Plutonomics: "a rising tide lifts only all yachts"
Plutonomics, (via Cara) the "vagaries" of the rich help keep economy afloat as the seemingly powerful forces leave the economy unscarred.
Low saving rate and high gas prices, along with rising deficits and a dollar depreciating against the euro and amidst these recessionary signs we have Dow hitting 12,000!
Messrs. Kapur and Macleod now point a finger not to liquidity waterfalls or to a Goldilocks economy but to an increased spending by the rich upper quintile of the population. And they say it's not a bad thing. While I mostly agree with their investment strategy based on plutonomy with a prior that the posited relationship is true, the economy based on spending decisions of the small elite would be less stable than a prosperous mid-class based system. I however abstain from comments at least for the time being and let you make your own conclusions.
The excerpt from the research by Messrs Kapur, MacLeod and Singh can be found below:
"...Plutonomy: Take another look
The latest Survey of Consumer Finance data was released Friday 24th of February. It shows
that the rich in the US continue to be in great shape.We thought this was good time to bang
the drum on plutonomy.
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..."
5 comments:
it´s very interesting to consider this finance data but we are a lot of millions and if you consider the incomes of mid-class, you have a diferent scenario and maybe if the elite consider this situation maybe they can invest and attend the necessities of mid-class they can satisfy his shape in a good way contries like US, UK, CANADA and AUSTRALIA, the elite are the dominant drivers of demand and spend his money in this countries because they receive a "Duty Free", we need to confirm that the person who have the goods is the people can make the difference...
We need to consider this pont of view with a very tacful...
Pacheco
According to the theory based on plutonomics, the success of countries like United States, Canada, Australia that are considered like world powers, because this countries are based essentially on the knowledge and soon after this knowledge are considered at the moment as countries of the abundance, the income per capita of these countries is excellent, reason for which most of the population resident is considered of high level, at the moment the economic tendencies are based on the demands and necessities of the elite of these countries with abundance, the important of this theory is the question that the countries considered as plutonomics establish the rule for the development of the economy.
LAURA ELENA VELOZ ROMO (MA)
According to the theory based on plutonomics, the success of countries like United States, Canada, Australia that are considered like world powers, because this countries are based essentially on the knowledge and soon after this knowledge are considered at the moment as countries of the abundance, the income per capita of these countries is excellent, reason for which most of the population resident is considered of high level, at the moment the economic tendencies are based on the demands and necessities of the elite of these countries with abundance, the important of this theory is the question that the countries considered as plutonomics establish the rule for the development of the economy.
LAURA ELENA VELOZ ROMO (MA)
The Plutonomics theory stablishes that the rich are the dominant drivers of demand in many economies around the world: US, UK, Canada and Australia are quoted.
At my personal judgment, to let rich lead the demand would be being at expenses of their "vagaries" and economy could be affected.
As Pacheco said, we should consider the incomes of mid-class since they give stability to economy.
Siempre será importante como está la distribución de la riqueza y con el paso del tiempo vemos como se polarizan las clases, y la gente con mayor poder adquisitivo genera mayor rendimiento de sus activos y mientras que las clases medias bajas tienen muy poco sobre que poder aumentar su riqueza cuando la mayoría de su ingreso se va a las cosas más elementales y básicas para el ser humano. El punto para mí está en el país su desarrollo y educación, ya que una cosa genera por consecuencia la otra, y es difícil hablar de ingresos a nivel macro si no se cuenta con alguno de los dos, y en países de tercer mundo las empresas o sectores que generan ese ingreso son contadas, mientras que en países desarrollados las oportunidades laborales por el número de empresas que permiten que la economía se mueva es un número bastante considerable, aunado a esto la información y conocimiento que tiene la población los hace mejor tomadores de decisiones y por tanto este tipo de países generarán mayor riqueza, y las empresas querrán atender las necesidades de estas clases con poder de compra.
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