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.