Reposted: Plutonomy Blogging at 32,000 Feet

The following is a reposted entry from October 26, 2009. I’m prompted to repost (from the old version of the blog) because earlier today I received a take-down letter from Citigroup’s attorneys.

REPOST:

The plane I’m on right now has free WiFi, so I can’t resist a quick post with a link to the Citigroup memo [LINK REMOVED AT CITIGROUP’S REQUEST] on the “Plutonomy”, featured in Michael Moore’s new movie “Capitalism: A Love Story”.

The report, from October 2005, is remarkable for its open exuberance about high and rising inequality in the United States. At least it gets the facts right:

…the world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S.

…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! …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. This is data for 2000… Since 2000 was the peak year in equities, and the top 1% of households have a lot more equities in their net worth than the rest of the population who tend to have more real estate, these data might exaggerate the U.S. plutonomy a wee bit.

Citigroup even gets a key point that eludes most people, whose time horizon is heavily skewed toward the last 30 years:

Was the U.S. always a plutonomy – powered by the wealthy, who aggrandized larger chunks of the economy to themselves? Not really.

And the text follows with a good discussion of how economic inequality was on the decline in the United States for most of the 20th century.

The Citigroup analysts, however, did get one thing spectacularly wrong. They argued that talk of economic stability and financial fragility misunderstood the dynamics of the new plutonomy.

“Most ‘Global Imbalances’ (high current account deficits and low savings rates, high consumer debt levels in the Anglo-Saxon world, etc) that continue to (unprofitably) preoccupy the world’s intelligentsia look a lot less threatening when examined through the prism of plutonomy.”

Oops!

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