The problem with billionaire consumption

Analysis of billionaire consumption in capitalist societies, exploring ethical, economic, and Keynesian perspectives on wealth distribution and investment.

The lavish and extended wedding celebrations of billionaire Mukesh Ambani’s youngest son has brought to the forefront the question of “conspicuous consumption” of the rich. In a capitalist society beset by high levels of inequality, how do we make sense of such displays of private wealth by the elite? Does billionaire consumption in an unequal society hinder or aid economic expansion? What are some of the ethical and economic issues involved? The issues discussed here do not pertain solely to the Ambanis, but attempt to tackle some broader questions regarding the question of private consumption by the rich.

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A defence of billionaires’ consumption would run as follows: in a liberal capitalist democracy, there are no restrictions on what one chooses to do with one’s private property. Assuming that market processes are fair, billionaires’ consumption expenditure — no matter how lavish — is a legitimate exercise of their private freedoms and cannot be faulted. The existence of inequality is not their concern, but the manifestation of flawed policy that restricts market freedom and curtails pure competition. Increasing market access, in this view, would ensure that everyone has adequate wealth.

On the opposite end of the political spectrum, the Marxist view holds that since value is created solely by labour, profits represent an unfair extraction of value. Thus, all forms of billionaire consumption is illegitimate, since private riches are generated through a denial of the rightful claims of workers. The co-existence of a large working class with low wages and a small number of billionaires does not arise because of a faulty market mechanism, but is an undeniable feature of capitalism itself. The rights over private property enshrined in liberal societies hide deep structural imbalances that serve to continually enrich a few at the expense of the many; in this framework, there can be no way to justify billionaire consumption.

Another defence of billionaire consumption is that regardless of the ethical issues involved, as long as consumption is done domestically, the expansion of purchasing power leads to an increase in demand for locally-made goods, and an increase in domestic employment and incomes. In economies like India where the generation of suitable employment is a matter of grave concern, private consumption of the rich ensures a vital boost to aggregate demand. Yet this represents a second-best solution to the problem of demand, since what is required for growth in living standards is investment, not consumption.

Consider two sectors in an economy, a consumption sector that produces clothes, and an investment sector that produces sewing machines. Assume that every year, the local billionaire spends a given amount of money to purchase clothes, but does not put in any order for new sewing machines. The demand for clothes generates employment, but the capital stock — represented by the sewing machines — does not change, and hence neither does labour productivity. Since per capita incomes depend on labour productivity, living standards do not rise. There might be employment, but no growth.

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