The "new frugality" of the rich

1. What are they being frugal for? Have they suddenly realized that their spending habits were compromising their future? Have they piled up too much debt and want to pay it down? Have their sources of income decreased (very likely if it was based in part on investments)? Have they decided to establish a savings program in order to pursue some important goal (for instance, retirement if their 401ks and other current plans have decreased)?

If so, then their frugality is useful to the economy in the long run, although it may be harmful in the short term.

If it is solely a response to current social pressures, it is harmful in the short run (by depriving the people they hire or patronize of income), and in the long run. Instead of creating savings to invest, when the current downturn is over, they will simply return to their old ways, and spend any surplus they may have accumulated on other luxuries in a time when there will be no shortage of spending on luxuries.

2. This issue illustrates one of the problems of basing any major part of the economy on the behavior of the rich. It varies so wildly and is so unpredictable. Places that have based a large part of their civic growth on the spending of the rich flourish mightily in good times, and suffer mightily in bad times.

A small, select coterie of purveyors of extreme luxury goods will continue to do well; people who patronize them will not change their lifestyle because instead of a billion and a half dollars, they are now only worth a billion. But the stores, shops, and services whose customers were the "middle rich," such as brokers or traders in Lehman Brothers or AIG, are suddenly finding their stores, restaurants, and shops empty and their phones silent. Of course, they will come back after the economy turns around, but only AFTER, not AS it turns around.

3. This brings up again the question of what kind of economy do we want to have:
--one that is built on the economic power of the few rich, or one based on the economic power of the many middle and working class?
--one based on full time work with appropriate benefits, or one based on part-time work with the social safety net entirely provided by the government?
--one that is based on the idea that every adult must work, no matter what their family responsibilities, or one where a single wage earner can support a family in reasonable security?