American "plutonomy"
When the rich steal from the rich, it's Good Business;
When the rich steal from the rich for the poor, it's Noblesse Oblige;
When the middle steal from the middle, it's Corruption;
When the rich and the middle steal from the poor, it's Fiscal Responsibility;
When the poor steal from the rich and the middle, it's Crime;
When the poor steal from the poor, it's Tough Luck.by Brian Hayes
For those puzzled at how the United States continues to grow well above historical averages despite blistering fuel price rises, rising debt and interest rates and ballooning national deficits, many economists say one answer lies in the American "plutonomy".
It will be no consolation to poorer U.S. households struggling to make ends meet, but rising U.S. income disparity may explain how the world's biggest economy continues to expand rapidly amid repeated shocks.
In a "plutonomy", according to Citigroup global strategist Ajay Kapur, economic growth is powered by and largely consumed by the wealthy few. Canada and Britain fall into that category too, he says, the euro zone and Japan much less so.
Spurred by capitalist-friendly governments, technology-driven productivity gains, high immigration and strict property rights and patents, Kapur argues the U.S. plutonomy has mushroomed since the early 1980s.
With huge chunks of national income and wealth increasingly concentrated in a tiny percentage of households at the top, national spending, profits and economic growth are disproportionately dependent on the fortunes of that same group.
And the more there is growth in the economy, profits and the price of assets, such as houses and equity, the relatively richer and more significant this group is in assessing nationwide growth.
In other words, calculating how higher energy costs will affect the economy by simply looking at the impact on 'average' American households can be hugely misleading.
"There is no average consumer in a 'plutonomy'," he said, adding: "Consensus analysis focusing on the average consumer are flawed from the start."
via Reuters UK
"Whatever about the political system, the U.S. economy is not a democracy -- it doesn't count by heads, it counts by dollars," said Putnam's Kelly.
Update:
Comments found at the Economy Weblog, translated here, reveals a study by CityGroup "where a group of strategic analysts looked at segments of the population in the national indices of consumption, economic growth, wage costs, etc., and showed that in certain economies wealth was concentrated in a smaller percentage of the population. Japan and most of the national economies of the Europe showed more uniform distributions of wealth than the United States and Canada."
In his blog, Bill Cara reports about the CitiGroup analysis in "Global imbalances, with the rich getting richer":
"Ajay Kapur of Citigroup Global Markets has addressed a crisis and opportunity wrapped into one. It's why I blog.Ajay Kapur writes:
Kapur has tagged the concept of the global split between the rich and the rest as "Plutonomy". The rich are buying luxury goods and services, and the stocks of these companies are available to the rest of us."
"The World is dividing into two blocs - the Plutonomy and the rest. The U.S.,UK, and Canada are the key Plutonomies - economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc."Bill Cara replies:
"The top 1% of households in the U.S., (about 1 million households) accounted for about 20% of overall U.S. income in 2000, slightly smaller than the share of income of the bottom 60% of households put together. That's about 1 million households compared with 60 million households, both with similar slices of the income pie! Clearly, the analysis of the top 1% of U.S. households is paramount. The usual analysis of the "average" U.S. consumer is flawed from the start. To continue with the U.S., the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better (or worse, depending on your political stripe) - the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together."
"Since consumption accounts for 65 pct of the world economy, and consumer staples and discretionary sectors for 19.8 pct of the MSCI AC World Index, understanding how the plutonomy impacts consumption is key for equity market participants."
"There is no "average consumer" in a Plutonomy. Consensus analyses focusing on the "average" consumer are flawed from the start. The Plutonomy Stock Basket outperformed MSCI AC World by 6.8% per year since 1985. Does even better if equities beat housing. Select names: Julius Baer, Bulgari, Richemont, Kuoni, and Toll Brothers."
"The drivers of plutonomy in the U.S. (the UK and Canada) are likely to strengthen, entrenching and buttressing plutonomy where it exists. The six drivers of the current plutonomy: 1) an ongoing technology/biotechnology revolution, 2) capitalist-friendly
governments and tax regimes, 3) globalization that re-arranges global supply chains with mobile well-capitalized elites and immigrants, 4) greater financial complexity and innovation, 5) the rule of law, and 6) patent protection are all well ensconced in the U.S., the UK, and Canada.
They are also gaining strength in the emerging world. Eastern Europe is embracing many of these attributes, as are China, India, and Russia. Even Continental Europe may succumb and be seduced by these drivers of plutonomy."
"Yes, the rich are getting richer. And if the income is earned by legitimate means, I have no trouble with that. My beef, as you know, is not with wealth creation or capital ownership, but with securities laws, rules and regulations masquerading as protectors of the Little People."Fred posts a comment:
"Sounds like the '30s. That was a golden age of luxury cars, trans Atlantic flights by Zeppellin - All great stuff of you were rich.Download CitiGroup Plutonomy 1
FDR's confiscation of gold and revaluation from $20.67 to $35 was a tax on the plutochracy. They were the ones who held gold and bonds. FDR's actions were a one two punch at wealth not being used productively to build the economy."
Download CitiGroup Plutonomy 2
Are the rich riding to the rescue?
In this view, the rich are bailing out the rest of the economy. They spend, and they buy imported goods, and no one gets hurt.
There's a update thread here - American Plutonomy 2 - to continue the topic.
Brian Hayes produces the One Stop Thought Shop as a blog to capture smart and interesting ideas and technologies and social commentary. This blog doesn't tell you about what there is on the breakfast menu nor about mood or dinner dates. Instead the One Stop Thought Shop provides education and insight about breakthrough science, technology and our modern world. This is a good site for learning new things.
![[Valid Atom]](http://www.brianhayes.com/images/rssatom_valid.gif "Validate Atom")
3 Comments:
I'm curious to know when the term plutonomy was coined by Citigroup. I started a web design business in 2002 called Plutonomy Design Studios. My definition of the term has nothing to do with the rich and more to do with the two main word parts that create this unusual term: Pluto (the former planet) and Onomy (from astronomy - the study of space). Since my business deals with 2-D spatial relativities, graphic design and motion design, I felt like it was a memorable term that sounded cool. I certainly don't want my clients to think that I cater only to the wealthy few - in fact the reality is much the opposite. Thank you - Lou Friedman, Plutonomy Design.
The origin of words is fascinating. It often teaches us about history and culture. Perhaps these days, etymology is often used to help create branding and trade names as well.
Looking at the origin of 'Pluto', this Roman god was a wealthy underworld brother of Zeus.
Douglas Harper's Online Etymology Dictionary says that the word pluto derived from a broader usage meaning 'overflowing', certainly an apt term to describe the hoped results of the 'wealth effect'.
1652, from Gk. ploutokratia "rule or power of the wealthy or of wealth," from ploutos "wealth" (see Pluto) + -kratia "rule," from kratos "rule, power."
During the latter 1800s, a person of power and well was called a Plutocrat.
Wiki reports that a plutocracy is a form of government where the state's power is centralized in an affluent social class - that 'miniscule percentage of extremely wealthy individuals found in most societies'.
Ajay Kapur's use of the term plutonomy does not seem new. WordSpy reveals its usage well before 2002, examining propositions of economic equality in "Internalising Kantian ethics," Business Line, July 3, 1999.
"There are ideal economic systems which alone can help every individual to pursue the good in itself.
"...ends can often be obliterated in a wealth-seeking, material welfare-seeking, society. ...modern economics as plutonomy, a science dealing with individuals and societies primarily seeking wealth and, through wealth, material welfare. ...[no kingdom] of higher ends in a plutonomy.
In a review of Joel Kovel's "The Enemy of Nature-The End of Capitalism or The End of the World, Ted Dace reports how Plutonomy arrises:
While traditionally the marketplace is a means of exchanging goods for money so as to purchase other goods, under capitalism it becomes a way of accumulating money. Reversing the natural order, the merchant starts off with money and buys the product of someone else's labor, then turns around and sells it at a markup. As long as the
laborer is poor and the buyer rich, the trader makes a profit.
What gives a commodity value is not what we do with it, like using bricks to build houses or shoes to walk home in, but the price it commands in trade. In contrast to "use value," a quality that belongs to any given item intrinsically, "exchange value" is an abstraction that must be expressed quantitatively. When you buy a pair of shoes--or better yet, a thousand pairs--only to sell them for profit, their entire value is a number.
As the basis of economics becomes the trade itself and not the tangible thing exchanged, money is transformed into an all-consuming monster. No longer bound up with the limitations of actual land, people, and resources, it springs to life, an abstraction with a will of its own. "Pure quantity," says Kovel, "can swell infinitely without reference to the external world."
from the brotherhood notes of Jay Janson
Post a Comment
<< Home