Rory Sutherland

Tax me more, but don’t touch my dishwasher

The nature of inequality has changed since the last century. It may no longer be as helpful

Tax me more, but don’t touch my dishwasher
Text settings

There was a big fuss a year or so ago about a book by a French chap called Piketty about wealth inequality. He suggested capitalism, aside from an anomalous period between 1930 and 1979, inexorably concentrated wealth at the top.

One interesting defence of inequality is that the rich, by adopting technologies early, redistribute far more of their wealth than we realise by funding R&D and innovation. The first people to pay top dollar for a flat-screen TV or a dishwasher are unwittingly subsidising their wider adoption. As Hayek observed of early adopters of technology: ‘We depend on them, for they finance the invention and reinvention of products whose cost falls to a point where we can afford them’.

When Hayek was writing in 1960 this was inarguably true. The status rivalry of the time was at least focused on buying goods which were useful enough to became mass-produced and mainstream. (If you ever need a laugh, read anti-consumerist literature from the 1960s, which sneers at the lower middle class for aspiring to own ‘pointless luxuries such as fridges and washing machines’.)

My grandfather was a prosperous doctor in Wales from the 1920s to the 1950s. Back then, whole categories of expenditure were available to him which were unaffordable to most people in his town. Foreign travel, a car, radios, televisions, recorded music, fridges, dishwashers, restaurant meals, theatre visits. (In 1930, a bottle of whisky cost a working man’s weekly wage.) All are now available to the median Brit. One reason property crime has fallen in Britain is that the rich no longer own much that the poor want to steal. (A friend of mine was mugged at knife point and asked to hand over his mobile phone; the mugger took one look at it, sneered, and handed it back.)

But if you try the same exercise today, and ask what are the categories of expenditure which the richest 10 per cent or 1 per cent or 0.1 per cent enjoy which a median household cannot, you come up surprisingly short. Yes, it is nicer to travel at the front of a plane than at the back, but that’s nothing to the gulf separating car owners from the carless in 1950. Instead, status competition by the rich now revolves around scarce assets such as property and education which are much more zero-sum (or even negative-sum) than the focus of competition 50 years ago. As a New York hedge-fund manager once confessed to me: ‘All this wealth is sadly pointless: at the end of the year we pay ourselves a few million, then go back to Connecticut and bid up each other’s house prices.’ I once joked to an Indian friend that there was no point in India growing economically, since all the gains would be spent on ever more elaborate weddings. ‘I got married last month,’ he replied. ‘That isn’t even funny.’

If the rich are now increasingly engaged in pointless, zero-sum status consumption, then it has interesting implications — for them. Perhaps the rich themselves would be better off if they paid more tax, since they could gain more by their wealth being spent collectively than individually. This argument was brilliantly made by my friend and favourite leftie economist Robert H. Frank, in his book The Darwin Economy.

Don’t get me wrong. I’m as right-wing as the next Spectator reader. I feel about my white goods the way NRA members feel about guns: if a future Corbynista regime wants to take away my dishwasher, they’ll have to prise it from my cold dead hands. But, speaking purely selfishly, I’m pretty much sorted for private goods. I’d benefit far more from decent car parking at my local station than from buying a strangely curved television. It’s just easier to arrange the latter than the former.

Rory Sutherland is vice-chairman of Ogilvy Group UK.