Citigroup’s disappearing plutonomy report

Former Citigroup CFA and coiner of "plutonomy" Ajay Kapur

In my surprisingly arduous attempt to find 2007 revenue figures for Citigroup yesterday, I ran across something called the plutonomy report. Back in 2005, Ajay Kapur—then CFA of Citigroup—produced this industry note describing investor and consumer behavior in economies where a very small portion of the population controls a very large portion of national wealth. He called such economies plutonomies. “The world is dividing into two blocs,” Kapur writes—“the plutonomy and the rest.” He lists the United States, Canada, Australia and the UK among the plutonomy nations and puts continental Europe and Japan “in the egalitarian bloc.” Here in plutonomy country, “the rich absorb a disproportionate chunk of the economy” and therefore hold primary influence over aggregate indicators like savings rates, account deficits, consumer spending, et cetera. In 2006, Kapur produced a follow-up to the first plutonomy report, in which he argues that plutonomy countries,

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…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.

It’s a controversial argument, especially from a bank that defrauded consumer investors to enrich itself and a billionaire hedge fund manager the following year. People would probably get angry about it, except the second plutonomy report has been steadily disappearing from the interent since it leaked.

Luckily for us, I have access to all manner of expunged primary source documents through Bit Torrent. Here’s Citigroup Plutonomy Report Part 2 in convenient .pdf form. Lawyers may hold me gently in their mouths, since I am linking to this document for the purposes of review as described under the fair use provisions of United States copyright law. Ajay Kapur is a terrible writer. One would think that the former CFA of one of the world’s largest banks could manage subject-verb agreement, but he can’t. Kapur writes a sentence like a man who has been looking at spreadsheets for nine hours. His ideas are pretty interesting, though.

Chief among them is the thesis that, in a plutonomy, the rich are the segment of the population that matters. Kapur argues that the enormous portion of wealth controlled by the very rich in the United States—he estimates that the top 5% possess greater net worth than the bottom 95% combined—explains many of the “conundrums that vex equity investors,” such as low savings rates, high oil prices not slowing global economic growth, and dollar depreciation failing to ameliorate the trade deficit.

Basically, these contraventions of traditional economic wisdom are happening because most of the money spent in the United States is spent by very rich people, whose habits don’t change much when the economy tanks. That explains why the stock market has made an impressive recovery from the 2008 collapse when the rest of the economy hasn’t, and why consumption of luxury goods continues to grow even as overall consumer confidence stagnates. If you measure the economy in people, it’s rough out there. If you measure it in dollars, it so happens that 5% of the country spends 60% of the money, and they’re doing fan-fucking-tastic.

The rich have more money than they’ve had in a hundred years, which means they have more money to spend on stocks and foreclosed houses and unlimited political advertising that does not endorse a specific candidate. In Kapur’s assessment, that means they’re only going to get richer. And I quote:

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.

Very relaxed—in fact, Citigroup is so relaxed about this whole plutonomy thing that their only worry is that people will start thinking about it. Maybe that’s why Citigroup’s lawyers have systematically removed plutonomy report #2 from the internet, usually by threatening copyright lawsuits. It’s not that they don’t want people to know about the growing plutonomy. It’s that they only want their investors to know about it, since those are the kind of rich people at whom the whole plutonomy theory directs itself. The rest of us—the “labor class,” as Kapur calls us—can take our minority portion of the national wealth and try to buy gallons of gasoline.

What we can’t do is read about it in the news. I tried to find a better article on Citigroup’s disappearing plutonomy report than the personal blog linked above, but it’s just not out there. For a report that Matthew Yglesias calls a “bit of a cult classic” among economics writers, the systematic removal of Plutonomy 2 from the internet sure hasn’t gotten much press. In a country where experts agree that 95% of us don’t have enough money to meaningfully affect economic indicators, it’s almost as if we didn’t need to know.

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  1. My brother mentioned a relevant thought to me the other day. The vast majority of the middle class doesn’t buy stocks directly. They put their money in a mutual fund, which is then run by a fund manager. This essentially abstracts their ability to vote, make decisions, or control what is done with their money. And gives that control to a member of the top 1%, which is the fund manager. Thus widening the gap of power between the middle class and the wealthy.

  2. This document should be renamed “The Smoking Gun.” It’s always (somehow) both refreshing and nauseating to read the “capitalists” completely accepting and freely using all the terms of Marxian class warfare while their crony politicians and media figures scoff at the very notion that such a thing exists. The war is real, and its winners are winning because they know they’re in a war. Half of us (labor) are still unsure for some reason. I’d try to pull such a report, too, if I were Citi.

  3. This Citiman takes a long time to say “The rich get richer”.

    I’ll bet most of us studied “plutocracy” (along with monarchy, oligarchy, republic, democracy, etc) in school when we were kids.
    The rest of us watched “The Matrix” and figured out the way of the present world from that.

    As an individual investor who buys so-called low risk stocks and has no pension, I can tell you that the stock market only “recovered” for those who could jam an additional million in at the new bottom and ride up. Those of us looking under sofa cushions for more money are still down 30% or more from where our life savings were in 2007.

    See above: “The rich get richer”.

  4. Another one of those days that I love Combat! — I’m sure if you compiled my comments I’d look like such a hormonal bitch.

  5. The problem with 500+ word comments is that they are invariably more about the commenter’s opinion than the original post. But since you called for it, I’ll dash off one.

    It’s important to start from grounded position while declaring class warfare. The rich get richer, and the rich are really rich, and the rich have most of the riches, this is all true. Reform would be good; increasing the size of the middle class improves long-term stability. But it doesn’t necessarily follow that just because the distribution of wealth is fucked up that we need to dismantle the whole system. Even if you’ve lost 30% of your portfolio, you still have electricity, food, shelter, and money to spend on shoes.

    The grounded position to start from would be to question how we got all this stuff. In 1600 a king had transportation, warm bath water, heated rooms, clothing, etc. In 2011 everyone in America has these things, even the penniless schizophrenic if he gets to the shelter early enough. How did this happen? Where’s all this wealth come from that existed in such small amounts 400 years ago?

    The answer is not “our benevolent corporate overlords” or anything like that. Nor is this line of questioning is an argument that us labor classers need to lower our standards. I’m simply pointing out that some…thing–a system of institutions or magic or heroic effort–is accountable for this ever increasing wealth. Shoes don’t appear out of thin air. Even if a rich capitalist technocrat wanted to try, he couldn’t go to Afghanistan and manufacture shoes out of the blue. He doesn’t have the educated staff to run the machines, he doesn’t have infrastructure to transport the materials, nor do the people have the money to buy the shoes, the economic incentive (such a dirty word) which fuel the system at every step.

    Shoes, like all wealth, are generated only when a complex set of institutions are in place to allow them to be produced: Stable government, good roads, education, some level of wealth which which to lubricate the shoe-making machinery. So I’m not particularly thrilled at the benefactors of this long and sometimes bloody road of progress overlooking all the mistakes and failures around the world and in the past. It’s understandable, I think. It’s extremely hard to see the means through which we’ve transformed our society into one where we all live like kings (and my shoe factory metaphor isn’t good enough to help), but no one can deny that somehow a transformation has taken place. I venture that it’s the western institutions we take for granted, but whatever. I just think it’s important to ask how that happened before using a rhetoric of war in a discussion about the excesses in these institutions.

    Stated another way, I’m not aware of any solutions to the wealth gap which aren’t worse than the problem.

    We definitely need to be discussing possible solutions, but I move we take “class warfare” of the table because even the scraps from the rich make a better life for the laborers than having a total economic meltdown and getting all fascist like post-Soviet Russia.

    P.S. Not responding to any one commentator in particular. Just taking numbers and phrases from what’s been said.

  6. Sorry just a quick comment hope you wont mind. When you say Back in 2005, Ajay Kapur—then CFA of Citigroup—produced this industry. CFA is chartered financial analyst its an accreditation not a job title. He was probably a sell side equity analyst when he wrote that report. When you gain the CFA you earn the right to use those letters after your name!

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