The Rise of the C.R.E.A.M. Economy
What the Wu-Tang Clan, Janet Yellen and the “Amex Billionaire” Tell Us About the Future of Wealth
Who understands what’s going on in our economy better right now?
The Fed or the Wu-Tang Clan?
I bet my dolla dolla bill y’all… on the Wu-Tang.
To understand why this is so, let’s first ask the following: “What’s up with that almighty dollar bill these days?” Damned if the Fed knows. They just raised the interest rate for the first time in a decade and in the same breath basically admitted they have no idea what the heck is going on with inflation, a key indicator of the changing value of that very same dollar.
Inflation, for those unfamiliar, is a state of gradually increasing prices as determined by a typical basket of goods purchased by a typical red-blooded American family. A Fourth of July Barbecue for instance increased 2% every year between 1992 and 2007. A bag of potato chips rose to $3.65 from $2.85 during that same period.
However, since the 2008 financial crisis (which crippled the global economy and very nearly gave it a Mortal Kombat-esque death blow), all major economies of the world have pumped an unprecedented amount of paper cash into circulation.
Normally, this would result in a greater proportion of cash circulating around the world relative to the amount of goods and services (which stayed relatively the same in the short-term) and, consequently, a natural increase in prices.
But it hasn’t.
In fact, by most measures, the rate of inflation has actually been going down since between 2011 and 2015.
Ask the Fed and any of our leading central bankers what black magic is causing this and they will give you the academic equivalent of a bewildered shrug.
They and their global peers have spent the better part of last seven years pumping billions of paper money into the world economy with not much to show for it.
So what, in fact, is going on?!
Enter the Wu-Tang.
And yes, our d-bag du jour, Martin Shkreli, plays a minor part in this fiscal whodunnit as well.
So what wisdom can the Wu-Tang impart on us that evades the most powerful economic experts in the world?
Well consider this, if you were one of the most fabled hip hop groups of all time, what could possibly lead you to decide to sell a single copy of your latest album via an auction to the highest bidder. Five years of work. 31 songs. 128 painstakingly recorded minutes. And one single printed physical copy. Uno.
In a world of pirated leaks and bittorrent, this seemed like utter madness. One leak and the whole concept is nullified. The value of the album goes from millions to zero faster than you can say “protect ya neck”.
What were they smoking you may ask? Why take this risk?
Well actually, they smoked the Fed if you ask me. Back in March 2014, while Janet Yellen and global central bankers were still struggling to figure out low inflation, RZA, the well-regarded leader of the Wu-Tang Clan, went public with the plan and the rationale for the auction of their secret album Once Upon a Time in Shaolin. Here was his explanation:
“The idea that music is art has been something we advocated for years and yet it doesn’t receive the same treatment as art in the sense of the value of what it is, especially nowadays when it’s been devalued and diminished to almost the point that it has to be given away for free.”- the RZA
Music as art has been devalued. This may sound like a cry for artistic relevance which it certainly is on some level. It may also seem like a “fight or flee” moment in the face of shrinking album sales. But don’t mistake this for philanthrophy or desperation.
Make no damn mistake.
This is all about the C.R.E.A.M.
This was shrewd business foresight.
They bet their work, five years of their collective lives, on this plan and then, with no guarantees of results, set it in motion.
More than a year later, the auction process finally culminated with a sale price of $2 million for a single print. The RZA had succeeded in elevating the Wu-Tang’s music as an art form, at least in terms of raw valuation. However, the success of their risky gambit was ultimately overshadowed by the sheer douchiness of the buyer.
Putting aside Shkreli’s antics, why was the successful auction for a literally unheard album so important?
It is important because it stands as evidence that, approximately two years before the Fed finally raised interest rates, the Wu-Tang Clan had already connected the dots as to what is happening in our economy.
The reason why inflation for average goods hasn’t increased is because these dollars aren’t being spent on average goods.
In 2014, both Sotheby’s and Christies art and jewelry sales soared. Art sales rose by 10% to $16 billion while jewelry sales soared 11% to over $750 million. Also in 2014, a monstrosity, dubbed the Billionaire’s Tower, was erected in the heart of Manhattan casting a tombstone-like shadow over Central Park and shattering the record for a single residence with a sale price of over $100 million. Shell corporations are purchasing mansions in the Los Angeles hills in record fashion in complete anonymity. And of course, the coup de grâce, the “Amex Billionaire” set the record for the single highest bid for a single piece of art, paying $170mm for a Modigliani painting, and subsequently, like any well-to-do “G” would do, charged that sh*t to his Amex card.
If this doesn’t look like inflation, then I don’t know what does.
The problem you see, is that to get a true measure of where all that paper cash is going, you shouldn’t measure potato chips and BBQ steaks. You should track abstract Picasso’s and high rise condos.
Luckily, someone has already done this. This Forbes chart below from 2013 depicts a similarly mundane basket of goods that the uber wealthy might enjoy on any given day. Oh you know, little things you might pick up on the way home from the gym like a $11 million Learjet 70, a $5mm yacht or a $300k thoroughbred horse. This Cost of Living Extremely Well Index (CLEWI) is shown in blue. Remember the BBQ steaks and potato chips? That’s the red line. It’s clear which one has been outpacing the other for decades.
Why is this happening? Because none of those billions from “trickle-down” economics is actually “trickling down” to the people who spend it on day to day stuff. And this is more true today than ever before. The RZA knew this. The bidders at Sotheby’s and Christie’s knew this. The Amex Billionaire knows this. So why doesn’t the Fed know this?
In my opinion, they do know it. They just can’t say it. Back in mid-2014, Janet Yellen had already observed the widening gap between the rich and everyone else. But the Fed’s hands were and are tied. This is their only playbook, i.e. helplessly unleashing dollar bills upon the world.
If the vast majority of these dollars happen to fall in the laps of the already wealthy, then the Fed must look the other way, for they had already exhausted their bullets years ago. If this plan has the unwieldy side effect of making the rich richer then so be it, c’est la vie, but please don’t tell Average Joe American lest he be upset.
“Cash rules everything around me,” the Wu-Tang Clan declared prophetically in the early 90's. This is more true today than ever before. So much so that the uber-rich have resorted to buying art and real estate much like you and I buy chips and salsa.
Unless we collectively begin to reassess the value of consumption for consumption’s sake, then we can look forward to more astronomical Amex bills from the likes of Liu Yiqian. As if that is a sign of progress we should all be proud of.
This is the future of wealth. This is the C.R.E.A.M. Economy.
