Ambani Fights Inflation

As I have explained earlier, concentration of wealth at the very top is an excellent way to cut inflation. Mukesh Ambani has done his bit to fight inflation by building an expensive house.  Those who are decrying this as an example of conspicuous consumption are missing the point. If, instead of  building an expensive house, Ambani had distributed the money as salaries to Reliance employees or as profits to shareholders, the money would have chased goods that the poor also consume. By keeping the money for himself, he has caused a reduction in prices. The consumption of the super-rich is different from that of the rich and the middle-class.  As long as the super-rich spend money on status-goods and as long as their money goes to other super-rich people – such as when they pay M F Hussain for a painting, or Hafeez Contractor to design their house, it keeps money out of circulation from the general economy. The super-rich should, as a social obligation, take utmost care to ensure that their money circulates among themselves and does not leak out.

The super-rich, by cornering resources, cause a net decline in consumption of resources by others. Ambani’s building, for example, has used up valuable land that could have been used by others - at least it seems that way at first glance. But look at the positive side. If he hadn’t built his house in South Mumbai, the place would have hosted an apartment or an office complex. Those who would have lived or worked there would still be rich – such is the nature of the place. They  would certainly have cars that would have added to Mumbai’s congestion. Of course, Ambani’s house will also have a staff and there is ample parking space in the building, but I can guarantee that his house has caused a net decline in car use. His brother Anil commutes by helicopter to the DAKC in Navi Mumbai. This looks like an extravagance, but if this  expense item results in lower salaries for Reliance employees and forces them to commute by train, the helicopter ride is actually carbon-positive.

The cry of “conspicuous consumption” seems like childish whining to me. The problem, as we have seen, is not that Ambani consumes too much – that is a social good.  The problem is with the conspicuousness of the consumption. Others will see Ambani’s consumption and aspire to replicate it, at least in part. The culprit in this case is social mobility and the spirit of egalitarianism that gives the middle-class aspirations above their station in life. This was exactly the problem the caste system was supposed to solve. If we had a society where your position was determined by the accident of your birth, then Ambani’s consumption would not have caused concern to anyone except his peers. The government needs to take urgent steps to combat inflation by increasing social stratification and rigidity.

17 thoughts on “Ambani Fights Inflation

  1. Ravikiran,

    If Ambani keeps the money out of circulation, he helps in controlling inflation. True.

    He also keeps a large amount of land in the city to himself, which creates shortage of land. Hence land prices rise. Inflation rises…

    You do mention that the land would otherwise have been used up for some other purpose. But then, there would have been many flats or offices there, which would have increased the supply…

    Anyway, cannot be sure unless we have the actual picture.

  2. Have been a reader for a while, just wanted to say that this one was brilliant – cracked me up…..

    Thanks!

  3. Come On R. With the kind of statements people make, its hard to appreciate the difference between all of those.

    I mean there are people who make economic policies but don’t care about the opinions of economists (they are ‘elite’ u know).

    🙂

  4. Ravages, are you suggesting that satire is above sarcasm on the scale? I am very disappointed as a Tamil.

  5. “it keeps money out of circulation from the general economy”

    Why rise CRR to do this? Give it to the super rich. Another monetary policy tool. Not that it should matter, but one wonders what the inflation of the super rich economy is – inflation on that naked Sarasvati Devi painting or a Maybach, for example? Directly linked to hoarding of monies?

  6. Nilu: Descending order of complexity, impact and user’s ability. Irony is accidental. Wit is almost a social good – everybody possesses it in some quantity and at sometimes.

  7. You should really expand on that topic – which is better at fighting inflation – a caste system or a class system? I’d say Britain’s class system is the model to emulate. With the caste system, you never can be sure of economic status 😉

  8. Ravage,
    The point here is the consumption !
    We need to see that inflation is from which side !
    Is it a demand side, cost side, supply side !
    The world here is facing a supply side infaltion !
    Generally Necessity items are affected badly and crude oil and fuel adds fire to overall prices !

    When u say mukesh ambani is making a house ! but if u have read the the details !
    He will be using 5 floors for his parking space !
    Anil Ambani files fro helicopter then his employees are paid less and due to this cascade there is less consumption !
    just tell me how many employees will be affected and taking that nos of employees in an economy what impact it will have ! The answer is nil !

    Well we need to look for the data of ambanis !
    Then we can come to a conclusion !

    when u spoke about social culture and other things i feel u must be more specific on the point and it impact on spending and consuming !

    Regards
    JIten

  9. Jiten,
    It’s Ravages and not Ravage. And I didn’t write the post. I only make it easy for you and a few others to consume it with my comments. Think of it as the fiber/roughage you should eat to make things easier.

  10. I believe, Ambani’s billion dollar home issue is like a drop in the ocean, it counts, but not significant enough. The basket is bigger!

  11. Hello Dear,

    Pls understand that the inflation is due to the introduction of Commodity Exchange and trading of commodities.

    This has given unnecessary rise of prices due to trades taking place in the commodity exchange where there is no proper control in putting certain measure that will have direct impact of these commodities in the real market from where the common man buys commodities for his living.

    Ban on Commodity Exchange and scrapping it off will definitely bring down the cost of the commodities and thereby curtail the inflation growth.

    Moreover, the labour act has to interfere in the salary structure of the business houses in this country where there has been such a huge difference. The IT guy gets good salaries when compared to other guys working inthe other industries. This imbalance has given a lot of impact on the usage of excess money that has been imparted by the companies as salaries to their employees in the industry of information technology.

    I am also from the field of information technology and I have been observing the human behaviour of these people who have been working in our industry of information technology, there has been a careless approach in the spendings of the employees due to excess payout interms of salaries to the staff by the IT companies.

    Instead of providing very high and bloated salary packages to the staff, let the companies in the industry of information technology utilise that extra penny in the development of the nation and the infrastructure and proper implementation of man power not only in their organization but other sectors that are indirectly related to their industry.

    This is not intended to hurt anyone from the industry of IT, but a concious and open mind with a positive heart would definitely understand how an imbalanced salaries in the industries have been causing huge gaps in the society and there by are becoming indirectly the cause for the inflation.

  12. Well said, Nagaraja Gupta.

    Instead of building a huge monstrosity in the heart of a city that has vast areas of slums strewn across it, I wish Mukesh Ambani had spent the money to improve the infrastructure of schools and the roads and on modenizing agriculture in the country. This way, the money would have been ‘out of circulation’, and the country would have improved the quality of life of its citizens.

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