Just Another Tale From The Oligarch Recovery - $100 Million Homes Being Built On Spec

Neoclassical economics and the trickle down policy framework that we have derived from it argues that there is a trade-off between fairness and growth. The general idea of trickle down economics is that the richer the rich get and the less constrained they are, less burdened in regulations, the more jobs they create, the better off everyone will be. It’s the concentrated accumulation of capital which is the principal driver of market capitalism.. So, rising economic inequality isn’t a bug, it’s a feature of the trickle down economics. It’s how you know things are getting better, right? Because the richer the rich get, the more jobs they create. This is a general principle of the thing. 
– From Salon’s recent interview of Nick Hanauer: The 1 Percent Rigged Everything: Why No One Can End Ronald Reagan’s “Dead Wrong” Voodoo Economics
By Michael Krieger: Just to give you a little sense of how all this wealth has been “trickling down” see…
More developers and investors are racing to build increasingly lavish homes on spec. Built on prime lots with master suites larger than most homes and spas and entertainment spaces comparable with those in hotels, many of these homes are also attempting to break new price records.

Real-estate agents say the surge reflects an ultraluxury housing market that is at an all-time high, fed in part by overseas buyers and house hunters looking to invest in trophy properties.

“These are people who are going to buy these homes to park money,” says Jeff Hyland, of Beverly Hills-based Hilton & Hyland. 
Mr. Hadid declines to say what he’s spending on the home, but says the listing price will likely be in the $200 million range when the house is completed next year.
– From the Wall Street Journal article: The Race to the $100 Million Spec House

Before I get into the meat of this post, I want to highlight a recent insightful interview Nick Hanauer gave to Salon. In case you forgot, Mr. Hanauer is the billionaire who came out and publicly warned of pitchforks unless our corrupt economic system is reformed. I highlighted his article and provided my own thoughts in the piece: The Pitchforks are Coming…– A Dire Warning from a Member of the 0.01%. If you never read that, I suggest taking a look now.
A very poignant point made by Hanauer in his latest interview, concerns how fake liberals like Barack Obama will pay lip service to income inequality as if it is simply some unexpected moral tragedy which happened accidentally within a well functioning economic system. Hanauer correctly points out that the economic system itself is corrupted. That all wealth is being funneled to a tiny oligarchy isn’t a a flaw within this system, it’s a deliberate part of the design itself replete with its own elitist hedging mechanism.
For example, whenever oligarch wealth is threatened, such as in the 2008/09 time period, all resources are immediately mobilized to bail them out. The interests of all other segments of society are consistently thrown to the wayside, with the exception of welfare merely meant to just lessen the probability of civil unrest, as opposed to actually lifting people into the middle or upper classes.
While Mr. Hanauer seems to think that what is preventing change is the fact that our “leaders” are wedded to an outdated philosophy, I think the bigger question to ask is why they remain so wedded to it when it clearly isn’t working for society. My answer is because many of them benefit in a tremendous way financially, or hope to do so in a future role courtesy of a revolving door promotion by turning a blind eye to reality. The crony, oligarch U.S. economic system is a very, very well oiled machine.
Now, from Salon:

“The problem I highlighted was that President Obama didn’t offer an alternative theory of growth,” Hanaauer said. “He could have, but he didn’t. He’s given six state of the unions, talked a little bit about inequality, he’s made some moral arguments about how it’s bad, he has not once offered an alternative explanation for how an economy like ours grows. And and so if you’re not willing to litigate the methods of growth, then you’re ceding that to the other side.”
It’s not just Obama, in Hanauer’s view. “This is what progressives have done for generations, is that we ceded to the other side that the rich are job creators; we ceded to the other side that less regulation equals more growth; we ceded to the other side that if wages go up, then employment goal go down. And then we wonder and complain about the policies that flow naturally and logically from that set of baseline assumptions. That’s the problem,” he said—a failure to contest the basic framework of economic thought. 
He made the same point again, about the failure to contest fundamentals, with a slightly different emphasis and explanation. “The problem with our politics is President Obama and the people who surround him, don’t represent an alternative to trickle down economics, they are trickle-down-lite,” Hanauer told me. “They’re sort of kinder-and-gentler trickle-down economics. They can talk a little bit about the importance of the middle class, but, in my opinion, they haven’t quite seen clearly that they’ve gotten cause-and-effect reversed. They still think that a thriving middle class is an effect of growth, a consequence of growth, and the truth is in a technological, modern economy, a thriving middle class is the cause of growth…. The middle class creates rich people, not the other way around.”
In the article he talked about the doubling of corporate profits from 6 percent of GDP traditionally to 12 percent of GDP today. But now he added another wrinkle: this happened “at the exact same time as labor as a percent of GDP has fallen 6 percent, 53 to 46 or something like that. So, it’s $1 trillion. That extra trillion dollars isn’t profit because it has to be, or should be, or needs to be. It’s profit because powerful people like me prefer it to be. That trillion dollars can go to wages, it could go to discounts to consumers, it could be used to finance the construction of whatever you think of.” Instead, most of it’s going into stock buybacks, “$700 billion a year, 54 percent of profits, 4 percent of GDP,” Hanauer repeated.”It’s just sort of a nefarious and non-transparent way for very rich people to make themselves richer, at the expense of everybody else.”

Neoclassical economics and the trickle down policy framework that we have derived from it argues that there is a trade-off between fairness and growth. The general idea of trickle down economics is that the richer the rich get and the less constrained they are, less burdened in regulations, the more jobs they create, the better off everyone will be. It’s the concentrated accumulation of capital which is the principal driver of market capitalism.. So, rising economic inequality isn’t a bug, it’s a feature of the trickle down economics. It’s how you know things are getting better, right? Because the richer the rich get, the more jobs they create. This is a general principle of the thing.

What’s very clear, is that when you concentrate income in fewer and fewer hands, you’re essentially killing that feedback loop. You create a vicious cycle. The typical worker to maintain their share of income over the last 30 years, as you well know, the median wage wouldn’t be $50,000 it would be something like $75,000. If that was true,, think about how many more cars who be purchased every year in this country. There are 3 percent of Americans who own exactly the car that they want, but the other 97 percent would like a new one!

When you see it that way, when you explain where growth comes from, in a realistic way, then you can see that inequality isn’t just unfair, it’s actually terrible for the economy and for business. And that’s the opportunity that Pres. Obama missed. Because he is surrounded by trickle-down thinkers who still sort of secretly believe that if we just made rich people richer, that would be fine. And this explains for instance, why it took the Obama administration six years to even notice that they had the ability, for instance, to increase the overtime threshold. Inquiring minds want to know, why it took them six years. And, by the way, that somebody else had to point it out.

Still, the power of a single good real-world example remains extremely potent, which may explain why Hanauer loves to talk about what’s happening in Seattle, where he lives:

Washington state has the highest wage of any state in the nation. If Speaker Boehner was right, we would be sliding into the ocean. And yet, Seattle is the fastest-growing big city in the country. Washington state has the high highest small business rate of small business job growth in the country. And this is because workers here earn enough money so that they can afford to shop at stores. It’s positive feedback loop.

In Washington State, tipped workers, who make up a big proportion of the low-wage workforce, earn $9.47 plus tips. So that’s I think it’s like 440 percent more than the federal tipped minimum of $2.13 plus tips. That’s not 4% more, that’s not 40% more, it’s 440% more. So, if the trickle-down economic idea was true, that these sort of his extravagant wages would destroy businesses, restaurants and so on…. And yet, there is no more faster growing city in the country than Seattle, and there isn’t a restaurant industry is going crazier than Seattle. It’s not. It’s booming. You can’t get a table. And here’s why, because, when restaurant workers earn enough so that even they can afford to eat in restaurants, it turns out that’s good for the restaurant business, despite what the Restaurant Association may tell you.

Rather than answering directly, Hanauer doubled down on his message. “You have to be able to define, in concrete terms, what your alternative theory of growth is. I submit to you – and I know this sounds self-aggrandizing – but no one on our side, can explain to you as succinctly and clearly where growth actually comes from than me and my gang. When I say growth in technological capitalist economies is a consequence of the feedback loop between increasing amounts of innovation and demand, that’s a theory of growth. So, you find me a Democratic leader whose said anything like that, find one, you’ll find lots of complaints, you’ll find lots of great attacks. So, our theory of the case is that until we can get people to recognize how these technological economies actually grow, and unite people around an alternative to the trickle-down economics idea, until you do that, you cannot build the machine. Once you do that, then the machine part’s easy.”

One of the key points made by Hanauer that I completely agree with is that once so much of society’s wealth becomes increasingly concentrated into fewer and fewer hands, it becomes an enormous drag on society as opposed to conferring any benefits. You get a feudalistic system of a few royals and then the peasant masses. This is happening to the U.S. as we speak.
One of the ways this happens is that corporations take their record profits and rather than invest in plant, equipment, technology or pay workers better wages, push all of the excess earnings into share buybacks. This primarily benefits the richest of the rich; the group that owns financial assets. Even worse, much of these buybacks are being funded by issuing debt at record low interest rates. So not only did oligarchs benefit directly from the Fed’s quantitative easing which has pumped up all financial assets, but they benefit indirectly via record buybacks also enabled by Fed policy. As I’ve said time and time again: The Federal Reserve is a criminal organization primarily designed to provide an endless stream of corporate welfare and bailouts for oligarchs. 
When the super rich aren’t pushing to spend the money on buybacks, they seem to be spending it on $100 million homes. The oligarchy is trickling us downward into permanent serfdom. Thanks again Ben Bernanke, perhaps the greatest criminal of my lifetime.
From the Wall Street Journal:

When Shelly and Avi Osadon set out to build their dream house on a hillside lot in Beverly Hills, Calif., they commissioned a custom chandelier with 25 handblown glass balls for the entryway. They installed $5,000 “hands-free” toilets with heated seats in most of the home’s 10 bathrooms. They even bought $350 electric toothbrushes custom designed by “dentist to the stars” Jon Marashi.
Now all the Osadons need to do is find someone who wants to buy their dream—ideally for their $35 million asking price.
More developers and investors are racing to build increasingly lavish homes on spec. Built on prime lots with master suites larger than most homes and spas and entertainment spaces comparable with those in hotels, many of these homes are also attempting to break new price records.
In Hillsboro Beach, Fla.,north of Fort Lauderdale, a yet-to-be-built 30,000-square-foot estate with subterranean parking for 20 cars is seeking $45 million. That is nearly triple the cost of the most expensive sale in the town to date, a property nearby that sold for $17 million last year. 
Real-estate agents say the surge reflects an ultraluxury housing market that is at an all-time high, fed in part by overseas buyers and house hunters looking to invest in trophy properties. 
“These are people who are going to buy these homes to park money,” says Jeff Hyland, of Beverly Hills-based Hilton & Hyland. One of his agents is working with a developer who is building a 90,000-square-foot spec home, and Mr. Hyland has another developing six 2-acre lots, each of which will feature a 40,000-square-foot spec home. When they are completed in about three years, the 40,000-square-foot homes will be priced around $100 million. 
Mr. Hadid declines to say what he’s spending on the home, but says the listing price will likely be in the $200 million range when the house is completed next year.
So far, demand is holding up. “No one is worried about it until the music stops,” says Mr. Bacal. “And it hasn’t stopped yet.”

We all know what happens when the music does stop. Oligarchs get bailouts from the Federal Reserve. You get poorer.

The Osadons say the staircase cost several hundred thousand dollars, compared with $30,000 to $40,000 for a more typical high-end staircase.
“When you’re building a home like this, there is no budget,” says Ms. Osadon.

There’s your recovery suckers.

In Liberty,
Michael Krieger

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