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We are closing in on the 20th anniversary of one of the most revealing pieces of bank analyst research in recent American history. On October 16, 2005, Citigroup released an “industry note” for investors that started with a bracing statement: “The World is dividing into two blocs—the Plutonomy and the rest.”
Plutonomy is defined as an economy where, well, plutocrats provide the lion’s share of the economic activity and have a distortionary effect on economic statistics. One way to describe it is that if Bill Gates walked into a room with three laborers, the average wealth of all four in the room would be in the billions. But that wouldn’t tell you anything about the circumstances of the non–Bill Gates members of the sample, or how the economy feels to the “average” person in the room. “Consensus analyses that do not tease out the profound impact of the plutonomy on spending power, debt loads, savings rates (and hence current account deficits), oil price impacts … are flawed from the start,” the note explains.
This was an investor note, and it was primarily focused on finding a “plutonomy” basket of stocks to capitalize on this tendency. (Luxury goods, essentially.) But the researchers at Citigroup provided strong evidence for a continued pulling away of the rich from the rest, which has a lot of explanatory power for the moment we’re in economically today. How, otherwise, to explain the current combination of increased inflation, increased unemployment, and yet also increased consumer spending?
It all makes sense if you remove the averages and tease out who is doing all the buying and who is experiencing all the suffering. Since the pandemic, many have used the term “K-shaped economy” to demonstrate that the richer segments of society have seen their fortunes rise while the poorest fall. But I prefer “plutonomy,” a closer analogue to the idea of a Second Gilded Age. |
