(posted to nettime-l with the permission of Steve Cisler)

I was thinking about the rejection of shocklog when I read this in the
current Economist. It uses a term new to me 'plutonomy' and I looked
it up on Google: lots of stuff since the two economists coined it in
2005, but not in wikipedia.

It is an interesting concept, especially to see it in the Economist.



Mutiny in the ranks

Feb 8th 2007
 From The Economist print edition
Reasons not to savour that fat bonus cheque

“IT'S the rich wot gets the pleasure, it's the poor wot gets the
blame.” The soldiers who sang that ditty in the first world war may
have been reflecting on the contrast between their lice-ridden,
shell-shocked existence and the creature comforts available to
aristocrats back home.

There was an enormous disparity between the income and wealth of
the top and bottom classes of society in the early days of the 20th
century, as there is today, another era of boisterous global trade.
The issue of inequality prompted Ben Bernanke, the Federal Reserve
chairman, to make a speech on February 6th calling for improvements in
education and training to help displaced workers.

Ajay Kapur and Niall Macleod, two Citigroup strategists, have invented
the term “plutonomy” to describe an economy where the spending power
of the elite holds sway. They argue that American savings data are
distorted by the top 20% of the population. Whereas many Americans are
reasonably thrifty, the wealthiest group spends more than it earns.

The rich need not save because financial markets are doing their
savings for them. Rising equity and house prices drove up the
net-worth-to-income ratio of the wealthiest tenth of Americans from
5.8 in 1989 to 8.4 in 2004. That gives them a licence to spend and
makes them immune to petty worries like higher petrol prices.

Furthermore, Messrs Kapur and Macleod say the rise of wealthy elites
in Russia and Asia may help explain why America finds it so easy to
fund its current-account deficit. Emerging-market plutocrats are
nervous about keeping their fortunes at home, lest the political winds
change. So they seek to move as much of it as possible to richer
countries. This, together with reserve management by the central banks
in Asia and oil-exporting countries, provides a steady source of
demand for American assets.

But what has caused this great dispersion of wealth? It is not
happening in all countries. The gap has been widening in America,
Britain and Canada but has barely budged in France, Japan or the
Netherlands. The two strategists cite numerous factors, including
rising executive pay and technological innovation, which have rewarded
high-skilled individuals. Globalisation, which seems to have lowered
the relative cost of unskilled labour and boosted the return to
capital, has also played its part.

Actually, if one looks at a broad sweep of history, it is the
relatively egalitarian 20th century that seems the exception. Mass
democracy is only 100 years old and it ushered in both the welfare
state and redistributive taxation. The rise of democracy, in turn, was
driven by the economic power of workers, especially those gathered in
large groups to work in mining, manufacturing and transport. As those
industries have ebbed, so have the forces of economic equality.

But although the workers have lost some of their economic power, they
have not lost their votes and may yet use them to redress the balance.
Messrs Kapur and Macleod suggest there may even be a link between the
growth of profits as a proportion of national income and the rising
popularity of far-right European parties such as the National Front in

If there were such a backlash, it could be a threat not just to
globalisation, but to democracy itself. Opinion polls and low voter
turnout at elections may indicate widespread public disillusionment
with politicians. There is also scepticism about the fairness of
the political process, given the role companies play in financing
political parties. And this is during strong economic growth: imagine
what a recession could do.

The prospects for a tax grab on company earnings are limited,
given the ability of corporations to move quickly across national
boundaries. But even in countries (like America) without extremist
parties on the left or the right, politicians will be tempted to
deflect the voters' wrath away from their corporate paymasters
and towards an easier target—“foreigners” of all types. Hence the
potential appeal of protectionist and anti-immigrant policies.

In time, this could undermine globalisation and reverse the relative
advantages of the rich (and the higher trend in profits). Although
many might welcome a more egalitarian world, the risk is that
protectionism would usher in a deep global recession, as it did in the

It is easy to assume, with globalisation, that a rising tide lifts all
boats. And most people do gain, even if the improvement in their way
of life can sometimes be hard to discern. But workers whose factories
are shut are unlikely to see it that way. For them, it must seem these
days that a rising tide lifts only all yachts.

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