The World is dividing into two blocs — the Plutonomy and the rest. The U. Continental Europe ex-Italy and Japan are in the egalitarian bloc. In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. We worry less.
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The World is dividing into two blocs — the Plutonomy and the rest. The U. Continental Europe ex-Italy and Japan are in the egalitarian bloc. In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. We worry less. We project that the plutonomies the U. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take.
To continue with the U. Often these wealth waves involve great complexity. The Managerial Aristocracy, like in the Gilded Age, the Roaring Twenties, and the thriving nineties, needs to commandeer a vast chunk of that rising profit share, either through capital income, or simply paying itself a lot.
We have all heard the lament. Almost all the smart folks we know — our investors, our colleagues, our friends in academia, politicians believe in some variant of these two stories.
To summarize so far, plutonomies see the rich absorb a disproportionate chunk of the economy, their decision to lower their savings rate, often corresponding to the asset booms that often accompany plutonomy, has a massive negative impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc.
They do not worry us much. They are attracted by the facets that facilitated the re-emergence of plutonomies in the U. This further inflates the asset markets in these plutonomies, enabling the rich there to lower their savings rates further, and worsening their current account balances further.
At the heart of plutonomy, is income inequality. Corporate tax rates could rise, choking off returns to the private sector, and personal taxation rates could rise — dividend, capital-gains, and inheritance tax rises would hurt the plutonomy. Indeed, in the U. Protectionism or regulation.
Here, we believe lies a cornerstone of the current wave of plutonomy, and with it, the potential for capitalists around the world to profit. The wave of globalization that the world is currently surfing, is clearly to the benefit of global capitalists, as we have highlighted. But it is also to the disadvantage of developed market labor, especially at the lower end of the food-chain.
A third threat comes from the potential social backlash. To use Rawls-ian analysis, the invisible hand stops working. Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Plutoparticipant.
Why kill it off, if you can join it? But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to being truly rich. Could the plutonomies die because the dream is dead, because enough of society does not believe they can participate? The answer is of course yes. But we suspect this is a threat more clearly felt during recessions, and periods of falling wealth, than when average citizens feel that they are better off.
There are signs around the world that society is unhappy with plutonomy — judging by how tight electoral races are. But as yet, there seems little political fight being born out on this battleground. Our overall conclusion is that a backlash against plutonomy is probable at some point. However, that point is not now. So long as economies continue to grow, and enough of the electorates feel that they are benefiting and getting rich in absolute terms, even if they are less well off in relative terms, there is little threat to Plutonomy in the U.
Surely, then, it is the collapse of plutonomy, rather than the collapse of the U. In other words, we are fretting unnecessarily about global imbalances. You are commenting using your WordPress. You are commenting using your Google account. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email. Notify me of new posts via email.
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Citigroup’s Plutonomy Memo: “There are rich consumers, and there are the rest”
The reports are available for the time being: 20 June here and here. In and Citigroup issued two now notorious but highly significant reports for the exclusive use of its richest clients. This 35 page report begins:. The World is dividing into two blocs — the Plutonomy and the rest.
The Economics Of Plutonomy
Plutonomy entered the language as late as the s in the work of John Malcolm Forbes Ludlow. Citigroup analysts have also used the word plutonomy to describe economies "where economic growth is powered by and largely consumed by the wealthy few. The authors of these studies predicted that the global trend toward plutonomies would continue, for various reasons, including "capitalist-friendly governments and tax regimes". Eight years after Kapur and his team developed and published their plutonomy thesis, the French economist Thomas Piketty achieved worldwide prominence with his book Capital in the Twenty-First Century. In this book, he shows a strong long-term trend toward more concentrated income and wealth.
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