Keynesians Burgle Park Avenue Co-Ops, Possibly Stimulate Economy
According to police, more than $100,000 in jewelry, including wedding rings and watches, has been stolen in four separate incidents since May. There could be further stolen items that were never reported because the residents are so wealthy that many might not have even noticed some of their valuables went missing.
A source told us, "Residents are paranoid, at least four different apartments have been burglarized. Most of the victims didn't realize when their items went missing. Many people have access, including service staff and workers."
To be clear, crime is destructive to the social order and discourages people from making long-term investments. (That's why I've argued that the Obama administration missed a trick by failing to punish people associated with the excesses of the bubble years.) However, this story illustrates something important: Reshuffling wealth between different people can affect the level of spending in the rest of the economy.
Consider two individuals: a competent thief and an heir to a cosmetics fortune. Unless he is Thomas Crown, who committed crimes purely for the thrill of it, chances are high that the thief spends a large portion of his illegally-earned income on goods and services. (He might also spend some of it on high-end real estate.) After all, why risk going to prison if you don't need the money?
By contrast, the heir probably has far more wealth than he knows what to do with. Yes, he lives in an apartment worth tens of millions of dollars and probably fills it with extremely expensive objets d'art. He might own rare diamonds or other jewelry that could be worth a great deal if sold, but otherwise sit in a case. Yet he does not need to work and probably will be outlived by his vast estate.
These differences are important. When the thief fences $10,000 or $100,000 in jewelry from an heir who barely knows what he owns, the thief will feel much richer and spend most of that money. Maybe he will buy a new car, or go on a bender at strip clubs, or rent a villa in a beleaguered European country. The heir might be somewhat upset, but it's hard to believe that he will suddenly cut back on his spending because he needs to recoup a relatively small loss. In fact, the heir might end up spending more money as he tries to make his apartment safer from future robberies.
I'm not the first one to suggest that these sorts of robberies are sympathetic to what might be considered Keynesian economic principles. John Cochrane, an economist at the University of Chicago, made this point back in 2009:
If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it.
Cochrane writes as if our moral revulsion at Madoff's fraud will overwhelm the logic of his interpretation of Keynes. I can't help but wonder whether redistributing a little bit of wealth from those who have more money than they know what to do with to those who are eager to spend whatever they can get would make the rest of us better off -- at least temporarily. Maybe we could accomplish the same sort of effect by tweaking the tax code. At least that way we could avoid rewarding people who break the law.
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Matthew C Klein