Necrachilles wrote:
Rich people are going to be rich because that's all they know and if they're not rich they'll die.
Poor people want to be rich or at least think they do but after being poor for so long most poor people couldn't handle being rich and would just die anyways.
http://maximinlaw.files.wordpress.com/2010/04/6674229-citigroup-mar-5-2006-plutonomy-report-part-2-1-1.pdfWelcome to the death of economies, knowingly set in motion.
Quote:
Back in October, we coined the term ‘Plutonomy’ (The Global Investigator, Plutonomy:
Buying Luxury, Explaining Global Imbalances, October 14 2005). Our thesis is that the rich
are the dominant drivers of demand in many economies around the world (the US, UK,
Canada and Australia). These economies have seen the rich take an increasing share of
income and wealth over the last 20 years, to the extent that the rich now dominate income,
wealth and spending in these countries. Asset booms, a rising profit share and favorable
treatment by market-friendly governments have allowed the rich to prosper and become a
greater share of the economy in the plutonomy countries. Also, new media dissemination
technologies like internet downloading, cable and satellite TV, have disproportionately
increased the audiences, and hence gains to “superstars” – think golf, soccer, and baseball
players, music/TV and movie icons, fashion models, designers, celebrity chefs etc. These
“content” providers, the tech whizzes who own the pipes and distribution, the lawyers and
bankers who intermediate globalization and productivity, the CEOs who lead the charge in
converting globalization and technology to increase the profit share of the economy at the
expense of labor, all contribute to plutonomy. Indeed, David Gordon and Ian Dew-Becker of
the NBER demonstrate that the top 10%, particularly the top 1% of the US – the
plutonomists in our parlance – have benefited disproportionately from the recent
productivity surge in the US. ( See “Where did the Productivity Growth Go? Inflation
Dynamics and the Distribution of Income”, NBERWorking Paper 11842, December 2005).
By contrast, in other countries such as Japan, France and the Netherlands (read much of
continental Europe), egalitarianism has kept the rich to a similar share of income and wealth
that they accounted for in the 1980s – in other words, they haven’t really gotten any richer,
in relative terms.
We believe that the plutonomy thesis helps explain some of the conundrums that vex so
many equity investors, such as why high oil prices haven’t slowed the global economy, why
consumer confidence might be low yet consumption remains robust in the US, why savings
rates are low, and why the dollar depreciation hasn’t done much for the US trade deficit.
Why as equity investors do we care about these issues? Despite being in great shape, we
think that global capitalists are going to be getting an even greater share of the wealth pie
over the next few years, as capitalists benefit disproportionately from globalization and the
productivity boom, at the relative expense of labor. As we believe plutonomy explains away
some of the conundrums we highlighted above, we are very relaxed about these issues.
Indeed, if the rich keep getting richer, as we suggest, savings rates might get even worse in
the plutonomy countries. If plutonomy explains away many conundrums that our equity
clients worry about, then this suggests the risk premia ascribed to equities might be too high.
Furthermore, if the rich will be getting even richer in the coming years, this bodes extremely
well for businesses selling to or servicing the rich, be it for example luxury goods stocks or
private banks.