Everyone knows that the current economic times are hurting the lower, middle and upper middle classes. That's no secret. But what has been harder to determine is exactly how hard have the very wealthy been affected in order to get a fuller picture of where the economy and consumer spending is headed. The New York Timesexamines how the global recession has affected the super rich. Essentially, they are losing money. In a big way. Many of the super wealthy were caught by surprise by the simultaneous real estate and stock market crashes.
Bill Gates, Warren E. Buffett, the heirs to the Wal-Mart Stores fortune and the founders of Google each lost billions last year, according to Forbes magazine. In one stark example, John McAfee, an entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, from a peak of more than $100 million. Mr. McAfee will soon auction off his last big property because he needs cash to pay his bills after having been caught off guard by the simultaneous crash in real estate and stocks.
"I had no clue," he said, "that there would be this tandem collapse."
Some of the clearest signs of the reversal of fortunes can be found in data on spending by the wealthy. An index that tracks the price of art, the Mei Moses index, has dropped 32 percent in the last six months. The New York Yankees failed to sell many of the most expensive tickets in their new stadium and had to drop the price. In one ZIP code in Vail, Colo., only five homes sold for more than $2 million in the first half of this year, down from 34 in the first half of 2007, according to MDA Dataquick. In Bronxville, an affluent New York suburb, the decline was to two, from 17, according to Coldwell Banker Residential Brokerage.
"We had a period of roughly 50 years, from 1929 to 1979, when the income distribution tended to flatten," said Neal Soss, the chief economist at Credit Suisse. "Since the early '80s, incomes have tended to get less equal. And I think we've entered a phase now where society will move to a more equal distribution."
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Any major shift in the financial status of the rich could have big implications. A drop in their income and wealth would complicate life for elite universities, museums and other institutions that received lavish donations in recent decades. Governments — federal and state — could struggle, too, because they rely heavily on the taxes paid by the affluent.
Perhaps the broadest question is what a hit to the wealthy would mean for the middle class and the poor.
Economists are not sure how this is all going to sort out. Will the falling incomes of the rich mean rising incomes for the less wealthy? Is it a zero sum game, where one person only becomes richer if one person becomes poorer, or will a rising tide in the economy float all boats? Those are the questions that analysts are struggling with right now. One thing they all agree on is this: this recession will have long term effects on our society and the behavior of consumers for the forseaable future.
