We're voting for luxury

<preform>While Iraq burns and the world frets about Tuesday's election, America's super-rich are spending more than ever. Meanwhile, demand for food stamps has risen sharply. Andrew Buncombe </b></i>reports</preform>
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The Independent US

The sales assistant in the Neiman Marcus department store in well-heeled north-west Washington could barely have been more charming as she displayed a selection of items from the autumn collection by Akris, the Swiss fashion house that counts Susan Sarandon, Brooke Shields and Princess Caroline of Monaco among its fans.

The sales assistant in the Neiman Marcus department store in well-heeled north-west Washington could barely have been more charming as she displayed a selection of items from the autumn collection by Akris, the Swiss fashion house that counts Susan Sarandon, Brooke Shields and Princess Caroline of Monaco among its fans.

There was a women's trouser suit in black for $4,165 (£2,272), a silver and black jacket for $2,999 and another beautifully ribbed jacket in Persian wool, the price tag for which was teasingly hidden. Downstairs, in the men's department, another assistant was equally delightful as he sang the praises of a $4,195 jacket by the Italian designer Kiton. "The fabric is so light," he oozed. "The more you wear it, the more comfortable it is."

It is no wonder the staff at Neiman Marcus are smiling: this summer the store announced a record 13.5 per cent year-on-year increase in sales. What is astonishing is that the boom at Neiman Marcus is not exceptional.

The designer Michael Kors, whose purple mink ponchos sell for a little under $8,000, enjoyed a sales increase of 40 per cent. One survey said the overall increase in sales of high-end goods in the United States - designer clothes, $20,000 platinum-coated mobile phones, yachts, and jewellery - topped 28 per cent in the first five months of the year. Bling is certainly big.

Indeed, the surge in high-end sales has been such that Time magazine recently coined a new media-friendly term for the boom: luxury fever. "What's happened is that there is a necessity for a feel-good factor for luxury," Dana Telsey, a luxury goods analyst for Bear Stearn asset management, told the magazine. "With the improvement in the [economic] environment, especially after Sars and the war in Iraq, the demand for better products is expanding to all levels, from the super-premium such as private jets and resort residences, to the accessible, including [items by leather accessory designer] Coach."

But the high-end boom, which has resulted, as Time thoughtfully pointed out, in waiting lists for $50m yachts because most boatyards are fully booked until the end of next year and even into 2006, tells just part of a much more disturbing story. As America prepares to go to the polls in what may be the most important election in a generation, the gap between its rich and poor is greater now than at any time in the past 75 years.

Ironically perhaps, nowhere in America is the divide greater than in the nation's capital. In Washington, site of vast marble monuments designed to encapsulate the nation's founding ideologies and pay homage to its greatest heroes, the statistics are nothing less than extraordinary: figures collated by the DC Fiscal Policy Institute show the average annual income of the top 20 per cent of households in the city stands at $186,830, which is 31 times the average income for the lowest 20 per cent, which somehow struggle by on an astonishing $6,126.

"The divide between rich and poor is probably greater now than it has been since 1929," said Edward Wolff, professor of economics at New York University and author of Top Heavy: A Study of Increasing Inequality of Wealth in America. "The [boom in sales of luxury goods] is definitely going on. But the other side is that a much larger group of Americans are having a tough time making ends meet."

Just as business is booming at Neiman Marcus, three miles across Washington, in the traditionally black Shaw district, the staff at Bread for the City are equally busy serving their "clients". The non-profit organisation provides medical care, legal assistance and bags of groceries for the city's poor. In just two years the number of households it helps every month increased from 3,400 to 5,000.

"We have a hard core of people we help," Leslie White, the group's director of development said. "[But] a lot of people come to us in times of crisis, problems with their landlords, rent. People are losing their jobs; they are falling for lots of reasons."

How has this happened? How can companies such as Marquis Jet, which leases private jets to individuals, report that business is roaring? How can the luxury jeweller Harry Winston be opening stores in Las Vegas and Taipei, how can Nokia sell its Vertu mobile phone to Americans for $20,000, how can the CEO of Neiman Marcus casually point out that they have sold more alligator-skin shoes this year than in the past three years combined? How can all this conspicuous consumption thrive when so many millions of American are struggling to get by, when the nation's minimum hourly wage stands at just $5.15?

Behind the rise in the sale of luxury items are several factors, some attributable to the economy, some to fashion. Carol Brodie, a spokeswoman for Harry Winston, said she believed glamour as a style, and a commodity, was back in fashion. "Sales are strong and desire is strong," she said. "There can be no luxury fever without desire. At present, it seems as though there are luxury-goods stores in every street corner."

Of course, it suits retailers to argue that "glamour" is in style, but observers of the world of fashion say this autumn's styles have been unusually extravagant in a way not seen since the 1980s: fur is back, crystal beads cover many outfits, there is an abundance of cashmere. And this glamorous look is going down well: fashion houses such as Hermes, Christian Dior, Gucci and Louis Vuitton all reported a double- digit increase in the second quarter of the year.

Shirley Stacie, a spokeswoman for Neiman Marcus, said she believed that in 2004 there had been a release of "pent-up demand" for a more glamorous look. "The years 2002 and 2003 were recession years," she said. "There has been an improvement in the economy; there have been no terrorist attacks."

Another more concrete factor has been the steady recovery of the US economy and the tax cuts devised by the Bush administration that have returned billions of dollars to the richest Americans. The group, Citizens for Tax Justice (CTJ) found that for all the claims from President George Bush that his tax cuts were designed to help the middle classes, the average American family received just a few hundred dollars.

But the top 1 per cent of Americans - those with annual incomes of more than $340,000 - received 43 per cent of the total tax relief that was introduced. Mr Bush personally saved $100,000 on his tax bill.

Most of the people helped by Leslie White and her colleagues at Bread for the City had no tax cut. Even before Mr Bush's tax legislation, families with incomes of less than $26,000 were not required to pay income tax. Ms White pointed out that if someone was earning the minimum wage - a dollar higher in Washington at $6.15 - and working full-time they would be earning only $12,000 a year.

At this figure, not only is that person earning insufficient money to pay income tax but their earnings place then below the federally recognised poverty level, which stands at $15,000 for a household of three people.

The consequences of such a situation are critical. A report last month by the Community Service Society in New York, where an estimated fifth of adults and a third of children live in poverty, found that among those residents with jobs, 32 per cent had experienced having their gas, phone or electricity cut off because they were unable to pay the bills, 33 per cent had been behind with their rent, 32 per cent had been unable to pay for prescription medicine and 36 per cent had been forced to rely on food pantries.

Explaining the dichotomy between rich and poor in the world's wealthiest nation, the much-touted land of opportunity, is more complex. Professor Wolff said the US economy had been experiencing a slow transformation, where skilled workers were now valued much more than non-skilled.

"International trade, outsourcing, US investment in the Third World has reduced the manufacturing sector which used to pay decent wages," he said. "Now American blue-collar worker have to compete with low-paid Chinese workers." In addition, he said, the Bush tax cuts dating from 2001 have increasingly shifted the federal tax burden from businesses and investors and on to workers. Michael Zweig, director of the centre for the study of working-class life at the State University of New York and author of What's Class Got to do With It: American Society in the 21st Century, was even more explicit.

To him, the developments of the past 30 years or so amount to nothing less than class war. Using the so-called Gini coefficient, a statistical tool that measures wealth inequality, America is the most unequal nation in the world. The top 1 per cent of Americans now own 38 per cent of the nation's wealth.

"The gap is definitely getting bigger," he said. "The inequality has been growing since 1968. The organised power of labour has decreased very significantly due to a very deliberate approach by the corporate power in the country."

He said that while productivity of the average American worker had been increasing, real wages - what a person can buy with the money they are paid - had decreased by between 15 and 20 per cent. "The result is that the increased productivity is going somewhere else, to the top corporate elites who are making off like bandits."

What are the chances of this disparity being addressed? In the world of the election campaign trail, the Democratic challenger, John Kerry, has said that if elected he would roll back the tax cuts for the richest 1 per cent, and increase tax breaks for the middle classes.

President Bush has promised more tax cuts, including the repeal of estate tax, which the Republicans argue would help farms and family-run businesses but which critics say is another unnecessary tax break for the very wealthiest. Both candidates often mention the middle classes in their stump speeches, but they rarely talk about America's substantial underclass.

In the world away from the political rhetoric, experts say there is unlikely to be any change either in the spread of luxury fever or in the fortunes of the poorest sectors of society. Ms Telsey, the analyst from Bear Stearn, said she expected the luxury-goods market would continue to grow for at least two or three years, so long as the stock market did well and the oft-quoted feel- good factor remained.

At the other end of the spectrum, Ms White said that what often shocked her and her colleagues was the stagnancy of the circumstances of the nation's poorest individuals. She said: "There is no shift."