I haven't heard the interview yet, but what Doug wrote makes perfect sense. Goolsbee had an article yesterday in the New York Times describing the challenge that a super rich person would have in spending their profits money, hundreds of thousands of dollars per hour in the case of Larry Ellison:
"take Oracle's founder, Lawrence J. Ellison. Mr. Ellison's net worth last year was around $16 billion. And it will probably be much bigger when the list comes out in a few weeks. With $16 billion and a 10 percent rate of return, Mr. Ellison would need to spend more than $30 million a week simply to keep from accumulating more money than he already has, to say nothing of trying to spend down the $16 billion itself. He spent something like $100 million on his Japanese-style mansion in Woodside, Calif., making it among the more expensive private residences ever built. But that is only about three weeks worth of the interest he earns on his wealth. And a house doesn't actually spend down his net worth because it is an asset that can be resold. At least part of the $100 million is just a different way of saving. Mr. Ellison would have to spend that $30 million a week - $183,000 an hour - on things that can't be resold, like parties or meals, just to avoid increasing his wealth. While somebody might be able to spend like that - Paris Hilton, maybe - it certainly wouldn't be easy, and it can't explain why the super-rich accumulate." I would assume that much of the money would return to the market in the form of hedge funds and the like. Early last year, I was talking with a couple of German economists were describing how the hedge funds were getting up real estate in Europe, having already done so in more obvious places, such as Germany and even Poland, were now working their way into places such as Albania. Doug wrote: I did say that - I get it from the flow of funds accounts. They plow the cash back into the markets, buying other stocks or buying whole companies. Or they buy a fourth or fifth house, and outfit it with a dozen HDTVs. Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901 michaelperelman.wordpress.com
