American Plutonomy 2

Following up on a popular 2005 post American Plutonomy, I’ve found the CitiGroup reports “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 is concentrated in a small percentage of the population. Japan and most of the national economies of Europe showed more uniform distributions of wealth than the United States, Canada or the UK.”

Download CitiGroup Plutonomy 1 pdf
Download CitiGroup Plutonomy 2 pdf

The author Ajay Kapur asserts

“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.”

There’s much interest in this imbalance from scholars and citizens around the world. [also see Vertical Secession]

The International Herald Tribune wrote,

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.

I dredged into my notes and located this insight – a summary of the entire matter regarding economic imbalance.

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.

The “wealth effect” may be sufficient to discourage downward pressure on the dollar.

Luciana Juvenal of the University of Warwick, Professor Lucio Sarno of Warwick Business School at the University of Warwick, and Marcel Fratzscher of the European Central Bank, found that equity market shocks and housing price shocks had by far the greatest effect on reducing the US trade imbalance accounting for up to 35% of the movements of the US trade balance. By contrast, shocks to the real exchange rate of the US dollar explained less than 5% of such movements and exerted only a temporary effect on the US trade balance.

…a sizeable real depreciation of the US dollar may not be an inevitability for an adjustment of today’s large current account imbalances, and that other factors, in particular global asset price changes, could be an equally or even more potent source of adjustment.

These results underline the importance of wealth effects, stemming from asset price developments, as drivers of today’s global current account imbalances.

The rise in asset prices over the past decade has in particular increased expected income of households in the United States and, therefore, raised their consumption. At the same time, investment has been facilitated in response to this higher demand and firms have found it easier to finance investment opportunities, thus overall worsening the US current account position.

Significant falls in US asset prices, and equally stronger increases in asset prices in the rest of the world, will thus have the opposite effect and reduce trade imbalances.

…even a relatively high real depreciation of the US dollar, for instance by 10%, would improve the US trade balance by a modest 0.5%.

The researchers found that both equity shocks and housing price shocks have larger, and more persistent effects on the US trade balance than a real exchange rate shock.

Based on the research report of Emmanuel Saez, Kykos Productions has consolidated the data:

The Trillion Dollar Income Shift, Parts 1 & 2
[There is] a $1-$1.5 trillion shift in relative income occurring annually today, the majority of which is being shifted from the approximately ninety million American working class families to the wealthiest 1%, 1.1 million, households and corporations.

Shifting Income to the Wealthiest 1%
Income inequality in America today is not, as one might assume, about the upper 20% or even 10% wealthiest gaining at the expense of the rest. It is about the very rich, the extremely rich, the mega-rich gaining an ever-increasing relative share of national income while the middle, the working class, and the poor stagnate or decline in terms of their share of that income.

It is about corporations and the wealthiest 1% households (the very rich), and even the top 0.1% (extremely rich) and 0.01% (mega rich), accruing for themselves a greater relative share of income at the expense of the rest and, in particular, at the expense of the lower 80% income groups in which fall virtually all the 90 million working class families and the government’s estimated 108 million non-supervisory workers in the U.S. workforce.

A little change trickling downThe ‘wealth effect’
The Rolls-Royce Phantom Drophead Coupe marks the unveiling of the first convertible to be built since BMW Group revived the Rolls-Royce marque in 2003. Sixty people work in three teams on the assembly line, where the cars are pushed forward by hand on big trolleys. Making a Rolls-Royce is a time-consuming process. Only about five cars per day pass along the assembly line.

At least 40% of its customers will be recruited amongst America’s super-rich – who will be paying some $500,000 before tax and extras for the car – though some 20,000 of the world’s 85,400 ultra-high net worth individuals – people with more than $30m (£15m) ready cash at their disposal, as measured by CapGemini Merrill Lynch – are European, 3,700 of them British.

“The wealth factor is an important part of the market growth,” points out Rolls-Royce Motor Cars’ chief executive, Ian Robertson.

“We’re aiming to pick up about 1% of them each year.”

To boost earnings, Rolls-Royce is racing ahead with a forthcoming launch of a smaller, cheaper and sportier “Baby Rolls”, which despite costing up to $410,000 is set to spark a dramatic rise in the number of cars made. [story and pics at the BBC]

Rolls-Royce owners:

  • also own three to five properties
  • one or two of their properties are outside their own country
  • they own seven or eight cars
  • 14% of them own a private jet
  • 7% of them own a yacht

on plutocracy and rebellion

Everywhere inequality is a cause of revolution, but an inequality in which there is no proportion — for instance, a perpetual monarchy among equals; and always it is the desire of equality which rises in rebellion.
? ? ?
What share insolence and avarice have in creating revolutions, and how they work, is plain enough.

Wealth concentration and battle

Both the power of the elite and the degree of social inequality have grown hugely in the last two to three decades. It strikes me that the growth in state terror is fundamentally linked to the continuing growth in the concentration of power in the hands of the power elite, and the increase in the social inequality and stratification — the ever widening gap between rich and poor, within countries and between them — which every social observer has noted as one of the main characteristics of the global scene since the rise of the New Right in the West in the 1970s.

There appears to be a direct correlation between the increasing power and wealth of the elite, the steadily increasing gap between rich and poor, and the growth of state terror, perhaps the three most obvious global characteristics of the last quarter of the twentieth century. – The Anthropology of State Terror, Jeffrey A. Sluka