“Plutonomy”, guaranteed by the tax-payer

Its approaching 3 years since the financial crisis erupted and there is little sign of a global recovery.  Perhaps just as worryingly, there is not much evidence of the key protagonists being held accountable nor of the changes to the financial architecture that might be required to prevent it happening again.  If your anger at this situation has dissipated recently, I can recommend Charles Ferguson’s excellent documentary ‘The Inside Job’ to remind you that much of the blame can be assigned to a small number of very wealthy white men. They remain in powerful positions and very wealthy.

And if that is not enough to get your blood boiling, you could have a read of two astonishing reports produced in 2005 and 2006 by the global financial conglomerate Citigroup.  Citi was feeling pretty confident back then.  So confident, in fact, that they decided to coin a new term to describe a new kind of economy that the Anglo-Saxon countries were now ‘enjoying’: “Plutonomy”.  The papers, which are, currently, available in full on the web, were called: “Plutonomy: Buying Luxury, Explaining Global Imbalances” and “Revisiting Plutonomy: The Rich Getting Richer”. 

Citigroup believed that we had moved in to a new kind of macro-economy, where growth was primarily driven by the rich and enjoyed by the rich.  Everyone else was fairly irrelevant, as was the global imbalance in trade between the US and everyone else and the strength of the dollar.  The fact that inequality was massively widening was not seen as a big issue - the important thing was to keep the rich and their stocks, getting richer. Its astonishing reading - here's a few select quotes:

“Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.”

"…we hear so often about "the consumer".  But when we examine the data, there is no such thing as "the consumer" in the U.S. or U.K., or other plutonomy countries.  There are rich consumers, and there are the rest.  The rich are getting richer, we have contended, and they dominate consumption. As the rich have been getting richer, so too stocks associated with the rich, have performed exceptionally well.  Our Plutonomy Basket, generated returns of 17.8% per annum, on average, from 1985.  If Plutonomy continues, which we think it will, if income inequality is allowed to persist and widen, the plutonomy basket should continue to very well."

In 2011, the reports were published on the internet and Citigroup set about getting them off as quickly as possible, as The Real World Economic Review points out.  Clearly, they were concerned about their public perception.  Not surprising given that in 2008 they required a taxpayer bailout of $45 billion-plus in order to survive. 

So, please, stay angry.  As The Inside Job concludes, panning across the Statue of Liberty: “The men and institutions that caused this crisis remain in power; and that needs to change… It won’t be easy.  But some things are worth fighting for.”