According to Citigroup, the world is dividing into two blocs: the Plutonomy and the rest. 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. This imbalance in inequality expresses itself in the standard scary “global imbalances”. We worry less.
A week ago, I wrote about the “rise of the class affluent“—about a report for those who market luxury goods, who were encouraged to forget about the “mass affluent” and focus on the new “class affluent.” Magpie reminded me of Citigroup’s plutonomy reports, which had disappeared from the ‘net but are available once again (as noted by Edward Fullbrook): here and here.
Citigroup’s aim is not to market luxury goods but to offer investment advice. What’s their argument?
We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization. . .
Since we think the plutonomy is here, is going to get stronger, its membership swelling from globalized enclaves in the emerging world, we think a “plutonomy basket” of stocks should continue do well.
And what is in that plutonomy basket? Shares of “companies that make the toys that the Plutonomists enjoy.”
Of course, Citigroup does understand that the grotesque levels of income and wealth accumulated at the top might be threatened by some “change in the rules.” But then it concludes:
The three levers governments and societies could pull on to end plutonomy are benign. Property rights are generally still intact, taxation policies neutral to favorable, and globalization is keeping the supply of labor in surplus, acting as a brake on wage inflation.
The only real problem would be some kind of “backlash,” which it saw as unlikely in 2005:
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.S., UK, etc.
The fact is, the Plutonomies didn’t continue to grow. The same “imbalances” noted by Citigroup in 2005 and 2006 led to the crash of 2008. But there hasn’t been a significant backlash—at least not yet—and the tendencies observed by Citigroup have continued to create “plutonomies.”
Both Advertising Age and Citigroup understand what most mainstream economists spend their time trying to deny: the surplus is appropriated by and distributed to a tiny minority of the population, and the world has been for some time—and continues today—dividing into two blocs: a tiny group at the top and everyone else.
If you ask me, I’d say that Citigroup should not try to hide the plutonomic reports.
First of all, it’s kind of too little, too late.
Second, they were professionally done and almost uncannily accurate: they speak highly of their research team.
Third: sure, they reveal the ugly truth of the system, but what can people like me do about it? As long as Democrats and Republicans hold the reins of Government, there’s little to fear. And the rich will certainly do what they are expected: take advantage of the situation, which means more business for Citigroup.
Anyway, the best comment I’ve seen about these reports comes from a non-”loony left” commenter to Fullbrook’s original post:
“Remarkable: except for its conclusions it reads like a ‘loony left’ analysis…”
I couldn’t agree more: when mainstream economists do their job well (and the Citigroup boys did it just fine), they do sound a lot like Marxists.