into household and government debt. And their research outlines a cycle whereby the savings of the top 1 percent fuel the debt and dissavings of the lower 90 percent, which in turn leads to more savings at the top.
More here.