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.
Posted by Roger Lyons on Monday, November 22, 2010 at 10:17 am.
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Finley vs. Veblen
Advanced industrial society has long since held as a matter of common sense that, to put it bluntly, all that is not business is trash. This view underlies Bill Finley’s July 10 TDN op ed, in which, on business-survival grounds, he persuasively argues that the quantity of racing “product” should be cut in half; and I mention it, not to derrogate his point of view, but, on the contrary, to establish that it conforms perfectly with what passes in our age for common sense.
The business premise of Finley’s piece caught my attention because, ever since the demise of the Deep Water Horizon and the incineration of its crew, I’ve been collecting, insofar as possible, and reading the works of Thorstein Veblen. It’s the least I could do. He’s the renegade American economist who’s most notable for writing The Theory of the Leisure Class, published in 1899, and for coining the term “conspicuous consumption.”
Eschewing more straightforward and morally laden terms like envy, pride, venality, and profligacy to characterize Gilded Age excesses, Veblen preferred the more academically distant “invidious comparison,” “emulation,” and “honorific waste.” None of them quite captures the mood at Keeneland on those summer evenings during the early 1980s than his term “pecuniary complacency.” But that was all for satire.
His sense of humor all but exhausted after the Great War, Veblen thought it too late to don his satiric mask when he wrote The Engineers and the Price System, published in 1921. In that book he excoriates the investment bankers, which by then had superceded entrepreneurs as the “Guardians” of the price system. His argument goes something like this.
As industry by “machine process” becomes increasingly complex and increasingly dependent on management by the engineers, financial control by the captains of industry, which Veblen lumps into the category “absentee owners,” becomes increasingly untenable. The reason is that the absentee owners, ignorant of the machine process, have a strictly business interest in the production of consumable goods; and, insofar as their interest is vested entirely in profit, it runs at cross-purposes with competent production and distribution. Eventually, Veblen thought, the absentee owners, in their pursuit of profit, would so thoroughly sabotage the system of production that they would be forced to abdicate their role in the price system and leave it all, by default, to the engineers.
Veblen didn’t live to be proven wrong about that, but only because he died in 1929. Yes, the absentee owners did indeed thoroughly wreck the system of production, even sooner than he thought, but clawed their way back from the Great Depression; and here we are in the Great Recession of 2008 with crude spewing up through a hole in the bottom of the Gulf, leased by a corporation that’s essentially an investment bank, all the engineers saying, “I told you so.”
Now, pedigree and horsemanship constitute the machine process in the production of racehorses, and breeders and horsemen are the engineers. As a practical matter, to talk about the system of racing as “the product” misses the point that the product is actually the horse, along with its inherent capacities. That’s the end-in-view of the machine process. The system of racing has nothing whatever to do with the product other than to package it and sell it, which, in Veblen’s analysis, are business functions alien to and contingent upon the productive elements. Put another way, raceplayers bet horses, not races.
It’s a matter of course that any perturbation in the system of racing, especially of the scale suggested by Finley, is bound to derange the machine process. One can only hope that, when it’s decided which 50% will be cut in the interest of economizing the system of racing, it doesn’t sabotage the breeding industry.
Posted by Roger Lyons on Tuesday, July 13, 2010 at 6:44 am.