“The Plutonomy is here, is going to get stronger, its membership swelling. Toys for the wealthy have pricing power, and staying power.”
-Ajay Kapur, global strategist at Citigroup
Today is the 8th anniversary of a fascinating set of observations via Robert Frank in the Wall Street Journal on income inequality.
8 years ago, long before most of us even heard of a French academic named Piketty (notably before Murdoch’s acquisition of Dow Jones) came along this gem:
It’s well known that the rich have an outsized influence on the economy.
The nation’s top 1% of households own more than half the nation’s stocks, according to the Federal Reserve. They also control more than $16 trillion in wealth — more than the bottom 90%.
Yet a new body of research from Citigroup suggests that the rich have other, more-surprising impacts on the economy.
Ajay Kapur, global strategist at Citigroup, and his research team came up with the term “Plutonomy” in 2005 to describe a country that is defined by massive income and wealth inequality. According to their definition, the U.S. is a Plutonomy, along with the U.K., Canada and Australia.
In a series of research notes over the past year, Kapur and his team explained that Plutonomies have three basic characteristics.
1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”
2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.
3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.
Fascinating stuff . . . well worth rereading the full piece.