Thanks to the 1%! - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 23 December 2013
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Baltimore, Maryland

The Dow rose 40 points on Friday. Gold recovered 10 of the 40 bucks it lost the day before.

This week, a hush falls over Christendom. Office phones ring, with no one to answer them. Stockbrokers, waiting to score a few more commissions before the end of the year, give up and go home. The malls, flush with shoppers over the weekend, empty out.

But we continue our lonely vigil, watching over the world of money...wondering about it...dumbstruck by the complex majesty of it...

...and a little bummed out by the scammy fraud perpetrated by Fed economists.

Last week, friends and family tried to catch up with one another before the end of the year. Businesses took inventory. Partners spoke to one another for the first time in months, settling accounts for 2013 and trying to gauge the year ahead.

We were no exception.

First, we drove out of the city to look at a colleague's new house. The house is on farmland in one of the most attractive suburbs, just 15 minutes from the heart of Baltimore. It is a huge, rambling affair, built in the 1870s with a large wing for servants added in the 1920s. One of Baltimore's leading lawyers had owned it. His widow lived there until she died in her '90s.

Now, under a new owner, the house is about to get a major facelift. New wiring, new plumbing...walls torn down...a new master suite...an addition for utilities...a 4-car garage...a tool shed transformed into a 'man cave.' Our friend is not one to hold back. He lives large...no matter what the cost. The house already has more than 9,000 square feet of space. When he's finished, it will probably be over 10,000.

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"You are aware that this is going to cost a fortune," we said to the new owner.

"Yeah. But how much do you think it will cost to fix this place up?"

"Five million."

"Oh, and I'm going to tear up all the floors and put in radiant heat. And a new kitchen."

"Six million. This is crazy. It's a nice house. Why not just live in it as it is? All you really need to do is to put in a new bathroom. Okay, maybe a new kitchen. But why buy a nice old house just to tear it up?"

"You are such a penny-pincher. What is money for if you can't use it to build the house you want where you want it? I don't get any pleasure out of looking at my account balance. I'll get real pleasure for many years out of this house."

He had a point. He had made a fortune in the financial industry. What was he going to do with it? Hoard it? But for what?

"I don't mind spending money. It's fun. I'm not like Warren Buffett. And I'm not like you. I don't want to live in a simple house in Omaha all my life. And I don't care about creating a family legacy. I'm going to enjoy my money."

Our friend is an economist's dream. He consumes mightily. His consumption makes him happy. And it sets in motion hundreds of wheels that turn towards more getting and spending all over Baltimore, the US, and the world.

The Financial Times elaborates:

    Consumption is the purpose of economic activity and allows us to meet our material aspirations in the pursuit of happiness.

    The valid concern about household debt is therefore not that it is fuelling consumption, but that it might detract from future expenditure because, for prudent families, debt service gets in the way of other spending. The elderly and the dead, who realised their property assets, tend not to spend so much.

    Naturally, there are legitimate concerns about the sustainability of the recovery, but most are not related to consumption... Consumption growth is therefore necessary for the sustainable longer-term growth that people of a puritanical bent so desire. The alternative to the unexpected boost to consumption this year would have been much worse: continued stagnation, higher unemployment, lower incomes and worse public finances.

    So, as the year's end approaches, we should resist the puritan within all of us. Let us celebrate consumption this Christmas.
Our friend is doing his part. The marble for his new countertops will be cut in Italy...making employment for stonecutters and shippers.

Carpenters will spend months knocking together frames and staircases.

The work will begin next year. Heating and air-conditioning specialists, architects, wallpaper salesmen, decorators, roofers, electricians, plumbers, surveyors - all will find a little extra good cheer in their stockings for next Christmas.

Will they stop a moment and say a little prayer for the system that has brought them such bounty? Will they say thanks to the 1% -- the only ones with enough money to take on such big-spending projects?

Not likely. Instead, they will grouse about how little they got and hold the source of it in contempt.

But at least here at the Diary, we will raise a glass - or two - in honor of the spendthrifts who keep the wheels turning...and especially for a special little subsection of the 1%, those who provide a public good - sacrificing their own balance sheets for the benefit of the consumer economy.

Yes, they will be poorer - financially - but at least they will have nice houses to live in when the next crisis comes.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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1 Responses to "Thanks to the 1%!"

Kirandeep Atwal

Dec 25, 2013

There is saying, "Jisne Bhoga, usne tyaga". Most of the Gods in India belongs to royal family.

This is my personal observation that most of the educated rich people are very spiritual. Most of them have deep knowledge of Vedas and religion. Since they become so spiritual, they started living very ordinary life. I use to joke that if you see person with ordinary car and non branded clothes then, there is high probability that she/he might be super rich.

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