Or, "how Citigroup analysts described the 1%ers to a T back in 2005":
http://cryptome.org/0005/rich-pander.pdf
http://cryptome.org/0005/rich-pander.pdf
Gah. Can read no more.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.
In a plutonomy there is no such animal as the U.S. consumer or the UK
consumer, or indeed the Russian consumer. There are rich consumers, few in
number, but disproportionate in the gigantic slice of income and consumption they take.
There are the rest, the non-rich, the multitudinous many, but only accounting for
surprisingly small bites of the national pie.
The reasons why some societies generate plutonomies and others dont are somewhat
opaque, and well let the sociologists and economists continue debating this one. Kevin
Phillips in his masterly Wealth and Democracy argues that a few common factors
seem to support wealth waves - a fascination with technology (an Anglo-Saxon thing
according to him), the role of creative finance, a cooperative government, an
international dimension of immigrants and overseas conquests invigorating wealth
creation, the rule of law, and patenting inventions. Often these wealth waves involve
great complexity.
Society and governments need to be amenable to disproportionately allow/encourage the
few to retain that fatter profit share. 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
think that despite the post-bubble angst against celebrity CEOs, the trend of cost-cutting
balance sheet-improving CEOs might just give way to risk-seeking CEOs, re-leveraging,
going for growth and expecting disproportionate compensation for it.
Our contention: when the top, say 1% of households in a country see their share of
income rise sharply, i.e., a plutonomy emerges, this is often in times of frenetic
technology/financial innovation driven wealth waves, accompanied by asset booms,
equity and/or property. Feeling wealthier, the rich decide to consume a part of their
capital gains right away. In other words, they save less from their income, the wellknown
wealth effect. The key point though is that this new lower savings rate is applied
to their newer massive income. Remember they got a much bigger chunk of the
economy, thats how it became a plutonomy. The consequent decline in absolute savings
for them (and the country) is huge when this happens. They just account for too large a
part of the national economy; even a small fall in their savings rate overwhelms the
decisions of all the rest.
The behavior of the exceptionally rich drives the national numbers - the appallingly low overall savings
rates, the over-extended consumer, and the unsustainable current accounts that
accompany this phenomenon. We want to spend little time worrying about these
(non)issues, neither do we think they warrant any risk premium on equities.