An economy based on luxury cannot be considered a sustainable economy. Recent events have seen the rise to power of the world’s new richest man.
In spite of the fact that much of the media attention has been focused on the fall of Elon Musk, whose sweaty gyrations as the new owner of Twitter have caused the stock of his other businesses, and therefore his net worth, to collapse.
Who Is This New World’s Richest Man?
Bernard Arnault is very wealthy as a result of his position as CEO of LVMH. If you, like me, have very pedestrian preferences and even more pedestrian resources, then it’s possible that you’re not all that acquainted with this firm. It is the most successful luxury-goods corporation in the world, and its name is an acronym for the names Louis Vuitton, Moet, and Hennessy. Tiffany, Bulgari, Christian Dior, Givenchy, and even a boat firm are all owned by LVMH, in addition to the brands that make up its initials. LVMH also owns a number of other companies that offer costly products to wealthy people. The European Union’s most valuable firm is LVMH, which is situated there.
The fact that Arnault is at the top of the list is mostly symbolic, even though it doesn’t mean much. The World’s Richest Man rankings are primarily based on the price changes of stocks that, if sold by these individuals, would immediately become less valuable. It shows that a big chunk of the big amounts of money made in the economy today comes from selling expensive things to a small group of people.
If you look at the lists of the most valuable firms in the world and the richest individuals in the world, you’ll realize that there is an odd contradiction. Many of the most successful businesses in the world can be put in one of these three groups:
- market speculation, which is how wealthy people like Warren Buffett and Berkshire Hathaway make their money
- attention-mining and advertising, which is what companies like Alphabet (Google) and Meta (Facebook) do
- producing premium goods, which is what companies like LVMH, Tesla, and Apple, the largest company in the world, do.
How is he doing it?
In the sector of the economy that is responsible for actually making things, it seems that the most profitable activity is the production of expensive items that will improve the lives of individuals who already lead comfortable lives even more so.
The luxury goods market is seeing robust growth at the moment. Luxury businesses are prospering despite the fact that other businesses are taking precautions in preparation for inflation and a possible economic downturn. Rich individuals aren’t bothered by the fact that eggs and milk cost more than they did in the past; as a matter of fact, their consumption levels are at an all-time high. Take a look at the following excerpt from a story on CNBC:
Amrita Banta, managing director of Agility Research & Strategy, said that there has been a cultural shift since the 2008 recession and that high-net-worth consumers today feel less guilty about spending in a slowdown, and that they “feel entitled to spend their wealth.” [Amrita Banta] said that high-net-worth consumers today are less guilty about spending in a slowdown. She thinks that this is partly due to the fact that people in emerging nations are getting wealthier.
According to Milton Pedraza of the Luxury Institute, luxury firms may have seen a spending slowdown among the 80% of their clients who are “almost wealthy.” These consumers make up the majority of luxury companies’ clientele. But he said that these kinds of customers usually make up about 30% of all purchases.
Instead, he said that luxury businesses often rely on just twenty percent of their audience, who are both very affluent and very wealthy, to account for the bulk of their revenues. He says that luxury brands are usually the last to feel the effects of a slowdown because their customers are much less affected by inflation and economic downturns.
To provide a summary, the luxury sector is really only interested in a very small part of the population that is extremely rich, and as long as that part of the population continues to consume voraciously, the luxury industry will continue to earn a lot of money. Sure, those of you who are “almost rich” may have to stretch a little to purchase that new pair of expensive shoes in an inflationary climate, but the fact of the matter is that you are a rounding error for the industry. All that counts is that the really wealthy continue to amass more wealth. Between now and 2030, the luxury industry is expected to grow by 60%.
The expansion of the luxury business may be beneficial for Bernard Arnault, but it is not beneficial for the rest of us in any way.
The surge in demand for luxury items is a symptom of the ill health of our economy as a whole. It’s not that companies have now come to the realization that there are wealthy individuals; rather, it’s that wealthy people are accumulating more and more wealth. In comparison, the income of the middle class has climbed by 61% since 1976, while the income of the top 10% of Americans has increased by 163%, when adjusted for inflation. This indicates that a relatively tiny subset of the population has benefited disproportionately from the country’s overall economic expansion while Gerald Ford was in office. The pursuit of profit is all that companies care about.
More and more businesses are going to migrate in this way as it becomes obvious that the big money can be made by catering to the whims of the rich.
The consumption of luxury items is an example of wasteful and showy ostentatious consumerism. If you want to show everyone else on the road that you have tens of thousands of dollars to throw away, one reason to purchase a Porsche rather than a Honda is so that you may make a statement about how much money you are willing to waste. It’s a gigantic neon sign that says “wealthy person inside!” in large letters. Luxury shoppers are more than willing to shell out absurd sums of money for products; after all, that is kind of the purpose. As a direct result of this, the luxury business boasts some of the largest profit margins of any sector of the economy.
Companies aim to produce large profits rather than modest profits as a matter of course, according to a little-known economics fact. Consequently, if large profits can be made in the luxury market, businesses will shift their focus there. Consider the example of the automotive sector. McKinsey predicts that the two to three percent of the automobile market that is considered to be “luxury” will see growth of eight to fourteen percent over the course of the next ten years. There will be no expansion in any other segment of the automotive market.
Even among automobiles for the rest of us, it seems that the real money is in more costly trucks and SUVs for the upper middle class. This indicates that automakers are losing interest in making inexpensive cars with poor profit margins since these vehicles are where the real money is. Ford ceased manufacturing cars entirely a few years ago because the company found that they did not generate as much profit as trucks and SUVs. Since trucks and SUVs can be sold to a more affluent customer, they generate larger earnings.
So get used to the idea that automakers are going to devote the majority of their resources to producing automobiles that average Americans won’t be able to afford to purchase.
The shift that our economy is making toward luxury can’t be maintained for long. Because there aren’t enough affluent individuals to sustain an entire economy on their own, a system that caters to the wealthy can never really be said to be in a state of economic health.
When corporations produced things that were readily available to the general public and when employees who manufactured those goods were well compensated, the economy of the United States of America was at its strongest. Henry Ford’s Model T is a well-known illustration of this principle in action. It cost $260 in 1924, which is equivalent to roughly $4,500 in today’s money, thus, Ford kept the design of his vehicle simple, and it was the first automobile that was affordable for the middle class.
Because Ford paid his employees an extraordinary $5 per day, many of them were able to purchase Model T automobiles. Companies that followed the Ford model treated their employees well in order to manufacture items that those employees could afford to purchase during the golden era of the American economy, which lasted from the end of World War II until the early 1970s. This led to a significant expansion in the economy.
Since those days, we have progressed quite far.
Having an economy that depends more and more on providing services to wealthy people is not only a bad idea from a financial point of view; it is also wrong. When individuals all around the nation — and the globe — are having a hard time making ends meet, it’s disgusting that businesses are so intent on finding ways to make the lives of the wealthy a little bit more comfortable.
It gives off true fall of Rome feelings, with the affluent cosseted in luxury and disregarding the misery of the poor who service their every need. This is reminiscent of the situation in Rome before its demise. It’s also important to point out that economic disparity is a very dependable generator of social unrest and revolution. That’s something to keep in mind.
Someday, historians will look back on the economy that we are constructing and wonder why we thought it was a good idea to spend so much work providing so much luxury for so few people. But we are building an economy that will be looked at favorably by people in the future.