Wall Street is the New Wal-Mart

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Matt Yglesias has an interesting notion today. He suggests that selling luxury goods to the wealthy is all well and good, but if you want to get truly rich you need to sell to a mass market. Think Henry Ford, Sam Walton, and Bill Gates. But what if you peer into the future and conclude that the middle class is going to be fairly stagnant while the rich are going to get ever richer and richer? What kind of mass market is there in goods for the rich? There are only so many yachts they can buy, after all.

Another of way saying this is that as the rich get richer, they spend a smaller and smaller share of their income on ordinary consumption. That leaves more and more money to be socked away as savings:

But rich people also don’t just “save” money in the way that middle class people do on a larger scale. They purchase large quantities of financial services. So to the extent that you anticipate income to be increasingly concentrated at the top, it makes more sense to go into selling financial services than into selling non-finance items. The people who get rich with non-financial enterprises (Bill Gates, the Walton family) are all selling to mass markets. Lots of people make a living selling luxury goods to the top 1 percent, but nobody becomes a billionaire that way. Unless they’re selling financial services.

As a corollary of sorts, I’d note that people have a tendency to do dumb things with money. That should come as no surprise. But when middle-class folks do dumb things, the consequences just aren’t that bad. The consequences might be bad for them, but on a macro level, the middle class just doesn’t have all that much money to do dumb stuff with. That’s because they spend most of their income on food, clothes, housing, gasoline, and so forth.

But rich people? When their money starts to pile up so high that it’s burning holes in their bespoke suits, they start doing dumb stuff on an epic scale. And Wall Street is there to cheerfully cater to their every dumb whim, and then toss in a few even dumber ones that they’d never thought of before. If you keep this up for a few years you get 2008. Social justice to the side, this is, in my mind, one of the key reasons why we should care about reducing income inequality. The middle class can more or less be trusted to do useful things with the bulk of its money. The rich can’t.

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