Exactly 5 years ago today, the WSJ published this post (Plutonomics) about a rather fascinating study on wealth inequality.

It was written by of all folks, Citigroup global strategist Ajay Kapur. In 2005, Kapur’s 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.”

What are the basic characteristics of Plutonomies? According to Kapur:

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.

Kapur also noted the impact massive income and wealth inequality had on other aspects of the economy: Savings rates, national debt level, spending patterns, reaction to high commodity prices, and more.  All of these, he claimed are substantially affected by the ultra wealthy.

Note that this was from 5 years ago today — circa January 2007 was, ten months before the market peaked, 11 months before the Great Recession began, and 15 months before Bear Stearns, 21 months before Wall Street (AIG BAC C FNM LEH, etc.) collapsed, and about 55 months  before Occupy Wall Street began.

Quite fascinating . . .

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Source:
Plutonomics
Robert Frank
WSJ, January 8, 2007
http://blogs.wsj.com/wealth/2007/01/08/plutonomics/

Category: Politics, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “Plutonomy”

  1. Frilton Miedman says:

    Our election process, which only allows those who can raise the most money to get into contention, is dumbing down the selections we’re given to vote for.

    I.E., Koch brothers want someone who’s easy to manage while in office, that will yield an ROI to justify the bribe money they spent to get him or her elected.

    Buddy Roemer is more qualified than the collective group of Koch puppets we’re now forced to choose from, but because his platform revolves around eliminating bribery, no one knows who he is.

  2. Vilgrad says:

    2012 – The Year of Living Dangerously

    http://www.theburningplatform.com/?p=27063

  3. rd says:

    I believe that historically they were also called feudal societies that would be prone to revolutions by the serfs.

    It also appears that Kapur is in the “debt doesn’t matter” camp. This time is different.

    “The Plutonomy also could explain larger “imbalances” such as the national debt level. The rich are so comfortably rich, Kapur explains, that they have started spending higher shares of their incomes on luxuries. They borrow much larger amounts than the “average consumer,” so they have an exaggerated impact on the nation’s debt levels and savings rates. Yet because the rich still have plenty of wealth and healthy balance sheets, their borrowing shouldn’t be a cause for concern.

    In other words, much of the nation’s lower savings rate is due to borrowing by the rich. So we should worry less about the “over-stretched” average consumer. “

  4. vavoida says:

    March 5, 2006 Equity Strategy Revisiting Plutonomy: The Rich Getting Richer

    http://maximinlaw.files.wordpress.com/2010/04/6674229-citigroup-mar-5-2006-plutonomy-report-part-2-1-1.pdf

  5. MayorQuimby says:

    I will repeat what I’ve said many times here in the comments. You don’t buy 3rd world babana republic capital markets. You SHORT them.

    Bull markets happen with income equality (relatively speaking of course), open and transparent gvmts who respect their citizenry, real enforcement of laws, prosecutions etc.

    BANANA REPUBLICS do not have successfully prosperous economies over any length of time.

    Ours will tank HARD before long. It might be a protest, assault on public figure, simple economics taking hold or any number of things.

    But the left and right in this country have set the stage for the possibility for our entire capital market structure to implode. I’m talking 60% – 90% losses in a matter of months.

    Think it can’t happen?

    Think it won’t happen?

    Bet you thought that about the NDAA too.

    Or TARP.

    Or the creeping death of property ownership via property taxation.

    Or the Fed debasing our currency by the trillions and possibly TENS of trillions.

    It won’t stop because the credit ponzi has ended and the noose will tighten much harder with each successive crisis going forward….until we all walk into DC, throw them all out on their asses (literally).

    Things will deteriorate to the point where YOU will have no choice but to march.

  6. you know, I’ve, always, thought it curious that, even, the “Democrats” had little appetite for John Edwards’ message of “Two Americas” ..

    Excerpts…

    “I have spent my life fighting for the kind of people I grew up with. For two decades, I stood with kids and families against big HMOs and big insurance companies. When I got to the Senate, I fought those same fights against the Washington lobbyists and for causes like the Patients’ Bill of Rights. I stand here tonight ready to work with you and John [Kerry] to make America stronger. And we have much work to do, because the truth is, we still live in a country where there are two different Americas… [applause] one, for all of those people who have lived the American dream and don’t have to worry, and another for most Americans, everybody else who struggle to make ends meet every single day. It doesn’t have to be that way…

    “We can build one America where we no longer have two health care systems: one for families who get the best health care money can buy, and then one for everybody else rationed out by insurance companies, drug companies, HMOs. Millions of Americans have no health coverage at all. It doesn’t have to be that way. We have a plan…

    “We shouldn’t have two public school systems in this country: one for the most affluent communities, and one for everybody else. None of us believe that the quality of a child’s education should be controlled by where they live or the affluence of the community they live in. It doesn’t have to be that way. We can build one school system that works for all our kids, gives them a chance to do what they’re capable of doing…
    “John Kerry and I believe that we shouldn’t have two different economies in America: one for people who are set for life, they know their kids and their grand-kids are going to be just fine; and then one for most Americans, people who live paycheck to paycheck…

    “So let me give you some specifics. First, we can create good-paying jobs in this country again. We’re going to get rid of tax cuts for companies who are outsourcing your jobs… [applause] and, instead, we’re going to give tax breaks to American companies that are keeping jobs right here in America…
    “Well, let me tell you how we’re going to pay for it. And I want to be very clear about this. We are going to keep and protect the tax cuts for 98 percent of Americans — 98 percent. We’re going to roll back — we’re going to roll back the tax cuts for the wealthiest Americans. And we’re going to close corporate loopholes…”
    http://www.famous-speeches-and-speech-topics.info/famous-short-speeches/john-edwards-speech-two-americas.htm

    yet, re: Plutonomy, We may care to see that “It doesn’t have to be that way.”

    http://www.washingtonpost.com/wp-dyn/articles/A22230-2004Jul28.html

  7. MayorQuimby says:

    Hey Mark-

    John Edward and Kerry and all those elitist Dems are as full of shit as can be.

    http://money.cnn.com/galleries/2007/moneymag/0712/gallery.candidates.moneymag/2.html

    http://www.rollcall.com/features/Guide-to-Congress_2009/guide/-38181-1.html

    Translation of that entire piece:

    “BLAH BLAH BLAH BLAH BLAH”

  8. Frilton Miedman says:

    Mayor Quimby,

    By merely reusing the words “banana republic” over and over, does this somehow negate this blogs topical premise of plutonomy?

    Is there some kind of relevance to the point, or is this something that seems to make sense to you if you just keep repeating it relentlessly?

    If that’s the case, I have a word for ya – “fascism”.

    As one of the founders of Fascism once described it -

    “Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.” – Benito Musollini

  9. theexpertisin says:

    Greed and power are not unique to corporate types, as history is filled with variations on accumulation at the expense of others. Maybe it’s time to whack the corporate gopher…but look out for the holes upcoming.

    BR – was reading the current Money mag (out of pure boredom) at the airport, and you show up with pics and opinions. Nice to see Money featuring a realist instead of their usual pablum. Just thinking about the type of reader Money aims for actually getting a taste of Ritholtz made me smile.

  10. Petey Wheatstraw says:

    Item 1 in Kapur’s list defining the basic characteristics of Plutonomies is just about as good a representation of our current situation as I’ve read. That it was predictive makes it even more impressive.

    A quick breakdown, with amendments:

    “1. They are all created by “disruptive technology-driven productivity gains . . .”

    Nothing illegal about that, but it probably aint’t smart, as it severely compresses the middle class and breeds a huge underclass (keeping in mind that the poor aren’t necessarily stupid or lazy, despite what you may have heard).

    “. . . creative financial innovation . . .”

    Rule of thumb: Whenever you hear the words “creative financial innovation,” it’s time to hide your wallet — someone is fixin’ to get swindled. Tell your children.

    “. . . capitalist friendly cooperative governments . . .’

    Kapur misses the mark, somewhat, here, as the relationship could be better described as conspiratorial than cooperative. Maybe Fascism was too impolite a term. In truth, government is big business’ freak on a leash.

    “. . . immigrants . . .”

    The Swiss Army knife of politico-economics: cheap, highly exploitable labor AND an easily identifiable group on which to place blame.

    “. . . the rule of law. . . ”

    The Rule of Law is dead. They (“they” being corporate lobbying interests), write the legislation, in their economic favor, for their Representatives in government to enact into law. If their criminal enterprise is large enough, they are not accountable to any law — regardless how blatant or egregious their crimes.

    “Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”

    Should be rewritten:

    “Often these crime waves involve great complexity and are best exploited psychopaths in high places.

  11. readerOfTeaLeaves says:

    Kapur misses several facts, including the number of offshore tax havens that have nothing to do with creating technology; indeed, they function primarily to enhance plutocracy.

    Doesn’t appear that Kapur can distinguish between technological impacts and the effects of neoliberal economic ideology. The economic ideology, enabled by networked communications and tax havens, have far more to do with plutocracy than any single technology ever invented.

    He’s attributing plutocracy to technology.
    What codswoddle.
    It is far more the result of ideologies that claim ‘job creators’ should have the right to concentrate wealth. The ‘technology’ claims are simply the veil of respectability tossed over their claims in order to divert attention from the decrepit neoclassical assumptions that Kapur fails to recognize.

  12. HowardA says:

    Over the last 50 years the income of the bottom 75% of the population has not been able to keep pace with the increases in the cost of healthcare, education, and retirement, and the government has increased its role to fill in the gaps. I’ve posted data on the distribution of wealth and income http://bit.ly/xu5F6m Check it out, and see where you stand:) 50% of the population reach retirement age with less than $35,000. 3/4 have less than $225,000. That will not last very long.

    I’ve also posted data that illustrates how the middle class has fallen far behind since the 1950s and how that links with the deficit, and where these trends (if unchanged) will lead in the next 30 years. Hint: Deficits>30% of GDP; government debt >400% of GDP (>$200 trillion) http://alturl.com/un36y

    Here is my proposed solution http://alturl.com/jjeqx Comments welcome!

  13. Futuredome says:

    lol, Kerry and Edwards were always elitist scum. Edwards pre-2004 election was a very different Edwards. Can’t blame him trying to strike when the iron was hot. That is what men like him do.

    Ron Paul is a elitist scum worshipping the ground of freemasonry from which his dad was sowed from.

  14. wisedup says:

    let’s rewrite #3
    3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, capitalist-friendly governments and capitalist-friendly governments.

  15. victor says:

    If I were in the same room with Mr. Kapur I would wave a copy of Plato’s “Republic” at him and gently advise: “It is all here!”, perfectly written some 23 centuries ago.

  16. budhak0n says:

    Pretty much sums it up.

    “Can’t fight the Fed.”

    “Render unto Caesar that which is Caesar’s”

    ” What is and what should never be” .

    And a myriad of other cliches but this one basically spells it out.

    Everything’s relative.

    A wealthy man or woman in NYC is not a wealthy man or woman in Savannah, or Kansas or Iowa.

    And some farmers in Iowa feel that despite his or her monetary wealth, the city slicker really possesses nothing which they desire. It’s all a matter of being happy with who you are and working every day to achieve your own goals.

    BTW, I’m available for any Tony Robbins esque conference you may be putting on this weekend, but I prefer my gargantuan fee to be paid in cash with no restrictions .. ( Meaning I probably won’t show up).

    If you’d like the swiss bank account number, simply leave me a message with your email and I’ll send you instructions where you can make the deposit.

    Have a great new year.

  17. fugazzi says:

    The little secret he forgot to mention, because it would mean the plutonoms didn’t rise thanks to their acumen, but through being there at the right time, is the Fed…
    Perpetually lower rates increase the value of assets, as in “discounting future cash flow with lower and lower rates”…on the other hand, being too low, or printing money, reduces the value of current cash flows, and hurts anybody relying on “fixed” payments, which includes salaries…
    No need to do anything…those who had assets at the beginning of the period, are very likely, statistically speaking to have a lot more, proportionnally to the entire pie, than 30 years ago…
    Also, bubble blowing favors the wealthy, as they have access to better financial services, loans, etcetc…they can be in early and get out early (er) than joe sixpack, who is likely to get in late, and get out late…
    So the game is rigged…but let’s repeat it’s because the plutonoms are geniuses and the rest of the rabble a bunch of loosers…

  18. zell says:

    I think the point made by Mayor Quimby, with an admittedly hard edge, is that a discussion of plutonomy is parlor talk. He correctly sees the transcendent crisis as the inability to juice the economy via massive credit creation. That is the alarming story. Past that it’s who have the nicest cabins on the Titanic and who will be bribing their way onto a lifeboat.

  19. Francois says:

    3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.

    Is that so? John and Jane Q. Public will just lay on their back begging for more f*&^&ing? Really?

    Anyone at Citi noted this phenomenon called Occupy? Do they really think a bit of Police-driven muscle’em and pepper-spraying will be all it takes to quash the “resistance” and resume business as usual?

    That’s be the delusion of the decade to think that.

  20. Frilton Miedman says:

    zell Says:
    January 9th, 2012 at 8:08 am
    ” I think the point made by Mayor Quimby, with an admittedly hard edge, is that a discussion of plutonomy is parlor talk. He correctly sees the transcendent crisis as the inability to juice the economy via massive credit creation. That is the alarming story. Past that it’s who have the nicest cabins on the Titanic and who will be bribing their way onto a lifeboat.”

    Ah, now there’s a brilliant idea, though the cause of this (D)recession is the historical extreme in the ratio of consumer debt to wages, banks using dirt cheap Fed money to manipulate the same consumer out of even more of their money…the solution is to invoke more of the same?

    To quote Marriner Eccles, from his memoirs as Fed Chair through the Great Depression, (Beckoning Frontiers) -

    “The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.”

  21. Frilton Miedman says:

    Zell, my point is illuminate that’s not his point.

    His ridiculous overuse of the “banana republic”, fox approved code-words, is to assert any government fiscal (tax) intervention is an act of Communism. (extreme left wing socialism)

    I advise anyone, read “The Powers of Congress” in our Constitution, apparently the founders wanted a “banana republic” by empowering Congress to regulate commerce and tax in the interest of the public welfare, not just the welfare of the wealthy.

    While we allow corporate welfare, tax havens/loopholes, tax payer subsidies for already wealthy entities, and bank executives, HF managers to pay < 15% of their incomes, all under the guise of "job creation", which have largely come at the expense of the "99", he assets government intervention to correct the obvious mistakes in "trickle down" economics is communism.

    My point, ask a Fascist (extreme right wing socialism/Social Darwinist) what his thoughts are on Democracy, he'll say something like "banana republic", everything looks like sociaism/communism to a Fascist.

  22. victor says:

    Frilton Miedman: you seem confused about Fascism (F) and Communism(C). F and C have much in common, remember Messrs Ribbentrop and Moltov? And hadn’t been for a mad, heinous man’s ambition they’ve had gone along just fine. I’ve already read “The Powers of Congress”, good advice for anybody.

  23. Frilton Miedman says:

    Victor, what they have in common are the extremes to which they infringe on personal liberty, from there, the ideologies completely diverge oppositionally left and right.

    Fascism = extreme social Darwinism, a literal economic social/status duel to the death with no limitation, no regulation to the extent that only the most advantaged survive, regardless of life or death of the “lesser” class or race, Hitler & Mussolini being the epitome. Hitler very frequently used the term “Social Darwinism” , he loathed Communsim.

    Communism = extreme collectivism, all are entitled to bare essentials provided by government, none are entitled to much more, the state takes private excesses in wealth, controls industry completely without accountability to it’s people. – deters natural free market competition and supply/demand, strips creativity, individuality and ambition.

    80 years ago, Socialism was used to refer to Communism, but more recently refers to social Democracies such as European Democracies, use of “banana republic” refers to Castro, a Communist.

    Either extreme is proven to spawn terrific suffering, the difference in a Democracy is that the people govern the government via the vote, which in turn “regulates commerce” and “To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”.

    The last would be thought of as “banana republic” Communism from the perspective of Hitler or Mussolini (some would say Ayn Rand as well), we think of it as our Constitution, Teddy R made it abundantly clear throughout his presidency, no American should have to starve or freeze to death to afford another s luxury.

    As Teddy R once put it –

    “We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community.”