When the Gulfstream V lands in St. Bart's, can you have your assistant set up a call? We have to talk. Look, we've had a pretty good deal these past several years. We gave you pretty much everything you wanted. Massive reductions in the top income-tax rates? Happy to oblige. Cuts on the levies on dividends and capital gains, which overwhelmingly benefit the upper crust? No problem. Placing the estate tax—excuse me, the death tax—on the road to extinction? You got it. We've even overlooked the fact that private-equity and hedge-fund managers pay only a 15 percent tax rate.
We've looked the other way at the gaucherie of extreme consumption, spawned by the greatest concentration of wealth since the 1920s. (The share of national income taken down by the wealthiest 1 percent rose from 14.6 percent in 2003 to 17.4 percent in 2005, according to Emmanuel Saez of the University of California, Berkeley.) We sit patiently on JetBlue and Southwest as your private jets clog up the airspace and runways. We continue to bust our butts, defend the borders and uphold the rule of law—all to protect your fortunes and property.
All we've asked in return is that you do a couple of things you're really good at: spend and invest that money close to home. Hire us, and keep the cash registers ringing, the asset managers managing and all the service providers providing the many services you so richly deserve.
Generally speaking, you've lived up to your end of the bargain, buying second homes, splurging on third marriages and fourth cars, throwing expensive, self-aggrandizing parties (like Blackstone Group chairman Steve Schwarzman's $3 million 60th-birthday bash) and funding medical research. America's top 20 percent of earners spend more in any given year than the bottom 60 percent.
You've also been investing locally, which we appreciate. Americans possess what stock-market types dub an enormous "home bias," or overexposure to the domestic market. At the end of 2006, says Jeff Applegate, chief investment officer of Citi Global Wealth Management, American investors had more than 80 percent of their stock portfolios in U.S. equities, even though U.S. stock markets accounted for well under half the global supply. Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, notes that high-net-worth investors (people with $2 million to $200 million) have a paltry five to 20 portfolios allocated to non-U.S. stocks. "U.S. investors are generally woefully underexposed to opportunities that exist outside the United States," he says. As a result, our companies can draw from deep pools of local capital.
But lately, worrisome signs indicate that you might not be living up to your end of the bargain. It's now becoming clear that the Christmas season was tough on everyone—and not just Wal-Mart and Target, where the masses shop. Like its flagship store at the corner of 57th Street and Fifth Avenue in New York, the Valhalla of extreme consumption, Tiffany & Co. was thought to be impregnable to forces of nature. Its sales held up even as exhausted consumers pooped out. But last week the chain reported that same-store sales slumped in the United States in December. Lexus sales were off 7.2 percent in December from the year before.
Yes, we've heard that the widespread woes of subprime borrowers are now hurting the primest of prime borrowers (an act of karmic justice, perhaps?). Thousands of investment bankers are losing their jobs, and year-end bonuses for many on Wall Street were disappointing. We feel your pain. But that's no reason to stop spending. Stagnant wages haven't stopped us middle-class Americans from going to the mall and eating at Sizzler. (The Census Bureau tells me real household median income in 2006 was actually 2.2 percent lower than it was in 1999.) When we run out of cash, we borrow against our homes. Then we max out the credit cards, and start raiding 401(k)s and penny jars. We regard living beyond our means as a patriotic duty.
The latest investment trends similarly lead me to think you may not be acting in the national interest. America's private-equity firms are plowing into India, China, Asia and Latin America, and private bankers are urging clients to drop the home bias (don't think condos in Palm Beach and ski chalets in Aspen; think beachfront property in Thailand and ski resorts in the Alps). A Spectrem Group survey of people with more than $500,000 to invest found that 31 percent are putting more capital to work internationally than in the past. "The rich are investing a larger share of their capital overseas," says "Richistan" author Robert Frank.
Just when the economy has started to take on water—and we don't know if we've just sprung a leak or we've hit an iceberg—it seems like the wealthy are piling into the lifeboats. So consider this a plea not to abandon us. Ski at Sugarbush instead of Gstaad. Invest in P.F. Chang's China Bistro instead of China. It might not be as rewarding, financially or psychologically. But your country needs you now, more than ever. And after all we've done for you, it's the least you can do.