LIVING LARGE

May 20, 1999
		Has America entered into a second Gilded Age? Business correspondent Paul Solman reports on the increase in spending for luxury items.

March 30, 1999: The Dow Jones hits 10,000. March 5, 1999: Economic analysts discuss the U.S. economy's remarkable growth. Jan. 6, 1999: America’s booming electronic stock market, NASDAQ. Nov. 26, 1998: The Justice Department investigates Visa and Mastercard. Nov. 24, 1998: AOL and Netscape merge. Nov. 12, 1998: Federal prosecutors claim Microsoft has engaged in monopolistic business practices. May 26, 1998: Is the recent wave of mergers good for America? May 11, 1998: SBC and Ameritech join forces. May 7, 1998: Daimler Benz acquires Chrysler. April 13, 1998: A look at a series of big bank mergers.   Luxury Fever author Prof. Robert H. Frank's faculty bio.	ROBIN LEACH: This is the world's number one restaurant. Only in this day and age would millions be spent on such fabulous carpets, such incredible chairs. And the service is supreme. This is living the high life. PAUL SOLMAN: No, your TV did not spontaneously change channels. That is Robin Leach, whose "Lifestyles of the Rich and Famous" made him the video chronicler of conspicuous consumption these past two decades. ROBIN LEACH: I'm Robin Leach, with those champagne wishes and caviar dreams. PAUL SOLMAN: And indeed, the rich have been getting richer, their lifestyles heating up as almost never before. But for a serious news program, that raises some serious questions. Just how hot is it at the top? What are the consequences of the trend? And briefly, is there anything the rest of us can or should do to change things, besides of course sometimes crabbing about them? Let's begin with the wealth explosion itself, which is why we're at New York's elite eatery, Le Cirque 2000. The prices here range from lofty to, well, $15,000 for a rare Pinot Noir. PAUL SOLMAN: What's the most expensive that you actually sell? $8,200. SPOKESMAN: It's a Petrus 1961. PAUL SOLMAN: And do you sell -- SPOKESMAN: Oh, yeah. Easy, easy. PAUL SOLMAN: Wines the price of small airplanes have become so common during the Robin Leach decades that it's getting harder to really make a statement. Leach's idea of extravagance? ROBIN LEACH: The all-gold house was probably the most obscene thing that one could ever wish to see. I mean, it was gold walls, gold floors, gold ceiling, gold cutlery, gold crockery, gold tables, gold furniture. The two people who owned it had even spray-painted their matching Rolls Royces in gold dust.
	Is America suffering from "Luxury Fever"?
	PAUL SOLMAN: Now, ever since Robin Leach began recording such images, Cornell Economist Bob Frank has been pondering them. He's now written a book, Luxury Fever, in which he equates the 1990's with the 1890's. ROBERT H. FRANK, Author, Luxury Fever: There's no question but that we're in the midst of another Gilded Age. The last great one was at the turn of this century. The robber barons had accumulated great wealth, and they spent it in very visible ways. The cyberbarons of today have accumulated great wealth, and they're spending it in visible ways. PAUL SOLMAN: Some of them, in fact, spending on the remembrances of gilded things past. BARBARA CORCORAN: This is the original Vanderbilt Fabbri mansion. Come on in. PAUL SOLMAN: Realtor Barbara Corcoran said there was lots of interest in this robber baron fixer-upper on the upper east side. BARBARA CORCORAN: This house is the largest beaux arts mansion in New York City. It was built at the turn of the century. It is $30 million, and of course for that, you get 30 most magnificent rooms. PAUL SOLMAN: 30 rooms? BARBARA CORCORAN: Yes. PAUL SOLMAN: Magnificent, but in need of work. In the dining room, beneath the carved ceiling, cheek by jowl with the family coat of arms: A walk-in safe. But no one remembers the combination. The kitchen? Well, some of us might call it a handyman special. Luckily there's light at the top of the stairs: Electrified cupids cradling, appropriately enough, their horns of plenty. But in the music room next door: A really big organ in need of really big repairs. BARBARA CORCORAN: And the estimates are about $250,000 to get it working. PAUL SOLMAN: And will people actually pay $30 million for the mansion, and then another $1/4 million to -- BARBARA CORCORAN: Easily, for this reason only: This is not just an organ we're looking at, this is a status symbol, so people will spend the money to repair it and show it off to their friends. PAUL SOLMAN: Now, since our tour, the mansion's been sold. But there's still plenty of plenty to be had at nearby Harry Winston's, and it's going fast. CAROL BRODIE-GELLES, Harry Winston, Inc.: We have seen more clients buying the signature classic jewelry than we have had in the past. Now there's a need for jewelry that can be worn to luncheons, to dinner parties, to afternoon teas, for socializing; and that's what this jewelry is. PAUL SOLMAN: And there are more people who can afford it now. CAROL BRODIE-GELLES: There are more people buying it. PAUL SOLMAN: They don't like to talk about prices here, but let's just say that the diamond garland around our saleswoman's neck goes for about the total lifetime salary of a NewsHour correspondent. Now, to some observers, upper-crust spending like this is a darn good thing. It creates jobs. Even if you buy a bauble here, you're helping support diamond miners, gem cutters, jewelry designers, displayers, sellers, and a bit of the champagne industry. Hey, when Bill Gates built his infamous $50-100 million house, who got the $50-100 million? The people who put this thing together for him. "But wait a minute," say the critics, "Should there be no limit to the concentration of capital?" The top 1 percent already owns, by some reckoning, almost half of America's collective wealth. Plus, they're moving further from the pack in income as well. 20 years ago, those in the top 5 percent earned ten times as much as those in the bottom 5 percent. Today, they earn 25 times as much. The problem, say Bob Frank and others, is that this concentration of wealth leads to competitive spending that does little for the spenders, and meanwhile misallocates natural resources and human labor, labor that could be put to far more socially productive use than making multimillion-dollar watches. Frank likens luxury fever to the wastefulness of the Cold War nuclear arms race. ROBERT H. FRANK: The U.S. built more bombs, the soviet union built more bombs. We weren't any more secure than before, but it was very important nonetheless that you not have fewer bombs than your rival. Well, it's the same with much of this spending.
	Why spending feels so good.
	PAUL SOLMAN: In other words, we measure our success not in absolute terms, but relative to those we compete with. And if that sounds a tad primitive, well, it certainly is. Now, we humans may seem a far cry from the Vervet monkeys on whom so much of the relevant research has been done -- ROBERT H. FRANK: But evidence from all these studies points in the same direction, that concern about position is a very deep-seated part of the human brain chemistry. PAUL SOLMAN: In research on these primates and their level of the hormone serotonin, the neurotransmitter associated with feelings of contentment, dominant monkeys had twice the serotonin levels of their underlings, who actually displayed symptoms of depression. ROBERT H. FRANK: This is, by the way, the neurotransmitter whose production or retention is stimulated by the drug Prozac. When you acquire high status, your serotonin level goes up. So apparently that's part of the motivation to acquire high status. It feels good to have high status. It feels bad to have low status. PAUL SOLMAN: And numerous studies show, says Frank, that as with monkeys, so with man. But so what, you may well be wondering at this point. If status competition is as old as our oldest ancestors, what's the news here? Well, arguably, we're now at the key point of this story. What's new is that luxury fever is raging not just among the dominant males and females driving Lamborghinis ahead of the pack, says Frank; luxury fever has become epidemic, and is infecting Americans at every income level. Take cars, for instance. The middle income luxury fever for sports utility vehicles has driven the price of an American automobile to $22,000, up 75 percent from just a decade ago. The average house is twice as big as in the 1950's. And then there are the appliances. Juliet Schor studies consumption among the not-so-rich, and the advertisements that target them. JULIET SCHOR, economist, Harvard University: The ultimate statement is now being designed and hand-crafted in Italy, in Fabrianno. It's a range hood unlike any other. PAUL SOLMAN: A range hood? Just the thing -- JULIET SCHOR: The thing that goes over the stove, passionately designed, innovatively styled, inspiring, the focal point for all that surrounds it.
	Keeping up with the Joneses.
	PAUL SOLMAN: Range hoods now sell, in a normal Boston store, for up to $2,000; refrigerators, up to $6,000; stoves, up to $10,000. Pricey, sure, but just part of an old American tradition: Keeping up with the Joneses, no? "No," says Schor. Times have changed. JULIET SCHOR: The big difference is that in the past, people made proximate comparisons. That is, they compared themselves with people who were nearby them in terms of their financial situations or their economic situations. Today it is much more likely that people will aspire to be in the top few percent. PAUL SOLMAN: In fact, says Schor, studies show that fully one-third of Americans earning more than $100,000 say they can't make ends meet. And the reason it's happening more and more, Juliet Schor thinks, is that well-heeled lifestyles have now become so visible, largely because of television, that they seem, to viewers, the norm. Even middle American Monday Night Football was brought to you last season by Lexus, a car relatively few football fans can presumably afford. So keeping up with the Gateses means most Americans work too hard, says Schor, save too little, borrow too much. JULIET SCHOR: Consumer credit has been exploding throughout the 1990's. Two-thirds of households in the $50,00-$100,000 income category hold credit card debts. Personal bankruptcies are at record highs, and have quadrupled over the 1990's. PAUL SOLMAN: After working on luxury fever for years, Bob Frank's decided there's only one good way to treat it, to discourage excesses from the $2,000 range hood to the $3 million bra. His radical proposal: A steeply progressive consumption tax that would penalize people the more they spend. As a result, you'd spend less, and -- here's the economic benefit -- you'd save more, which should be good for all of us in the long run. ROBERT H. FRANK: If you want higher growth, you save more. PAUL SOLMAN: Because you put the money aside to build stuff for the future. ROBERT H. FRANK: The money goes into an account. It's loaned out to a business. The business buys new equipment. That makes it possible to build more things than we used to have. PAUL SOLMAN: In other words, instead of Bill Gates putting so much into that new cyberspread, say, he'd have the incentive to invest more, in some newfangled technology perhaps, that could become the next Microsoft. It would be just a different way of spending the same amount of money on the future instead of the present. And if Gates and his fellow rich insisted on maintaining their present level of luxury consumption, the government would take in more taxes from them. The taxes, says Frank, could then be used to make long overdue public investments for all of us, in safety, education, bridges, potholed roads -- take your pick. Unfortunately for Bob Frank, to many Americans, a consumption tax like this may seem extreme, even unfair, and thus be politically impractical, because one can picture protests not just from the rich and famous themselves, but those who aspire to become them. After all, Robin Leach didn't become a celebrity for no good reason. ROBIN LEACH: "Lifestyles of the Rich and Famous" was born to mirror to be part of a social chronicle of the age of glamour and wealth finally bursting back into the American landscape. And people in America started saying, "if they can have that wealth, we can achieve it, too." PAUL SOLMAN: Well, this is one story we were sorry to finish. You should have tried those desserts at Le Cirque. Moreover, we weren't sure what conclusion to finish with. On the one hand, luxury fever, stoked by status, helps make capitalism go round, so it's arguably good for the economy. Desperately seeking serotonin, we compete with those above us and try harder. On the other hand, it's an exhausting race almost all of us are doomed to lose. Well, after all our arduous research, we, at any rate, weren't convinced that any changes are in the offing, because the longing for luxury is part and parcel of an economy these days whose increasing prosperity increasingly fuels the fever.