Revisiting Plutonomics

“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.

The Wealth Report

Fascinating stuff . . . well worth rereading the full piece.

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  1. Kevin_In_Philadelphia commented on Jan 8

    So…plutocracy. Wealthy get wealthier, everyone else sinks a little lower year-after-year, the wealthy buy our politicans (really the best ROI of any investment available to them), and the whole thing repeats itself.

    Snark aside, how is this system sustainable? There has to be a breaking point where the so few that possess so much are “displaced”. We’ve seen it before, and it rarely works out in the favor of the wealthy. Is there a true shortsidedness that exists among America’s upper class, or do they just not care, hoping that the $15/hour bodyguards they hire to protect them from the rest of society won’t turn on them when it all comes to a head?

    • Ralph commented on Jan 8

      Its been sustained for about 500 years so far, with only a few pesky revolutions every century or so

    • Kevin_In_Philadelphia commented on Jan 9

      Those “few pesky revolutions” were a pretty big deal. French Reveolution, Red October, Mao’s China, not to mention the small scale overthrows of feudal-type systems in Cuba, Southeast Asia, and South America. With ease of travel and advanced communications technology, if there ever were another large scale revolt, I think it would be a fairly serious affair.

    • DeDude commented on Jan 8

      The 0.01% actually have hedged their bets by having domiciles on multiple continents. Their bet is that in the unlikely event that their power structure fall, they will get out and live comfortably somewhere else. That is part of why all these Russian and Chinese people have homes in US, France and little tinpot dictatorships.

  2. Singmaster commented on Jan 8

    How do you reverse it without revolution? Tax code changes? Minimum wage raises? What fixes it?

    • wally commented on Jan 8

      The Great Depression followed by WWII followed by a huge wealth transfer in the form of the GI bill set the stage for some great middle-class decades (50’s, 60’s and 70’s) before class privilege reasserted itself. In fact, those years shaped America and took it to a dominant world position. However, that’s a lot of trauma to endure.

    • rd commented on Jan 8

      The Gilded Age from about 1870 to 1900 also saw a massive transfer of wealth and power from agriculture to industry and transportation. Many of that successful generation saw their fortunes crushed in the Great Depression.

      Europe decided to use up much of their excess labor force on the battlefields in WW I and II (the ones that didn’t emigrate to North America). The immigration to the US in the late 1800s helped make up for the demographic loss of labor force in the US during the Civil War.

    • DeDude commented on Jan 8

      A truly liberal democrat government can fix most of it. Look at the scandinavian countries. Restricting world trade would cut a little in overall GDP but benefit the 90%. Clearly minimum wage increases and strengthening unions via labor laws, would also help ensure a more fair distribution of the fruits of increased productivity. The rest could be done with more highly progressive taxing (as in the 50’ies). The problem is that the plutocrats still have enormous control over information so they can manipulate those who would benefit and should be pushing the slow revolution to vote against their own interest. With Diebold machines and non-verifiable voting they may be able to build the dam higher and postpone the time it either breaks or spill over.

  3. constantnormal commented on Jan 8

    One could extend these observations back to before the Magna Carta, or said another way, “the filthy rich will always be with us”.

    I think that so long as they leave the 99.99% some breathing room, and drive society forward (instead of narcissitically inward), it is a stable situation (although far from optimal for the society). But I am not at all convinced that the basis-pointers are driving our society forward these days.

    Realistically, the lower half (at least) of the economic strata in Bananamerican society have neither the time nor the interest in steering the nation via democracy (even if we really had an effective representative democracy, which we most assuredly do not have), they are too busy working to make ends meet. So the plutocrats have the advantage from the outset, with the time to educate themselves on how the system works and the money to make it work the way that they would like. I seriously doubt that they think of our economy in any way other than how it relates to themselves and their interests.

    The same could be said about the rest of us … this is one of the failed implicit assumptions in a representative democracy, that the “wisdom of the people” will help guide the nation along a path that benefits the greatest number and moves society forward in the “best” manner. Instead we have a political system rotted out by money and influence, with neither deliberation nor compromise taking place in our legislature, or between any of the working parts of our government.

    I have no better scheme, as Churchill said, “It has been said that democracy is the worst form of government except all the others that have been tried” … that does not mean that a better way does not exist, but we have long ago stopped seeking it.

  4. Crocodile Chuck commented on Jan 8

    “They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments…

    ‘creative financial innovation’: TRANSLATION obliterating regulation aimed at preventing usury, catastrophes [Graham Leach Biley Act] & enabling the upwards redistribution of wealth through exacting rents

    ‘capitalist friendly cooperative governments’: TRANSLATION successive US administrations enabling billions of dollars of financial fraud by the biggest banks & Wall Street.

    This Citi report was a crock of sh _ t in ’07, and its even more disgusting ordure today.

    Proof? Just look at the perils of Mr. Kapur’s parent institution from 15 September, 2008 through to the end of that year. Citigroup received the largest taxpayer bailout in history during the financial crisis as a result of its unchecked derivatives: $45 billion in TARP funds; over $306 billion in asset guarantees; and more than $2 trillion in low-cost loans from the Fed according to the General Accountability Office.

  5. pm2416 commented on Jan 9

    Every time I see a quote from Citicorp the first thought that pops into my head is that there would not be a Citicorp without the taxpayers of the U.S. They and all the other TBTF banks would be rusting at the bottom of the financial ocean. You’re welcome.

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