The Lower Edge of Luxury

We are NOT all in this together.

Pat and Ron Eastman, who live near San Jose, California, bought a 2007 Maserati Quattroporte sedan in February for $108,000, replacing a Mercedes S-Class 

“This car is basically for play,” said Pat Eastman, a 56- year-old money manager. “It handles beautifully.” Her husband, Ron, a 58-year-old venture capitalist, … (Bloomberg)

Worldwide last year Maserati sales rose 33%.  In the US sales rose 48%.  In 2009 sales has dropped 49% An almost perfect bounce-back – for someone,  But was it you? Are you one of the saved brother?

Sales of the Toyota Lexus in America fell 30% in June, down 15% for the year.

“When times get tougher, they are losing people at the lower edge of luxury,” said Jim Hall, automotive product analyst at 2953 Analytics in Birmingham, Michigan, referring to Lexus. Those cars start at $31,000.

But wait, aren’t ‘we’ having a recovery? The “lower edge of luxury”  –  one of those chillingly perfect phrases. So much unintended truth.   And beneath that ‘lower edge’ in the other world:

The financial manager of the Detroit Public Schools, Robert Bobb, has submitted a proposal to close half of all the schools in the city. His plan envisions class sizes of up to 62 students in the remaining schools.

While the City of Camden in New Jersey, which if you have never been there (I have) is a desperate place,  was forced, to fire 163 policemen leaving only 202 to police one of the most violent cities in America. Why was this insane step taken? Due to budget cuts from non-existent tax revenue.  The same article tells us,

The state of New Jersey is in such bad shape that they still are facing a $10 billion budget deficit for this year even after cutting a billion dollars from the education budget and laying off thousands of teachers.

And so while the wealthy toast ‘the recovery’ in their brand new Maseratis a whole city of people born just the wrong side of the lower edge of luxury are divided from those destined to recover and will bring their children up in a city without police to protect them or teachers to teach them.  But the recovery will go from strength to strength.

In Detroit it is worse. The Mayor Dave Bing wants to completely cut off 20 percent of the city from police and rubbish collection services in order to save money.

What happened?  Where did all the wealth go? Well in another Bloomberg article entitled, “Rich Americans Raise Consumer Spending With Little Help From Middle Class” we are told,

Sales are up at Tiffany & Co. and Coach Inc., buoyed by demand for $6,000 diamond pendants and $1,200 leather handbags as a stock-market surge pads the wallets of the wealthy.

Now imagine if Congress hadn’t forced through the extension of President Bush’s tax cuts for the wealthy?  There would have been no  ‘Rebound in Consumer Spending’ and no headlines to convince us there was.  There truth is there is 9.4% unemployment, 6 million of whom have been unable to find work for over six months, 1.5 million of whom have been out of work for two years or more and house prices are still falling.

But no matter.  You see we can hide the utter poverty of 20%, one fifth, of the great nation of America, who between them feed their children on 3.4% of the income earned in America by averaging it into and thereby covering it over, with the fact that another fifth of America, the golden 20%,  earn 49% of all the income.

In fact it gets better for the wealthy.

 At the top, the wealthiest 5 percent of Americans, who earn more than $180,000, added slightly to their annual incomes last year, 

And according to Amex, those richest Americans are buying for fun on their Amex cards back at the rate of 2008.

While the families at the $50,000 median level slipped lower.

And those at the bottom, well we don’t have to look at them do we?  Because our wonderful system is built in such a way that we need never recognize they are even there. They live in places we don’t drive through.

In our wonderful, recovering system, each of us, whether we like it or not, stands on those a little less fotunate.  Each of us may feel sorry for those below us, but we push them down, out of fear that if we don’t they might struggle  above us and push us and our children down.  And we all know that at the bottom, if anyone were to look, those at the very bottom are in fact standing on the faces of forgotten people.  We all know they are there.

But as long as we don’t allow questions and no one is encouraged to dig too deeply beneath the thin, brittle lies, then we can just talk about ‘the consumer’ and ‘the recovery’. We can talk about consumer spending without distinguishing who is buying and allow a few Maseratis and Tiffany bracelets to obscure the fact that 43 MILLION Americans are so poor they rely on food stamps to feed their families.

The recovery of the rich is not reported for what it is. It is blared at us as the proof that the bail out plan – the plan of giving to the banks all the money we might have wanted to save to help cities weather this storm and keep services going – is working.  It must be working because ‘the consumer’ is spending again.

43 thoughts on “The Lower Edge of Luxury”

  1. There's a new TV show here in the US called The Cape, on NBC. It's not much of a show, but I fear one aspect of it will be prophetic — after an engineered local police/terrorist emergency, the city contracted with Blackwater-like "security" company to provide private policing for the city. Which is the logical end of the budget cutting, to privatize every last state, city & community service, providing a never-ending revenue stream, all presented to us as necessary & "the right thing to do." It's a beautiful plan, in it's own way.

  2. Golem XIV - Thoughts

    dah_sab,

    I think, as you do, that the complete privatization of what were once public services is the end point neo-liberals and free marketeers see as both innevitable and desirable.

    What they could not quite achieve through the ballot box they are going to achieve with the help of 'emergency measures'.

    Oh what a lovely crisis.

  3. Hey DM: Just discovered you on the Max K show. Excellent, ballsy, well-articulated spot. Gotta check out your book, too.
    Any chance that you might be appearing here in London for a conference where the public can attend to hear more about these criminal issues that will impact us (& our offspring)? Yes, we have to keep talking about these issues to each other. Any suggestions are appreciated. Keep on rocking, Teri

  4. forensicstatistician

    Steve Keen has written an excellent piece today on the tragedy of the modern economic dogma:

    http://www.debtdeflation.com/blogs/2011/01/21/how-i-learnt-to-stop-worrying-and-love-the-bank/

    "I include financial sector debt in my analysis for two reasons:

    1) The initial borrowing by the shadow banking sector from the banks creates both money and debt;

    2) The money onlent by the shadow banking sector to other sectors of the economy creates debt to the shadow banking sector, but not money

    I frequently get the argument that debt within the financial sector can be netted out to zero, but I think this ignores those two factors above: the creation of additional debt-backed money by the initial loan, and the creation of further debt to the financial sector—most of which has been used to fund asset bubbles rather than productive investment."

    Therefore extending credit is just a means of handing over ownership of our and nature's assets and means of production to a financial oligarchy.

    The modern obsession with Credit is merely the means for facilitating a Neo Feudalistic debt peonage for all but the uber-wealthy.

  5. Golem XIV - Thoughts

    Forensicstatistician,

    Agree with your analysis. Especially the observation about debt back to the financial sector. That reciprochal debt is exactly how the financial sector leverages its debt into more debt.

    I will read the link you suggest.

    teri and William,

    thank you both. Glad you liked it. I felt it was a very generous interview on Max's part.

    I think it is liekly I will be down in London leading a few discussions 18,19,20 of Feb. I would love to use the trip to also meet and talk with those of you who live in the London area.

    Shall we see what we can arrange?

  6. Yes. It would be great to meet you (and William, too).

    How do we do this? Do you have an email that we could send to with contact details?
    Thanks so much, Teri

  7. Golem XIV - Thoughts

    Teri,

    I do have an email. Look under my profile, it's there. Drop me a line any time. It would be great to arrange something.

  8. DespairingLiberal

    Excellent article.

    The huge disconnect between the mass indebted and the new super-rich overclass is just as intense here in the UK, complete with the programme to declare all public services as "broken" and "unaffordable" and hive them off to private corporations who will provide them less well for a higher cost. Those "private" corporations have in many cases directly gained from rigged public sector contracts twisted heavily in their favour. A good example is Branson's Virgin empire, which will be moving into the health sector. His daughter will be running it – she has recently gained a £4.5m house in Holland Park free and gratis to soften the blow of all that hard work.

    One thing does strike me – it would in fact be quite easy for a relatively small number of determined and organised people to close down London's global financial debt machine. This operates from Canary Wharf. Canary Wharf is almost custom-designed to be easily cut off. It has two narrow drive-in entrances and one narrow shopping centre tube exit. About a couple of hundred people and some large vehicles could completely shut down the British end of the global milking machine and prevent Bob Diamond from making his daily million.

  9. Golem XIV - Thoughts

    Hello DespairingLiberal,

    Glad it spoke to you.

    I agree that aparent the desire to declare as broken and unaffordable the entire public sector from health to education to policing is hardly short of sinister.

    Flash mobs can do a lot within the law. Look out for 24k on this site. He has similar thoughts.

  10. This post is just for numbers so you know we are out there. (Oops, sorry for the Matrix-style phrase). I say just for numbers because all who read this blog are on the same page, no pun intended. The day a dissident shows up here is the day to shut it down and pop up somewhere else.
    I went to forensicstatician's link but it only proves that we are all playing a game of which only a few know the rules.
    History is being rewritten. A new feudalism is rising. Bankers are today's warlords. Short of chopping off a few heads I really can't see it being stopped. Food stamps will cheaper when the world has become Monsanto's garden. Without hungry bellies there will be no change.

  11. forensicstatistician

    Golem,

    You are very welcome. Count me in on a London meet too. I'll drop you an email later today to register interest and find out more details.

    Re: flash mobs, I had a thought the other day about a mass of people dressed up as Zombies (using rolls of soft, strong and very long Andrex) descending on Canary Wharf. To prove the point that the banks are the walking dead and insolvent (anti-cuts demos completely miss the point). Maybe a few vampires in there too!

  12. Golem, the data you highlight checks out with data from the hotel industry and from the luxury industry (i.e. LVMH or Tiffany).

    But, once again, this is the logical ramification of debt based fiat money where as the system evolves, the spread of profits gradually concentrates in fewer and fewer sectors till it concentrates in the finance sector and, ultimately, it concentrates in the primary dealers.

    Has anybody noticed who's paying out juicy bonuses as of late?

    You, myself and everyone else can put a stop to this and we don't even need to get out the pitchforks.

    The question is, are we, as a society, ready to pay the price of freedom? Are we ready to go out and close those lines of credit that may result in having to sell our funky 4×4? Are we prepared to close that mortgage that may mean having to sell our house? Are we prepared to retrench to a more basic life style?

    I'd say most of us are not.

    Most of us will just hold off doing anything sensible because there is always the hope that things will turn out ok. At the point at which students and activists will be carted away if not shot by the riot police, most of us will still bend over backwards to retain what we consider the necessities of our life style. And if that means that the banks will retain the power to ride roughshod on the political system trampling those that are too blind or, worse, too selfish to want to do something about our loss of freedom then so be it. Better live 100 days as a mouse than 1 day as a lion.

    And yet. Our leaders are about to trash our life style anyway; what's left of it that is.

    Our choice today is to voluntarily curtail our life style and help overthrow the banks or sit tight, plod along and allow the banks to ransack and pillage our wealth and then throw us into a global conflict.

  13. I'm based in Brussels (a lobbyist) and do a lot of work with the Parliament on mainly consumer affairs issues. I think it would be great if an MEP (someone like Joe Higgins) would invite you over for a public hearing on the financial crisis. Give you the kind of platform your message deserves.

  14. forensicstatistician

    Here's something that might be up your street, David:

    http://www.newscientist.com/article/mg20927962.000-the-economic-jungle-how-ecologists-could-save-banking.html

    I've not read the article yet, but may pick up a copy on the way home tonight.

    I have read a few other articles by Andy Haldane of the BoE (I thoroughly recommend "Banking on the State") and I must say he seems to be one of the few within the establishment that actually "gets it".

    Does he now "get" the Mathematics of chaos?

  15. @ DespairingLiberal

    Why am I not surprised to hear that Branson is planning to rip of the NHS?

    Oh yes, I remember now. His Virgin West Coast rail franchise took a huge bung from the public (in the hundreds of millions) even though as Simon Jenkins – a former board member of BR – pointed out in "Thatcher and her Sons" it would have been vastly profitable had it remained in the public sector with the traffic levels it was getting.

    I want to scream.

  16. Golem XIV - Thoughts

    Bastiat1

    It would be wonderful to get a hearing in Europe. You let me know what I need to do and I'll do it.

    Glad to hear from you. I look forward to getting your take on events. Hope you'll comment now and then.

    Gordon

    Me too!

    Forensic,

    Now that DOES look interesting. And right up my street. Thank you.

  17. @ forensicstatistician

    Haldane is definitely one of the good guys who, as you say, 'gets it'.

    He published a must-read paper last year which analyses the value of the banking sector and concludes, inter alia, that even before the crisis the level of public subsidy to the TBTF banks via the access to lower interest rates that they enjoyed because of the implicit public subsidy was roughly equal to their collective profit. In other words, the industry was operating at breakeven in the good years – never mind the bad.

    http://www.bis.org/review/r100406d.pdf

    I think some others at senior levels in the BoE etc 'get it', but my worry is that the important decisions will be made way above their pay grade, driven by the immense power of the banking lobby who will stop at nothing to preserve their position. That is why grass roots politics matters; we must find ways to hold politicians' feet to the fire.

  18. I'm in London and would be very much into meeting up in Feb.

    @Gordon I didnt realise Branson got hundreds of millions towards his west coast franchise, I feel like I've been asleep for years!

    Branson is all about image – I saw him at the London Marathon last year and the public adore him.

  19. The question is, are we, as a society, ready to pay the price of freedom?

    Without hungry bellies there will be no change.

    That's what says to me that any significant change in the western world is to happen gradually, rather than suddenly. And by gradually I mean not w/in our lifetimes.

    I wish I could believe differently, but the fact is that a revolution (or whatever non-scary word you want to call it,) a large, long-term uprising which permanently changes the way society is organized, usually only happens when people have nothing left to lose.

    While there are significant numbers of people in that position now, it's nowhere near a majority, as it takes a long while for the middle class to all slip into day-to-day subsistence, the kind where one person is working a menial job to support 5 or more household members (just to make up a definition off the top of my head.)

    And then we must take into account the large numbers of people falling out of the middle class who still subscribe to the propaganda that tells them financial failure is a personal failure, one that can be remedied merely by hard work, not a result of neoliberal government policies. It's a long, slow road ahead of us, probably with a 2 steps forward, 1 step back kind of progress, once we've hit rock bottom.

    And while we may be tempted to wish for rock bottom to arrive ASAP, that's a terrible thing to hope for as it means more misery for more people. Try telling some people that they must be sacrificed now for the greater good later.

  20. I found the Virgin West Coast reference now. It's on page 263 of the hardback edition and reads as follows.

    "Virgin contracted to receive a guaranteed subsidy of £400 million over two years on the West Coast Mainline alone. It had been profitable under BR."

  21. HA HA, while I've been other wise engaged you dudes have upped the anti.

    G, If all the protests were as crisp and clear as your argument on MK I don't think it would take that long.
    While away everybody mostly did the stare when i started up but one stranger in a pub was like a preset FM station, and the truth is that nobody has told any of the others anything NEAR the truth yet.

    I can't wait for financial halloween, I thought it would be a laugh spending a saturday hanging outside a zombie bank as a zombie but a day out to have a flash halloween fate in Canary Wharf and meeting up with the rest of Dad's Army sounds like much more fun. Rich you won't need much make up, just a ripped shirt 🙂

    I assume that's what you meant anyway, it would be awful all meeting up and doing an impersonation of a line of sparrows.

    DespairingLiberal, Barry Soetoro said it best.

    Yes We Can.

    What day is best for everybody? 17th, 18th, or 19th?
    I know it's like the comedian in a comedy club talking to you, "What me?".

  22. Somewhat OT, but relevant to business in socialist-ish countries. The number of business startups in Norway are among the highest in the world, despite 50% income tax rate (not to mention payroll taxes of 25%.)

    We probably won't see this on ABC Nightly News or BBC News at Ten.

  23. There is a website for flash mobbing, it would be a sight to see. I'm not sure about blocking roads with vehicles as it could be seen in a negative way.

    I have the honour of being a chinese lion (not dragon) on chinese new year. When we bless shops they hang a lettuce outside and we turn up with a big drum, cymbals, gong, buddah and massive flags. We make a lot of noise scare away the evil spirits, eat the lettuce and then go. Apart from the odd child that we scare to the very core of their being anybody that walks past enjoys it and their minds are open. I think protest should have a similar energy. So it can insert the message in the open mind.

    But what do I know? My expertise is in exorcism.

  24. Caught the very tail end of a piece on (UK radio programme) Today this morning on the gulf between uber rich and the rest. Did anyone hear it?

  25. I am living just above survival line in small former mining village.

    Detroit is being reconstructed across thousands of small communities – we are very much out of sight and out of mind.
    Current diliemma – one among many – is to help people to stretch tiny incomes, some benefits, some minimum wage.

    Our nearest bank is over 12 miles away. To draw money in local shop 'cash point' costs £1.87 per transaction. Cost of basic food stuffs such as sugar or a tin of peas is anything between 33 and 50% higher than in supermarket – again over 12 miles away.

    Orgainised shopping trips to supermarket would save money for families but would close village shop – depriving community of one more facility and put another self sufficient family on benefits.

    We can see Detroit, note its decay. Small communities are invisible but probably overall house more people than a dying city.

    What do we do ?

  26. Leni
    Have you considered a well organised cash and barter local economy and small cooperative.20% VAT saving right away on services.

    I noticed an article in the Guardian that might interest the blog followers here.

    http://www.guardian.co.uk/business/2011/jan/22/banking-commission-will-consider-breaking-up-biggest-banks

    Thanks to the blog, and the comment posters. Some interesting and insightful material here.

    ps is there a way to create a link. I couldn't find a way but I notice others are managing so there must be some way.

  27. Macpuddock

    There are a couple of looking at possible scemes.

    The problem for places like Detroit and here is the small tax base.

    Like much of UK we have crumbling Victoria sewage and drainage systems.

    Constant fractures result in water cut offs and flooding.

    After 12 months of writing to council – who have responsibility for culverts, and water co re. sewerage I finally got a truthful answer – after much prevarication and buck passing.

    They admitted that the necessary capital outlay would not be matched by revenue from water rates collected in area.

    This is now a major problem for millions. There is little or no public or private investment into shrinking communities. The share holders demand profits, gvts. cry poverty and so the downward spiral continues and strengthens, pulling millions down with it.

  28. Thanks for the link to the HTML. I assumed there was some other way, similar to google.
    Here is another try to create the link
    Leni

    Not sure anywhere in UK equates to Detroit. i am in Ohio and have been through Detroit. I think the answer may be to re-discover the kinds of small, local organisations that existed in the past. Re-discover Community. There is a huge amount of self-help going on in the US. It is an aspect of the US that many in the UK are not very aware of.

  29. Hi David, interesting post and the comments as well.

    The MSM has a lot to answer for in not speaking the facts. I fear we will let the anger vent harmlessly unless direct action is taken. As mentioned on this thread though, people have a comfortable life and will cling on to what they know and will only rebel when things get dire. I'm as guilty of this as anyone, I am fortunate to be in work (at my age – late 50s – and with a disability as well), I have a house (paid for) family so I cannot be anywhere near the lower rungs that a lot of folk have to eke out an existence. However, I do know what it is like to be out of work for over a year, desperate to get a job but no joy.

    Keep up the good work and I hope to attend any London meet you arrange.

  30. Hi Leni

    Detroit has desperate problems not experienced by any city / town in the UK. It is in danger of becoming like many of the ghost towns that litter the USA, the victims of economic downfalls and declining populations – see HERE.

    Non-USA citizens (like me) are astonished at what is happening in America today, a nation that is supposedly one of the richest in the world and a model for freedom and democracy.

    John Steinbeck wasn't kind about banks in his novel 'The Grapes of Wrath', but he did show the pioneering spirit of downtrodden Americans in a very good light.
    How long before we see economic migrants in the USA? … or is it already happening?

    It seems to me that the only way out of the municipality funding crisis is to amalgamate cities or have fewer of them. The latter option occurs by attrition when citizens vote with their feet.

  31. Hi 24K

    The cheesy pineapple thingies are ready now.

    I'm afraid your exorcism skills won't be much good against Vampire Squids, but if you can transfer you metalworking skills to wood we might be able to craft some pointy pointy stakes.

  32. Hi Golem,

    This is really the crux of the issue, isn't it? Once you get past all the financial alchemy, exotic derviatives, CDOs, CDSs, POMOs, Bond Yields and SIVs what you're left with is the tangible, clearly identifiable effect that the crisis is having on our lives. You start to see it for what it really was: a giant tornado sucking wealth up from the ordinary man in order to redistibute it among the richest 2%.
    This is becoming more and more apparent by the day as more and more essential services are taken away from those who can't afford to pay for a private company to deliver them. It's going to increasingly create anger and frustration and if we're not careful, as you've said, the elites will use that anger to turn us against each other.
    I'm so glad to see your interview on the Kaiser report and to see RichGB's new blog. I hope the message keeps on gaining momentum.
    Keep on shouting it loud everyone.

  33. Fungus FitzJuggler III

    The enemy is not bankers. They merely are a symptom, execrable one at that!

    Those who desire the system are the problem, the half thinkers who fall for CON-sumerism? They empower bankers who clearly do not share their wealth except by passing loans to these hangers on before the rest of us. Banking, like a chain letter, becomes Ponzi finance once it passes into consumer hands. Banking can be useful if very restricted. The lobby and political system empowered this disruptive credit system. It damages indiscriminately but the wise can profit from it as they see it coming. Thuis the wise actually keep it going in order to get more support for those who wish to alter the world for the better. Hence the Rockefeller idea that unifying countries will cut corruption, waste and war? They have made so much that even their vestigial consciences are disturbed by the boom bust cycle, but they knoiw it is endemic to poor government. Perhaps they see some Confucianist future for one world government where banking will be restricted?

  34. Hi Rebecca,

    They started infiltrating protest movements in 84-85 and I doubt they've ever really stopped.
    Back then the military were brought in to help the police subdue the miners (though this is denied, many eyewitness accounts attest to the presence of soldiers driving vans or providing other logistical support). These days the police they use for protests are almost indistinguishable from soldiers in their get-up.
    I guess my point is that they're not scared. Not yet. They think they've got it covered. That the level of protest will never reach that which can't be easily contained by their hired thugs.
    I really hope that changes – which is why we need to keep spreading the word and get as many people out on the streets in March as possible. It's a real litmus test.

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