Million Dollar Wedding

Conspicuous Consumption and the Evils of Capitalism

A Wedding in Dubai

A friend of mine recently had to attend the wedding of his best friend in Dubai. The total cost of the wedding, it turned out, was over a million dollars, which offended my friend to no end, even though his best friend didn’t have to pay for the wedding — it was a gift from the parents.

How much better would this wedding have been if it had been a simpler affair, he asked, and the balance donated to some worthy cause, such as feeding the poor in Somalia, or building a school in Gaza? How could a family spend a million dollars in a few days, when this could have fed thousands of people for a year in some poor country?

Arguments like these can be made for almost everything that happens in Dubai and other cities like it, whether it is a mega-mansion built in Sydney, a posh socialite party thrown in New York, or a million-dollar shopping binge in London by some multi-millionaire.

There seems to be something innately obscene about such displays of wealth and spending, which put on graphic display the inequality that is inherent to a capitalist economy.

An Alternative Perspective

But let’s step back for a while and analyze this million-dollar wedding. What exactly did these parents do that was so wrong, so long as they spent their own money? Keep in mind that the wedding involved a number of parties, including a large get together with a fabulous buffet at a plush downtown hotel, followed by a boat party for a few select guests.

Then there were of course the gifts and other trinkets that go with weddings, and there was also a sizeable sum of money spent in bringing close relatives of both the groom and the bride from other parts of the world, covering their airfare as well as hotel stays in Dubai.

This means that scores of businesses, including florists, boat owners, hotels, airlines, and so on, including hundreds of employees, benefited directly from the largesse of these parents.

Of course, it was not the intention of the parents to spread joy and well-being, or create employment opportunities for these hundreds of people — they just wanted to give their child a grand wedding — but that was nonetheless the practical effect.

The businesses and employees who made this extra money in turn spent it at other businesses such as restaurants, creating an economic multiplier effect, generating a total increase in economic activity which could have been significantly in excess of the million dollars that were actually spent, perhaps two or three times more.

Exporting the Multipliers

Furthermore, given the fact that a large portion of Dubai’s population is transient and foreign, some of these multiplier effects “leaked out” to other countries such as India and the Philippines, as the workers from these countries remitted money home to their families. As a result, someone came closer to building his house, another person paid next term’s fees for his daughter’s university, and a third person now had the money to treat his father’s cataracts.

Why would all these economic benefits be somehow considered less noble then just giving away a million dollars to a charity somewhere?

In fact, the reverse could be argued: When money, or indeed any commodity, is given away for free and dumped into an economy, it creates far more dislocations than money that is earned.

In extreme cases, such as when food is donated in large quantities to a needy country, it actually ends up destroying local agricultural production, since no local producer, by definition, can compete against food that is given away for free; the result is further famines down the road.

In the real world, far removed from the idealistic and theoretical notions of how the world should be structured, even good deeds can have very negative consequences.

Medicines

Similar arguments can be made for many other elements of a capitalist economy that we all find disturbing or even disgusting. Take medicines as an example, which many pharmaceutical companies sell at extremely high prices, which in turn means that poor people suffer or possibly even die because they cannot afford this medication.

There is thus a demonstrable correlation between life expectancy and net worth — the richer you are, up to a certain limit, the longer you are likely to live. Some of this is no doubt due to better living conditions and less of the stress that comes from having to worry about money, but at least a part of the reason is simply due to the fact that the rich can afford better medical care.

Now it is true that getting a drug to market in USA costs billions of dollars, and requires an average time of fourteen years because of all the regulatory hurdles involved. It is also true that 90% of drugs fail during this process, because they either turn out to be unsafe, or ineffective.

And yet, for the drugs that do make it to market, the pharmaceutical companies do not just make a high profit, they make an extravagant amount of money, making these medicines unaffordable for the vast majority of people. At first sight, this seems to be a prime candidate for government intervention.

An Example

Let me give you a concrete example, that of Mounjaro, an injectable drug recently released by Eli Lilly. The Mounjaro injections, that have to be taken once a week, have proved remarkably effective for Type 2 diabetes, and also, by the way, in helping obese people lose weight.

It reportedly costs around 25 dollars to produce four injections, i.e. a month’s supply, and yet this supply is sold in the United States for around a thousand dollars.

Prima facie, this seems like a poster child for capitalist greed. You can practically hear the politicians inviting Eli Lilly executives to come to some government hearing, and explain themselves, with social workers clamoring for price controls in the background.

Choice in the Real World

Again, I feel that reactions like this miss the point, in that they implicitly assume that the choice is between having these medicines at a reasonable price, or having them at a high price. In this scenario, of course every sane person would choose the former.

But this ignores the fact that the main reason why these companies took the trouble to develop these new drugs is because of the predatory profits they can make if they discover something worthwhile.

And it is in these companies’ interest to charge as high a price as they can, for as long as possible, because one day the patent will run out, and after that anyone will be able to mass produce this particular drug and sell it at a reasonable profit.

In the real world therefore, the choice is not between having the drug at a reasonable or an expensive price. Rather, it is between having it at a high price for a few years until the patent runs out, after which it will be available at a much more reasonable price; or not having it at all, because without these obscene profits, no one would take the huge risk of trying to produce new drugs at all.

Under these circumstances, the obscene profits are not a failure or disadvantage of the system; on the contrary, they are the reason the system works in the first place, and one of the reasons why there have been such dramatic increases in life expectancies over the last century.

Extending the Argument

A similar argument could be made for other goods and services that capitalist economies produce.

Take food production as an example, given that food is a necessity. Mostly because of the immense rise in productivity that arose out of capitalism over the last few hundred years, North American farmers are so productive that 2% of North American workers, working in the agricultural sector, can produce enough food to feed half the world; and yet, there are still starving people in the world.

Now we could force these farmers to share their food, in the name of fairness. In fact, imagine for a moment that there is a world government, and it forces North American farmers to give up their production to the rest of the world in one year. What do you think would happen? Next year there will be no surplus production, because why would these farmers make the effort to produce more if it will simply be expropriated from them?

This is the fundamental reason why socialism failed; a socialist government could expropriate what had already been produced, but only at the cost of future production. This is why, in the long run, socialist economies all crumbled under the twin onslaught of high bureaucracies and low production.

Rights, Rights Everywhere

This brings us to the issue of rights. People often confuse negative rights, which require that everyone else do nothing, and positive rights, which require that someone else do something. For instance, my right to free speech, such as the right to criticize the leader of my country, only requires that the president not throw me into jail because of my critical speech.

But if some government gives me the right to adequate food, clothing and shelter, then a farmer has to produce the food, a textile factory has to stitch the clothing, and a contractor has to build the house. In other words, positive rights require someone else to produce something, and pass it to me.

Socialism failed because though in theory it guaranteed a minimum level of positive rights to all people, unlike capitalism, it had limited means of enforcing the required level of production on the producers, and no means of enticing them (through incentives) to produce more.

Additionally, capitalist economies, over the last few hundred years, have achieved a high volume of production not by simply increasing manpower or working hours, but through innovation, which increases productivity per person.

This is where socialism also failed; you can force someone to work twelve hours a day instead of eight, but you cannot force him to discover a new antibiotic, or invent a machine that will improve productivity by ten percent.

On the other hand, capitalism’s failing is that though it can incentivize a high level of production and innovation, it cannot guarantee that each person will be allocated a minimum level of production. In fact, as variability in human attributes — skills, ambition, pure luck, access to education, and yes, even propensity to cheat — is a feature of any society, any country that adopts a free market / capitalist system will also be, in effect, accepting the idea of inequality.

However, keeping in mind that there can be no distribution without production, a capitalist economy at least has the potential to achieve some degree of fairness, by distributing some of this production through fiscal means (such as taxes), while a socialist economy will typically not even reach the level of production necessary to allow any meaningful distribution.

The Prevalent Ethos

Unfortunately, capitalism has two in-built negatives: Inequality, as mentioned above, and volatility, as businesses continuously innovate in order to make more money, while the actions of individual businesses sometimes lead to overproduction, and sometimes to the opposite.

Plagued by these two problems, there is a continuous temptation for politicians to interfere in the mechanism of the free market, and try to regulate things, all in the name of fairness. Thus, even in places like USA, socialist ideas are creeping back into the mainstream, under the guise of caring for the poor by imposing more taxes and more regulations, or in the name of environmental protection.

Before killing the goose that lays the golden eggs, just because not all of us get these eggs, it would be worthwhile to contemplate how the world has changed since the beginnings of capitalism around five hundred years ago, while the only alternative — socialism — has failed miserably over the last one hundred years.

Quite simply, though this may be difficult to believe, capitalism, as an economic system, has been the best thing that has ever happened to humanity; conspicuous consumption is just a side effect, and even then, not necessarily a bad one.