How the middle class enables the ultra-rich

By Felix Salmon
June 6, 2012
Adam Davidson's latest column for the NYT Magazine, just ask Joe Schwenk, a/k/a @HamptonsBorn, what the biggest secret is about the Hamptons:

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If you want a three-sentence distillation of Adam Davidson’s latest column for the NYT Magazine, just ask Joe Schwenk, a/k/a @HamptonsBorn, what the biggest secret is about the Hamptons:

Many farm families can sell their land and rake in hundreds of millions. They don’t because they are more interested in maintaining their way of life than making cash. Farm-family-owned land provides the vistas that make this place so special. So when you see a tractor ramble by your backyard, dusting up your custom windows, be thankful — don’t throw a woman’s heel at the windshield.

Or, as Davidson puts it:

There are more than 27 million businesses in the United States. About a thousand are huge conglomerates seeking to increase profits. Another several thousand are small or medium-size companies seeking their big score. A vast majority, however, are what economists call lifestyle businesses. They are owned by people whose goal is to do what they like and to cover their nut. These surviving proprietors hadn’t merely been lucky. They loved their businesses so much that they found a way to hold on to them, even if it meant making bad business decisions. It’s a remarkable accomplishment in its own right.

The ironic thing about both the Hamptons and the West Village — the subject of Davidson’s column — is that they’re expensive and desirable precisely because they still have a significant quotient of these “lifestyle” denizens refusing to avail themselves of the seemingly-obvious property-price arbitrage. Which applies to rentals just as much as it does to farms: Davidson tells the story of Arleen Bowman, who signed a ten-year lease for the Arleen Bowman Boutique in 2002, and is going to lose her space next month. She could have sold that lease in 2007 to Marc Jacobs or some big brand, and made a lot of money by doing so — but she didn’t.

It’s people like Arleen Bowman and Joe Schwenk who make their neighborhoods highly desirable for the 0.1%: they lend charm and character to a place which without them would be just another soulless luxury enclave like Aspen or Palm Beach. John Paulson just spent $49 million for a 56,000 square foot house on 128 acres in Aspen — compare that to the $41.3 million he paid for a 15,000 square foot house on 10 acres in Southampton. Southampton’s more desirable, partly because it’s only a helicopter ride as opposed to a private-jet ride from NYC, but also because it has Mr Schwenk:

When the 0.1% — or, in Paulson’s case, the 0.001% — hire Schwenk to drive their poodle back to New York City because she won’t fit in the helicopter, what they’re really doing is lording their financial aggression over people who really just want to enjoy living in the place they call home. The ultra-rich believe in profit maximization just like America’s middle classes believe in God and apple pie. And so they phone the people who grew up on what are now multi-million-dollar farms, and order them to fix their ice machines.

America tends not to begrudge the ultra-rich their wealth — not until they see it in ugly, entitled close-up. Joe Schwenk and Arleen Bowman are the kind of people who built America, and who continue to make it the place the ultra-rich want to call home. What Davidson calls “bad business decisions”, I call keeping things in perspective — these are people who would be unlikely to be happier, and quite likely to be significantly unhappier, if they suddenly found themselves in possession of $35 million. And there is something a little depressing about the fact that it’s these middle-class strivers who pay the price for the gentrification they themselves are helping to turbo-charge.

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