Why Don't Rich People Buy More Yachts and Fewer Exotic Financial Products

At the end of a long essay on income inequality and underconsumption, Steve Randy Waldman considers the possibility of an economy driven entirely by yachts and personal trainers and finds luxury goods production has been disappointing: Paul Krugman argues that “you can have full employment based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs”. What about that? In theory it could happen, but there’s no evidence that it does happen in the world we actually live in. As we’ve seen, high income earners  dosave more than low income earners, and that is not merely an artifact of consumption smoothing. If the rich did consume in quantities proportionate with their share of income, we would expect the yacht and celebrity chef sectors to become increasingly important components of the national economy. They have not. I’ve squint...