The Affluentialist

The Pew Research Center recently released some interesting yet controversial poll results about the African-American community. In it, Pew reports that “we see a widening gulf between the values of the middle class and poor blacks,” and goes on to state that 37% of African-Americans believe “blacks can no longer be thought of as a single race.”

This was enough to get Henry Louis Gates, who heads Harvard’s African American Studies program, to put out a widely published opinion letter entitled “Forty acres and a gap in wealth.” He decries the survey findings as a loss for the black community and a threat to its shared history as embodied by civil rights giants such as Frederick Douglass and Martin Luther King Jr. He quotes the following statistic from the report: “by a ratio of 2 to 1, blacks say that the values of poor and middle-class blacks have grown more dissimilar over the past decade.” He suggests that this trend is potentially dangerous to the cohesion of the African-American community

My own research into the nature of wealth and money suggests a more nuanced view of the Pew results.

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In a recent issue of New York magazine, dubbed “The Money Issue,” one of the most popular stories is titled The Catastrophist View, in which Peter Schiff, a brokerage president from Darien, Connecticut (and no relation to me), describes five threats to the U.S. economy that could send it into a “free fall.” One of those threats enumerated by Schiff, who goes by the nickname “Dr. Doom” on CNBC: “Consumers Run Out of Steam (and Take the Economy Down With Them).”

The article’s author, Duff MacDonald, writes, “70% of the [U.S. economy's] gross domestic product is accounted for by consumer spending.” What if, he posits, consumer spending is slowed down by rising interest rates and a troubled economy? He cites a recent study which points out that six in ten households have enough savings to last them three months if they were out of a job. A more nuanced explanation would take the air out of the coming catastrophe.
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“I’m not there, yet” says Janie Pryor when asked if she’s ready to eliminate her regular Botox treatments in an article titled, “The Latte Era Grinds Down” (Newsweek, Oct. 13, 2007). Written by Daniel Gross, the very astute observer of money and culture for venues including Slate.com and Wired, this article introduces us to affluent Americans like Pryor, an L.A.-based jewelry designer who claim that rising interest rates, falling real estate values, and higher gas prices have caused them to consider living a more frugal lifestyle.

From the latte lover who cut his daily coffee bill from $8 to $1 by buying his own espresso maker, to the couple who put their Dallas McMansion on the market because “I find myself going into rooms I haven’t been into in a couple of months,” this story paints a picture of economic hardship that would have been hard to believe a decade ago. We’ve become an affluent nation where the cutbacks from the heights of our spendthrift ways have reduced us to merely living very, very well.

While I don’t doubt there are well-to-do Americans who’ve been touched by the meltdown in housing values, it seems as though any efforts to rein in spending are more a matter of defensive lifestyle adjustments than any real experience of hardship, based on Gross’s account. Read the rest of this entry »

The Forbes 400 list of Richest Americans celebrated its 25th anniversary this year. When the list was first published in 1982, the bottom of the list could be yours for a mere $90 million. In the 2007 listing, it takes $1 billion to join the party. Staggering.

After you’ve perused through the pages of the magazine, you’ll feel like you’ve clinked Cristal with The Donald (net worth $3 billion) and wondered what 33-year old John Arnold (net worth $1.5 billion) has that you don’t have. Now that you’ve had your fun, join me back on terra firma as we walk through “everyday wealth.”
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Wall Street is all over the Fed rate cut like a cheap suit—and why not? Cheap money means more profit. But clearly such a significant rate cut, (0.5% versus the expected 0.25%) tells us that the Fed thinks a serious economic threat looms and possibly a full-blown recession.

What a summer it’s been: the rash of housing foreclosures, the near-collapse of Countrywide—and the layoffs, Bernanke’s first tests at the Fed, the Bear Stearns fund collapse, more layoffs from Countrywide, and September 18’s rate cut.
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EXTRA! EXTRA! READ ALL ABOUT IT: Your friends are making you fat.

Your friend catches a cold, you catch it. That makes sense. But is obesity catching? According to a new medical study recently published in The New England Journal of Medicine, social networks can spread more than just germs—they can spread lifestyle habits.
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On Wednesday, August 1st, the Dow Jones Industrial Average shot up 150 points to 13,362. Even with the recent drops, the indexes are in record-breaking territory.

On the other hand, more than two thirds of Americans believe the U.S. economy is either in a recession now or will be in the next year, according to a new NBC/Wall Street Journal poll.

Wall Street vs. Main Street. Who’s right?

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What’s Ferrari got that other car companies don’t? What is it about Ferrari that allows them to build fantastically expensive and completely impractical cars just to end up with a waiting list of buyers, some who go years waiting for their vehicles—if they come at all?
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Since the 1970s, economists have been observing the dropping costs of everyday items such as clothing, electronics, and food. Lower costs for these kinds of items are usually considered the spoils of globalization due to free trade and technology innovation. For the past two decades or so, we’ve also heard more and more about the implications of all this easy access to daily necessities: overly materialistic kids, a “throw-away” culture, and epidemic health problems from too much junk food.

In his recent book, The Challenge of Affluence, Avner Offer, a professor of economic history at Oxford University, suggests that chasing affluence creates a ‘hedonic treadmill’ or ‘rat race.’ Offer explains, “If these rewards arrive faster than the disciplines of prudence can form, then self-control will decline with affluence.…New rewards are compelling, while their costs are not yet known.”
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There’s a new research paper, entitled “The Small World of Investing: Board Connections and Mutual Fund Returns,” that’s creating a lot of buzz these days in the asset management business. The central finding—as the title suggests—is this: mutual find managers invest more money in companies run by people they went to school with than in other companies.

Apparently all those fraternity parties were a business write-off, and we didn’t even know it.

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