You’ve Got To Spend It On Something

Adam Davidson has an awesome column on the economics of super-expensive nannies (many of whom seem to be dual-hatted as cooks) some of whom command salaries of $85,000 a year and even one who gets “around $180,000 a year — plus a Christmas bonus and a $3,000-a-month apartment on Central Park West.”

He makes a lot of great points about this, but an additional one worth driving home is simply that when very rich people have a lot of money—which they increasingly do—that money has to go somewhere. Diminishing returns set in very quickly when it comes to additional fancy cars. The modern say super-rich person isn’t an aristocrat living off land rents, he needs to show up to the office and work long hours so there are limits to how many vacation houses he can use. Ultimately what you’re trying to do is keep ahead of the Joneses, but in a way that seems praiseworthy rather than ridiculous. Anything you do is open to the criticism of being wasteful, but spending vast sums of money on your children’s education seems less ridiculous than spending it on the world’s most lavish birthday party for yourself. That’s why tuition at Dalton is more expensive than Harvard. This all goes back to Robert Frank’s point that if you levvied a surtax on rich people’s consumption the welfare loss to the rich people themselves would be tiny.