11/15/2008 05:12 am ET Updated May 25, 2011

What Does the "It Bag" Have to Do with the Economic Crisis? More Than You Think

"Contentment is natural wealth. Luxury is artificial poverty." The words
seem extremely compelling at present, but they were written centuries ago by
Socrates. I just came across them in a book called Deluxe: How Luxury Lost
Its Luster

Deluxe was published last year, but it is an interesting book to be
reading in this time of tumbling markets, as they will surely bring the
curtain down on an era of excess. The book's focus is high-end brands but in
many ways it is a story about human nature and history's cycles of boom and
bust. The author, Dana Thomas, who covers fashion for Newsweek chronicles
legendary companies that were founded as family enterprises and built on
principles of high quality and service, like Louis Vuitton and Christian
Dior. They catered to an elite clientele until the 1990s, when the forces of
globalization and capitalization changed the game. Retail wizards like
Bernard Arnault realized that huge profits could be made by leveraging
historic brands to sell status to the masses. Slick advertising campaigns,
mass production and shiny boutiques on every fashionable corner conspired to
convince the world's upwardly mobile that sought-after accessories were
within their grasp. All they needed to join celebrities and socialites on
the global runway was good taste and a credit card.

Is the housing boom that kick-started the economic mess that we are in now
so different in its evolution? After all, the mortgage disaster has its
roots in Fannie and Freddie Mac providing home ownership to all Americans,
regardless of their credit profile. Banks offering low-rate mortgages popped
up on every corner and now we have the subprime mess. The Detroit debacle,
too, can be traced back to unsustainable growth that was spurred on by 0
percent financing, no-money-down marketing and the idea that everybody in
this country is entitled to two cars in his driveway, preferably one an SUV
and the other a BMW. The notions of hard work and disciplined savings were
dismissed as quaint ideas of a bygone time.

Of course, there are parallels to the excesses on Wall Street as well.
Anyone with an MBA could open up a hedge fund and money from institutional
pension funds and endowments came pouring in based on the promise of
double-digit returns. Risk. What risk? These vehicles that were once the
province of only the most sophisticated investors would welcome everyone.
Wasn't this just financial opportunity for the masses? After all, it wasn't
that long ago that Lehman Brothers and Bear Stearns were private firms where
the partners counseled clients from their clubs and split annual earnings
over cigars. Like the houses of Vuitton and Dior in the old days, they had
their ups-and-downs in economic cycles but served a niche, not everyman. Nor
were they meant to improve earnings quarterly. They were conservative about
managing portfolios just as Hubert Givenchy wouldn't push a silhouette on
one of his loyal customers that didn¹t suit her. Personal relationships and
accountability mattered when companies were small and word-of-mouth carried

In more restrained times, as recently as 1977, Vuitton only had two shops in
Paris and revenues of $12 million. By 2005, there were more than 300 Vuitton
shops (twelve in mainland China alone) and the LVMH conglomerate posted 14
billion euros in revenue. Similarly, when Lehman Brothers went public in
1994 it had only $75 million in revenues compared with $32 billion in 2005.
In the same way that the lure of luxury bags has spread to the masses, in
the past decades, the right to be a day trader has been seized by any one
with an internet connection.

But, not surprisingly, anything taken to excess does lose its luster. To
fire up their profits, the ambitious CEOs of luxury good companies created
the cult of the It handbag. According to Deluxe, in 2004 the average
American woman purchased more than four new handbags a year. At that rate,
don¹t they become disposable as opposed to treasured? The American dream of
one day owning a house has resulted in millions of people being bankrupted
by their mortgage payments, and cul-de-sacs across California are littered
with For Sale signs. In 1980 only 13 percent of Americans were invested in
the stock market. Thanks to the emergence of $5 online trades and 24-hour
cable finance shows, by 1999 almost fifty percent of Americans owned stocks
directly or in mutual funds. Of course, as Americans have watched the prices
of their too-easily financed houses sink and the value of their 401Ks
plummet, the ugly side of binging has been revealed. Some of the same
middle-class Americans who cannot pay their mortgages now may realize that
owning last year's "It bag" didn't improve their social standing and has
contributed to the mess they are in. These golden opportunities in fashion,
real estate and finance now appear to be too good to be true and
consumers‹and tax payers‹ are left holding expensive, empty bags.

The credit bust and resulting consumer cut-backs will undoubtedly deflate
the luxury bubble and the culture of conspicuous consumption that it
spawned. Another quote attributed to Socrates on an era of excess: "The
children now love luxury; they have bad manners, contempt for authority;
they show disrespect for elders and love chatter in place of exercise.
Children are now tyrants, not the servants of their households. They no
longer rise when elders enter the room. They contradict their parents,
chatter before company, gobble up dainties at the table, cross their legs,
and tyrannize their teachers." The only difference that he might add today
is that the teenagers carry Prada purses.

A friend remarking on how all of this may spark a return to the kinds of
values that we grew up with in the 1970s, pointed out that, "Back then, you
got a bicycle or a new coat because it was your birthday, not just because
you grew two inches." It's true and back then, my mother had one handbag, a
Gucci one that was so well made that I still have it today.

Melissa Biggs Bradley is the founder of, a member-based web site, newsletter, community and booking and advisory service for sophisticated travelers. She was the founding editor of Town & Country Travel magazine and is the former features and travel editor of Town & Country. Two of her company's core principles are that travel is not just where you go but how your journeys shape you and that authentic experiences are endangered but that we can preserve them by traveling intelligently and responsibly.

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