The Big Shift
Why the rich matter
Thanks to greedy bankers and cons like Bernard Madoff, the wealthy aren't so popular these days. But if you think the rich don't benefit the rest of us, think again. Jeff Tyler reports.
High-performance electric sports car Tesla Roadster (teslamotors.com)
More on America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: We've always had a love-hate relationship with the rich in this country. Nowadays, between well-heeled bankers getting millions in taxpayer-funded bonuses and plain, old Wall Street con men like Bernie Madoff, it's less love, more hate. But that can make it easy to forget how the wealthy can benefit the rest of us. And how their shifting fortunes might shift ours as well. Here's Marketplace's Jeff Tyler.
JEFF TYLER: Most of us won't be too concerned if Rolls Royce or Bentley dealerships sell fewer cars. But you just might care if the rich stop buying the Tesla Roadster.
It's the only all-electric car on the market. That means no gas. No oil. And no emissions. The Roadster goes from zero to sixty in four seconds. That's almost as fast as a Porsche 911 Turbo.
And at $109,000, almost as unaffordable. But thanks to rich patrons, cheaper Tesla's are on the way. Diarmuid O'Connell is the company's VP of Corporate Development.
DIARMUID O'Connell: We'll be shortly introducing what we call the Model S, which is a four-door, five-passenger sedan, which will retail -- after a federal tax credit -- for $49,000.
The Model S is being unveiled next week. But O'Connell says there's a less expensive, zero-emissions car in the works.
.O'Connell: We're already looking at our third vehicle, which is targeted at a $30,000 price point. And building in the hundreds of thousands
Using money from rich customers to fuel mass-market production is a fairly common business model.
O'Connell: Think of the Tesla Roadster as the $2000 cell phone of 1985.
O'Connell says we take for granted our easy access to cheap products, and forget the role of the rich in making it happen. He says we wouldn't enjoy such low airfares today if it weren't for the initial wealthy travelers.
O'Connell: Commercial air travel in its early genesis was extraordinarily expensive, enjoyed only by the wealthy.
Because the rich bought expensive plane tickets, airline companies and manufacturers could continue to invest in the new industry. Over time, that resulted in relatively inexpensive plane travel for all of us.
The rich benefit us in other ways too.
Take medicine. That's the sound of a centrifuge being used for stem cell research. The fledgling science could lead to cures for Parkinson's disease, cystic fibrosis and other illnesses. Dr. Arnold Kriegstein is director of the Center of Regeneration Medicine and Stem Cell Research at UC-San Francisco. He says creating new facilities comes with a big price tag.
ARNOLD Kriegstein: We need to supply equipment that is too expensive for individual labs to purchase. That may cost, you know, a million dollars in some cases. And that sort of thing is very challenging in this environment. So, more than ever, we really need private philanthropy.
But financial contributions are down. So it was crucial when -- last December -- the Center got a $25 million donation from a private foundation.
Kriegstein: Without that gift, we wouldn't have been able to start building our stem-cell institute.
In that sense, the rich are indispensable. But in other respects, the wealthy may not matter as much as they once did.
CHARLES Geisst: A hundred years ago, they were a lot more important and central to economic policy making and intervention in the economy than they certainly are today.
Charles Geisst is a financial historian at Manhattan College. He points to 1893, when the U.S. Treasury teetered on the brink of bankruptcy. J.P. Morgan, New York's most influential banker, stepped in and helped raise the money needed to keep the government afloat.
Geisst: He was called the savior of the country. And it wasn't the first time that he had actually earned that title. And he would also be called it again in 1907.
That's when he helped avert another financial calamity. Soon after, the Federal Reserve system was established. And it became the lender of last resort, instead of men like Morgan. The government relied on the super wealthy even less after World War I.
Geisst: The New Deal became, unlike governments before it, very interventionist in the economy and wealthy individuals started to take a back seat.
Geisst believes we're better off with the government steering the economy. But when it comes to business and innovation, sometimes it pays to have the rich in the driver's seat.
In San Francisco, I'm Jeff Tyler for Marketplace.
Comments
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From mt. clemens, MI, 07/19/2009
Your kidding me right? Aw, the poor rich. They're sooo misunderstood. Ok, I'm sufficiently nauseated. One world order? I won't waste my time explaining something the rich know all too well. I'll just refer to the morality of worms. Lay people are the ones who need to be educated in the high crimes of the rich. Madoff was just a sacrificial lamb. Just a surface dermal boil.
From Barnes City, IA, 06/26/2009
The wealthy get a really bad rap in America because of scandalous people who made their money by ripping other people off. Everyone thinks all wealthy people are crooks. People like Bill Gates are not crooks and I think he deserves the money he has made. He gave us something great. Many wealth people do things to help people that are poor. Oprah for example help a number of people by giving to numerous charities. I think she is a wonderful person. Capitalism is a good thing and I think the people who disagree really just need to get off their butts. You get what you put in and if people want to make more money than do it instead of whining about the people who are doing it.
There are always going to be a few bad apples who take advantage of people and make money by lying, staling, and cheating and for those wealthy people "shame on you." They will have to pay in the end. But I truly believe most of the people that are wealthy gave the American people something they wanted and that is how they became wealthy. Instead of complaining we should be applauding them. These are the people that build factories, Wal- marts, and Disney World for people to work at. Most business people put in more hours and sacrifice more than people realize in order to build companies that employ the working class. The bottom line is our society needs these people.
The part of the article I found the most interesting of all was actually the comments left by people from all over the nation. One man said the article was a bunch of BS but I have to wonder where he works and who built the company that provides the paycheck he supports himself on? Would he prefer Communism? Many people say that this article is a spin instead of the facts but I wonder how they would feel if they were wealthy. I think a lot of the problem is envy. The market place published a controversial article that in fact can be proven. It is unfortunate that people don't want to understand how the economy works. The article and the author did a good job despite what most of the comments read. Some people just can't handle the truth. (I am not wealthy. I am a college student working towards a degree in buisness.)
From Glendale, CA, 03/25/2009
What a bunch of BS. We don't need wealthy people to drive around in Tesla's to justify us doing the right thing. Wealth people's greed has gotten us into this mess...guess who's making the most money at the expense of our future, our environment, our air quality? Not that poor bum on the street is it now.
I can't stand apologists for wealthy scam artists. Because these people are cut from the same dirty cloth as the crooks up top.
From Ridgecrest, CA, 03/25/2009
The top 10% of the wealthiest Americans pay 80% of revenue for the United States. That is 80% of new roads, 80% of police budgets, fire budgets, municiple hospitals, school budgets, and other government projects. Lets not even get started on how now the government is turning to them to buy "troubled assets". I do not agree with this article, and I aint rich, but I do understand the importance of the wealthiest Americans and the revenue they generate.
From LA, CA, 03/24/2009
Great story! Sometimes things are not what they seem. This phenomenon is similar to the fact that a lot of technology inovations like HD TV and DVD were made affordable by initial investment from the pornography industry. Kudos to Marketplace for not pandering to the Communist listeners when reality is not how they like it.
From VA, 03/22/2009
Boy, I see that class envy is alive and well in America.
Humans are social mammals. Mammals tend to have a more complex social structure than many other organisms, with complex dominance hierarchies. Dominance hierarchies often determine first or best access to food, social interactions, or mating priviliges.
In medieval days under the feudal system, the alphas were the manor lords.
Medieval societies were organized under Lords who founded and headed manors. The manor offered protection to the serfs, something desperately needed in this time of uncertainty. In return for security and the right to cultivate fields and to pass their holdings on to their sons, the serf had many obligations to their lord. As a result, the personal freedom of the serf was restricted in a number of ways.
The serf knew his place in medieval society and readily accepted it. So too did the medieval nobility and clergy. The medieval manor therefore sustained the three orders of medieval society: those who pray, those who fight, and those who work.
http://www.historyguide.org/ancient/lecture22b.html
In our days, in free societies, the alphas are the entrepreneurs, industry leaders and innovators and provide jobs for people who would otherwise be plowing the fields like in the medieval days. These people enjoy high status and material advantages. If it weren’t for those incentives, these people would not create industries that create jobs.
In totalitarian societies, the alphas usually reach power by killing of the opposition (less fortunate alphas) and dominate the rest of society through oppressive and often violent measures. One thing is for sure, the alphas almost always live high on the hog.
Even when led by a revolutionary leader (an alpha wannabe) who promises them justice and equality the followers usually only serve to get the new regime in place. After killing the members of the regime that they are replacing, the new leaders then also live high on the hog. Since these leaders are lead more by a desire to dominate rather than by a desire to create and organize, this system usually leads to disaster and these new leaders often end up destroying themselves and all around them. The French revolution is a perfect example, when all was said and done, the poor were still poor and a lot of people had lost their heads, including the leaders of the revolution who ended up all beheading each other.
Good video:
http://www.youtube.com/watch?v=zYFzTyMKLhs
From S.WEllfleet, MA, 03/21/2009
At this point I'm not surprised but no less outraged that ostensibly"public" radio is shilling for the economic elite in this countery at the expense of the public interest.Regardless of the magnaminity of the wealthy in funding arts and charities, our economnic system which favors them allows them to 'privatize their gains but socialize their losses. This has been going on long before the economy crashed. Why doesn't market place or any other 'public' radio outlet air the views of socialists or consumer advocates on this issue as a counterpoint to their constant paens to the rich?Isn't "public" radio supposed to view us as citizens who must make informed choices ,not merely consumers of goods and services?
From Santa Cruz, CA, 03/21/2009
"While the benefits provided through the spending of the rich is certainly open to debate, one fact is not. All electric vehicles provide emissions, albiet not directly from the vehicle itself." Not only is the proposition debatable, but, strictly speaking, the "fact" is not true, since the electrons necessary to run an EV can come from a number of non-polluting, renewable resources -- hydroelectric, geothermal, wind, and solar electric generating plants, for example. In Canada and the Western US, many areas get their electricity primarily or exclusively from such "green" sources. Since we're talking about the rich, it is also worthwhile to note that many of the rich Tesla Roadster owners have installed solar panels at their homes. The electricity generated by these solar installations completely offsets the electricity used by the cars, without producing any net carbon emissions at all. If you drive an EV, you at least have the the theoretical option (and in many areas, the practical option) of getting your energy from a "green" source and producing no emissions. If you drive a regular car or hybrid that is powered by gasoline or diesel, you do not have that option at all. On the other hand, even counting transmission and charging inefficiencies, and assuming that electricity is generated from coal, EVs end up comparing well against internal combustion engine vehicles when you consider the entire "well-to-wheel" cycle: the full set of activities, energy expenditures, and emissions involved in generating/obtaining energy or fuel, transporting it to the place of use, and using it to propel a vehicle. In the most conservative and skeptical such analysis I have seen (assuming heavy losses all along the way and electricity produced by "dirty" sources such as coal), EVs did no worse than internal combustion vehicles in terms of using energy or producing net emissions, and in the most favorable such analysis (assuming typical losses and/or such clean electricity sources as mentioned earlier) EVs did a lot better. This is mostly because the internal combustion engine does well to convert 20% of its fuel into actual motive power -- the other 80% turns into heat and pollutants. This negates the high energy density of gasoline, and the relative efficiency of transporting liquid fuel from refinery to vehicle. The electric motor, on the other hand, tends to be around 80% efficient: this makes up for an awful lot of loss incurred by generation, transmission, and charging loss. In those situations where generation and transmission losses can be forced toward zero (i.e., local generation from renewable, non-polluting sources, such as wind or solar) -- which will become more common as the demand for "green" electricity is satisfied by ongoing technological advances -- the EV's advantage over the internal combustion vehicle for most purposes becomes overwhelming. The more people buy EVs with the aim of being energy efficient and reducing emissions, and the more they demand "green electrons" from their utilities -- or the more they go "off the grid," using locally produced renewable sources to generate the electricity to charge their vehicles -- the better off we and our environment will be.
03/21/2009
We get stories like this because the modernized feudal system is the one that we know. This excuse is how the opulence of wealth is given attempted justification. There is no justification for wealth concentration except in a representative government.
From Whittier, CA, 03/21/2009
Again we get spin instead of facts. The actual booster of the airlines that made them "so cheap" that all of us could afford to fly was the US Post Office. Remember "Air Mail"? There used to be a day when we all paid extra to have our mail sent via air. And those lucrative contracts were used to sustain passenger routes that the early days of air travel precluded.
Shame on Marketplace for not doing the research.
Are you getting to be a mouth-peice of the New-Cons like David Fromm?
From dover, DE, 03/20/2009
BULLSHIT!!! NPR , PROPAGANDA MOUTHPIECE FOR THE RICH!!
From State College, PA, 03/19/2009
The author of this story is a complete idiot! This is exactly the same logic the feudal lords in Medieval Europe used to keep their serves under control. ABSOLUTELY NOBODY is worth a $6.4 million 'retention bonus' (such as was paid this week to AIG executives), not even at the time when his/her company 'prospers'. How can one human being earn in a month more than other in a lifetime???
From Los Angeles, CA, 03/18/2009
The article was clearly written biased to the existing system. The point of view that if incomes were more egalitarian, ordinary people could achieve the same or better results was not considered. The wealthy have historically supported the arts and created foundations that support museums which clearly benefit those who share their value choices. But not everyone does. The proportion of the GDP that the top 5 % has doubled as the lower 10% has shrunk, leading to class revolt. Note how the City of New Haven CT is starving for funds while Yale is flush with endowments
From Des Moines, IA, 03/18/2009
I would say that nature, including the nature of humankind at the level of individuals, is ruled by incentives and disincentives. Every person gives some and gets some of each. Democracy is an abstract ideal, not a work in progress.
From Atlanta, GA, 03/18/2009
While the benefits provided through the spending of the rich is certainly open to debate, one fact is not. All electric vehicles provide emissions, albiet not directly from the vehicle itself. Power plants, especially coal fired ones, produce massive emmissions along with many other negative environmental consequences. Only a true life-cycle analysis can provide a relevant comparison of different types of vehicular power.
From HI, 03/18/2009
Radix tristium est cupiditas
Ab initio ab intra absit invidia
Does the child seem wiser than his elders? As the wealthy attempt to hide the symptoms of their wealth, the pauper covets these symptoms but strangely not the sources of the wealth. The child learns to locate these same sources long before he learns to utilize them.
?
?
From Toronto, ON, 03/18/2009
Battery EMF??? I’m sorry but does your cell phone stick to your fridge?
From Fort Myers, FL, 03/18/2009
I like Mr. Samson's comments. In 1982, physicist Fritjof Capra proposed the fundamental reality that continuous economic growth is an inherently cancerous concept. The most patronizing aspect of the very wealthy is philanthropism. First, they limit their inputs and maximize their taking...and then they mete out a portion of their taking as "charity."
I think the world would rather have a living wage, a clean environment, adequate water and food, health care, infrastructures and hope for the future to begin with - as opposed to a conditional hand out after the poor outcome has already been achieved.
From oakland, CA, 03/17/2009
What a BS story. Thank you rich people for giving us this technology which we had years ago at a cheaper price. How about this, it's ok to be angry at rich people and to be angry with the directives in our culture that push us into identify with wealth as a human value.
From Ann Arbor, MI, 03/17/2009
We can let the rich decide what investments to make in science or art or we could use a democratic system and have the government invest in science and art. I vote for democracy.
From Fort Myers, FL, 03/17/2009
In a fair system, I do not begrudge the wealthy anything. We now have full confirmation that our capitalist system is not fair. So, let's start making it fair by: eliminating the 15% capital gains rate cap on hedge fund managers' earnings, stop allowing executives "deferred" taxation - currently up to 30 years, un-taxed partnerships, gift tax evasions, fake tax exempt insurance companies for salting away huge premiums for another day, corporate jet deductions, the Alternative Minimum Tax that now hits the middle class more, stop off shoring earnings, and stop moving corporate headquarters off shore to evade US taxes, end the 100% exemption of foreign taxes paid by corporations, simplify FICA to be a progressive rate applied to all levels of income with no employer contribution and no ceiling...just for a start.
And after the direct changes to the tax system are done, we need to make a new congressional tax law development process to remove the wealthy who can afford the $10,000 a plate dinner from the tax law creation process. With their lawyers dedicated to the pursuit of preferential treatment for them, the average joe with no time during the workday to pursue issues with congresspersons doesn't stand a chance.
It is time to acknowledge exactly WHO has hijacked our government and to what degree they have introduced unfairness and killed the golden goose with their greed.
From La Canada, CA, 03/17/2009
I have nothing against the rich. I don't like handouts to the wealthy. That goes for most of the farm bill, bonuses for top management in failing companies and banks that abuse government largess.
The idea that rich people won't try to make more money if they are taxed is ridiculous. How many have given up so far?
From Winthrop, MA, 03/17/2009
If you do a bit of research on early airline travel, you'll find that it was preferential government treatment of a few airlines such as Pan Am that sustained the industry in its early stages. Deregulation (competition) finally brought ticket prices to affordable levels. Hence Pan Am and Eastern Airlines' demise and the rise of People Express (now Air Tran), Jet Blue, Southwest, et al.
The rich just enjoyed the ride. The rest of us support them on our backs!
From St. Louis, MO, 03/17/2009
Tyler/Ryssdal, may I remind you that it is a clear and profound fact that trickle down economics DOES NOT work. Do you realize that the crisis we are in was created by a massive redistribution of wealth to a small group of people who, I might add, did not manage the money and reinvest it properly. Maybe for your next piece you can talk about how another 300% increase in CEO compensation is going to save us all?
From Los Angeles, 03/16/2009
I don't think anyone would argue that the rich don't matter. What's important to remember is the huge transfer of wealth from the middle and lower classes to the top 1 percent, given impetus by the tax policies of Reagan and his successors.
Philanthropy from the beneficiaries of that transfer is not much of a sop for the majority who have suffered increased economic insecurity as a result.
Moreover, some of the sectors discussed (e.g., aviation, medicine) arguably benefited as much from government funding as from philanthropy or pump-priming by the wealthy. Perhaps more.
Geisst's perspective certainly fascinates. The government steers while the rich drive? How does that work?
Like AIG bonuses, I guess . . .
From Edina, MN, 03/16/2009
Granted! Early adopters have more resources and sometimes perform a worthy service in bringing new technologies to the mass market. How many units did Tesla need to sell in order to develop their next generation vehicles? Fifty? Five hundred? With a technology so important to our national energy future, let alone technological primacy, perhaps taxpayer investment would be a more democratic way to scale-up to affordable electric vehicles. We don't need more status symbols for the wealthy.
From Denver, CO, 03/16/2009
Tesla has let America down. They need to go away now and let the others take the lead: These car guys just lie and lie.. Chrysler and GM said �Oh everything will be rosy if you just give us billions in bailout and now we know they fully knew they were going to go bankrupt, they were just hyping it up in order to grab some more cash, Tesla is the same but more. So let me get this right, the Tesla head guy paid GQ magazine to write an article about how arrogant he is and ditched his smart wife and left her with 5 kids for a teenie bopper that he was cheating with and announced a battery deal that was really just an R&D contract and has multiple lawsuits against them by other companies, and may have a car that causes cancer from battery EMF and has created a pool of past staff that write endless blogs about how bad they are and then raised prices because they had no idea how to build a car and lied to the City of San Jose and their customers and applied for their only source of funds without even reading the rules that told them in advance they should never try to build a factory and is trying to sell an insanely expensive car in a depression while every investor has deeply reviewed them and turned them down and Musk won�t even put his money in (of which he has hundreds of millions) and all of their technology has now been superseded by Fisker, Bright and others� ?? and Tesla employees are so ready to jump ship that Musk spies on them with fake internal emails� hmmmmmm Cheating: http://www.boingboing.net/2009/01/21/profile-of-paypal-an.html Battery Deal: http://www.autobloggreen.com/2008/08/16/some-complete-speculation-on-the-daimler-tesla-deal/ Lawsuits: http://valleywag.gawker.com/380125/tesla-finds-the-electric-car-business-is-a-litigious-one Cancer: http://www.saxton.org/tom_saxton/2009/01/tesla-price-increase.html Bad karma from the start: http://www.alleyinsider.com/2008/11/tesla-s-musk-calls-cofounder-the-worst-individual-i-ve-ever-worked-with- More problems: http://wheels.blogs.nytimes.com/2008/10/15/more-sparks-from-tesla/ http://greenfuelsforecast.com/ArticleDetails.php?articleID=683 http://erith1.wordpress.com/2009/01/24/tesla-single-handedly-sets-back-the-electric-vehicle-industry-by-10-years/ Pissing off the customers: http://www.thetruthaboutcars.com/tesla-to-angry-customers-its-all-about-us/
From Champaign, IL, 03/16/2009
Can't fault the logic here, but there's a reliance on past history that I find ill advised. Why assume that the usual toss and tumble of the economy can't be smoothed out before there are huge accumulations of wealth in very limited sectors? Why not look at the emergence of someone like J P Morgan as symptomatic of the cause of the crisis he supposedly saved us from? Whatever happened to the idea that under true perfect information, people like Morgan would never arise because others would rush in and compete with him, keeping his profits moderate?
From Champaign, IL, 03/16/2009
Can't fault the logic here, but there's a reliance on past history that I find ill advised. Why assume that the usual toss and tumble of the economy can't be smoothed out before there are huge accumulations of wealth in very limited sectors? Why not look at the emergence of someone like J P Morgan as symptomatic of the cause of the crisis he supposedly saved us from? Whatever happened to the idea that under true perfect information, people like Morgan would never arise because others would rush in and compete with him, keeping his profits moderate?
From Hanover, NH, 03/16/2009
Regarding Jeff Tyler's piece on why we should continue to fund bail-outs for the wealthy.. True, the wealthy have historically supported the arts and created foundations that support museums which clearly benefit all. However, the disparity between rich and poor in this country far exceeds that necessary to incent such philanthropic behavior or pioneering purchases of cutting-edge technology. The only argument to support the current level of CEO salaries and bonuses on these trickle-down grounds would be that the private parties that pay $20 million for a seat on a space flight provide a valuable service hastening the day when a quick trip to weightlessness becomes affordable for all. A difficult argument to make when there are millions of citizens without health care, without jobs, and in foreclosure.
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