Horse running through field

The New Gilded Age

by Roger Lyons

Switched on the TV one night during BC week for The News Hour in time to catch the last segment of the Nightly Business Report, which was an upbeat piece on the bright outlook for luxury retail sales–$20,000 handbags, $85,000 watches, and the like. One Madison Avenue retailer explained that they’d made a mistake last year when they advertised on-sale prices. It had the unexpected consequence of cheapening those items. It turns out that the top priority when buying luxury items is to spend as lavishly as possible.

Obviously, the luxury retailers hadn’t read their Thorstein Veblen. Neither had the business press, otherwise they wouldn’t have been so upbeat. I thought I’d entered a time warp into the 1890s, which Mark Twain called “the gilded age.”

Even if Veblen had written his Theory of the Leisure Class in 1999 instead of a century before, he would still have put those $85,000 watches down to “conspicuous consumption,” but he would have to revise what he said about buying racehorses. Back then, owning a racehorse was a mark of social rank, which, as Theodore Dreiser shows in his novels of the time, was the prime fetish of the gilded age. What owning a racehorse has become would have to fall under Veblen’s less-known Theory of Business Enterprise, published in 1904. How far thoroughbred breeding and racing have been drawn into the business-industrial vortex is a particularly discrete measure of historical change, but it will do.

To commercial breeders–the primary producers–money spent on racing and breeding stock at the sales in Lexington recently goes down on the balance sheets as something like effective demand. That’s what those sales feel like when commercial breeders pay their bills. But, in fact, that investment only masquerades as effective demand. As I’ve previously pointed out, it’s actually a secondary supply function, which is why it’s called investment.

To find the racehorse production and investment industry’s demand side, you must cast your gaze across America’s widening socio-economic divide.

On BC Friday I made the one-hour drive down to Newkirk, Ok, where there’s a Kaw Nation casino with OTB, to buy three BC superfectas. It’s an incentive program for my company’s employees–that is to say, Jackie and me. I couldn’t do it locally because, although I love Kansas, I have to admit Thomas Frank is right about what’s wrong with it. The South Wind Casino in Newkirk was filled almost to capacity with retirees, people who have time on their hands and enough retirement income to enjoy some simple pleasures.

To me, that scene was the spitting image of racing’s tenuous relation to its effective demand. By contrast with American retirees, unemployed Americans of working age are no longer relevant to the thoroughbred industry because they have no purchasing power. People with work are working more than ever before–and for lower wages–just to make ends meet. They’re becoming increasingly irrelevant to the thoroughbred industry because they don’t have the time.

The first segment on The News Hour turned out to be a report on the conclusions of the President’s national deficit-reduction commission. It’s clear the deals that are about to be made will have the predictable effect of deepening the demand slump we’re now stuck in–oh, except for those $85,000 watches.

What does this have to do with the thoroughbred industry? Everything, because now we know for sure that the health of racing is not about Wall Street, conspicuous consumption, or the supply side. It’s about broadly shared economic prosperity. The thoroughbred production and investment industry is losing its effective demand as more and more ordinary people fall victim to our country’s pernicious supply-side economic policies.

Jackie and I did our part for the demand side on BC weekend, but it was supposed to be a lesson in how to deal with failure after investing the time and effort required to pick the best three supers out of a two-day BC card. That plan backfired when we hit both the Juvenile Fillies and the Classic. The good side is that I think Jackie is hooked, and racing needs all the new players it can find.

Greenspan to the Rescue

by Roger Lyons

A recent Blood-Horse blog post, posted on September 27, drew the usual parallel between the performance of the stock market and demand in the commercial market for thoroughbreds. The post was occasioned by a USA Today report of an Alan Greenspan speech in which he argued that, as the blog post put it, “a sustained stock rally would be the ‘most effective’ stimulus for the sluggish economy.” As the post goes on to explain, “a rising stock market makes people feel richer, it inspires confidence, and it signals optimism in the future.” The point was to suggest that what’s good for the stock market is good for commercial breeders.

Feel-good macroeconomics has its place, but I’ve never felt that good about it. Maybe it’s because, around the time I first started hearing about the trickle-down theory–while studying at the University of Kentucky and doing odd jobs in the thoroughbred industry–I got my first Form 1099 ever, and it soaked up about everything that had trickled down to me. That was within the first year or two of the Reagan administration. I imagine he had economists who thought public policy that lavishly enriched the investor class would unleash such a mighty torrent on the rest of us that they needed to build a dam to stop the deluge (for our own good!), but, instead, the trickle just dried up.

And that’s when they started talking about supply-side economics–the if-you-build-it-they-will-come theory of macroeconomics. It was a reversion to the classical doctrine that supply creates its own demand–because, if people are employed in making stuff, they will be able to buy it. Only this time round, economic policy was in thrall to Alan Greenspan’s Ayn Rand fantasy, in which the invisible hand of the market doles out to all what they deserve–if only the policy makers just stay out of the way.

To some, it might have seemed a Yogi Berra moment when Dwight D. Eisenhower said, “things are more like they are now than they ever were before,” but his fellow Kansans knew what he meant. For nearly three decades after the war, the economic universe was expanding, and it was a patently Keynesian universe. It truly was how things should have been all along: driven by demand, wages high, unemployment low, leisure not just a retirement pipedream, and the top marginal tax rate–91%. That was the universe, by the way, in which American racing had its heyday.

But, when demand is high, it’s apparently the doom of policy to assume that supply is everything. What we have now, as a result, is the widest income disparity between the rich and the rest of us since 1928. That means, perforce, that unemployed, underemployed, and working- and middle-class Americans have no money to spend; and, at the same time, huge amounts of money are being committed to the very kinds of speculative investment that expose the economy to calamity.

The thoroughbred industry’s problem is a lot bigger than just a lack of demand for racehorses and breeding stock. Yes, commercial breeders experience it as such, and it’s painful, but, as I’ve argued before, it’s a mistake to think of thoroughbred sales as even a proximate function of effective demand. Those buyers are, in fact, investors in the system of production. Through them the system distributes young horses for training and channels breeding stock into more efficient use. They are suppliers, not consumers. I emphasize this point because, the more commercial breeders dwell on the faux-demand feature of what is really a supply function, the more they lose sight of effective demand, the consumer.

The consumers are the ordinary folks who used to watch and play the races–you know, the ones who’ve been impoverished by the cockamamie economic policies of the last 30 years. The economy of the thoroughbred industry is in the same demand trough as the larger economy and for the same reasons. It’s about unemployment, declining real wages, and diminished expectations. No matter how rich the rich are, it makes no sense to invest in thoroughbred production during a time when the ordinary people who would otherwise comprise effective demand for the product–as an object of beauty, grace, and wager–are losing their homes and livelihoods. That’s why anyone who cares about racing should raise a holy clamor whenever somebody whines, “If only the rich were richer.” Alan Greenspan?!. . . . Please!