michael perelman on Sunday, January 23, 2011 9:19 PM wrote:
>I cannot copy the memo, only read it on the web. Its willingness to write
>so honestly about our neoliberal capitalism, it is interesting and worthy
>of comment. Maybe someone can figure out how to copy it.
>
> http://www.box.net/shared/9if6v2hr9h
>
> --
> Michael Perelman
> Economics Department
> California State University
> Chico, CA
> 95929
>
> mperelman at csuchico.edu
>
> 530 898 5321
> fax 530 898 5901
> http://michaelperelman.wordpress.com
> ___________________________________
I have copied the Table of Contents and pp.17-18 sans the Fig. 13 (Please see Figure 13 - in the original ) out of the 907KB PDF original file.
I found these two pages especially relevant to the current Great Stagnation situation as they furnish as a reminder to the plutonomy ( translation: Pluto is short for plutocratic or plutocracy and plutonomy means plutocratic economy or simply economy of and for the rich and super-rich - the plutonomists.) Citigroup Investment Research and Global Equity Strategy said, "We see the biggest threat to plutonomy as coming from a rise in political ..." "reactionary political forces are likely to rise as globalization persists and the losers in developed economies gain in numbers.. rise of right-wing, generally anti-immigration parties ." The predictions jibe with ascendancy of the Tea Party in the U.S.
On the other hand, ... demographics might support - politically - a higher profit share.
My own opinion concerning this report from Citigroup is that they did pretty good homework and the rich folks who subscribed to it got the service of advice well worth their lucre for fees.
Mark
(Excerpted from "The Global Investigator" - September 29, 2006) :
Table of Contents
Strategy by Region
Global - The Plutonomy Symposium - Rising Tides Lifting Yachts ............................................. 7
U.S. - Calibrating 2007 Targets.................................................................................................. 21
Europe - Avoiding the Mega-traps ............................................................................................. 27
Japan - Birth of the Abe Administration ..................................................................................... 31
Asia-Pacific - If It's Due to Speculation=Bullish; If Due to Weaker Growth=Bearish .................. 37
Latin America - Think Small ..................................................................................................... 43
Model Portfolio, Fund Flows, Market Intelligence, Analytics
Global Quantitative Angles......................................................................................................... 49
Weekly U.S. Mutual Fund Flows
(All-Equity: up US$835 million, All-Taxable Bonds: down US$215 million,
All-Money-Market: down US$7,715 million)................................................................................. 51
Investor "Risk-Love" (Investor Sentiment) and Asset-Price-Based Global Growth Indicators
U.S. Risk-Love is slowly climbing in the valley of distress. In Japan, Risk-love is neutral but in
Europe it stays close to euphoria. Sentiment in the Emerging Markets also remains elevated
near the euphoria zone. The asset-price-based global growth indicator is near its long-term
average, suggesting moderate global growth ahead. .................................................................... 54
Global Market Intelligence......................................................................................................... 56
Global Stock Model Portfolio - Summary Matrix.................................................................... 58
The Least Preferred Stocks Portfolio ........................................................................................ 59
The risks to plutonomy (PP.17-18)
Our thesis is that the plutonomists are likely to get even richer over the coming years. This could mean global imbalances get even larger, without the planet getting knocked of its axis and sucked into the cosmos. But this thesis is not without its risks. Plutonomies have existed before and they have come to an end. To this end we see four primary risks. The first, war and/or inflation. Secondly, financial collapse.Three, the end of the technological revolution. Finally, political pressure to end the increase in income and wealth inequality. Looking back over time, wars have been pretty bad times for wealth. Both because of the destruction of physical assets, and/or confiscation of wealth, but also more generally as wars have tended to be inflationary. And inflation itself is a major destroyer of financial wealth (just as disinflation has helped create wealth over the last 24 years).
Global conflict/revolution on a scale that could destroy the wealth of the plutonomy countries looks to us unlikely in the short term. Secondly, financial collapse. As much of the wealth of the plutonomists is held in one shape or other in financial wealth (as opposed to land or property), the state of the financial system is important. Financial collapse, as in the Great Depression in the US, would be a serious challenge to the plutonomists. While we have worried periodically about systemic financial risk, say in the aftermath of the LTCM debacle, it is beyond us to speculate about financial collapse. This would however be a serious issue for the rich.
A third challenge would be the end of the wave of technological revolution. The great plutonomy waves of previous centuries, such as the Gilded Age, the Industrial Revolution in Britain, the era of Dutch supremacy, were often associated with technological and financial progress. Economies advanced through progress, with the gains in the first instance disproportionately going to the innovator and risk takers. Were the technology revolution to dissipate, it is likely that the income gains would channel less to the top. Furthermore, technology waves are usually associated with productivity gains, which in turn tend to help keep inflation low and profit growth high. This in turn being a major source of financial wealth creation.
So an end of this positive spur would be unhelpful to plutonomy. We see the current internet and communications revolution as being far from dead.Perhaps the most immediate challenge to Plutonomy comes from the political process.Ultimately, the rise in income and wealth inequality to some extent is an economic disenfranchisement of the masses to the benefit of the few. However in democracies this is rarely tolerated forever. One of the key forces helping plutonomists over the last 20 years has been the rise in the profit share - the flip side of the fall in the wage share in GDP. As plutonomists or capitalists tend to be long the profit share, they have benefited from trends like globalization and the productivity revolution, disproportionately. However, labor has, relatively speaking, lost out.
We see the biggest threat to plutonomy as coming from a rise in political demands to reduce income inequality, spread the wealth more evenly, and challenge forces such as globalization which have benefited profit and wealth growth. Globalization has come in for its fair share of attack of late. And political attention on immigration and protectionism is never far from the surface. As we suggested in our note in October last year, reactionary political forces are likely to rise as globalization persists and the losers in developed economies gain in numbers. To an extent we see this happening in Europe, for example, where the rise in the profit share (fall in the wage share) has come at the same time as the rise of right-wing, generally anti-immigration parties (please see Figure 13 - in the original pdf format).
On the other hand, aging populations in countries where there are developed and well-financed pension schemes, and a big equity component in these, are probably more tolerant of a rising profit share. As individuals move from being workers to retirees, their incomes shift from being earned as wages, to dividends and savings, which are more linked to profits. This would suggest that in the UK and US for example, demographics might support - politically - a higher profit share, though this might not hold true, for example, in a country like France.
So, is plutonomy under threat politically? We are keeping an eye on this one. At the moment, it is too early to make this call. Calls for protectionism and an end to immigration grow louder by the day, but they are difficult to measure. But a substantial percentage of Americans are in favor of repealing the estate tax (though only 2%, roughly, will ever pay it), which does not resonate as a population determined to destroy wealth inequality.
The political process is the greatest threat to plutonomy. We don't see it as a threat today in most countries. But we are alert to changes here.
Conclusion
The rise of the plutonomy has been an incredibly important development of the last 25 years. We think the huge increases in wealth and income inequality that has occurred as the rich have become richer helps explain many conundrums that simplistic analysis of "the average consumer" ignores.
The rich earn a lot. They are worth a lot. They don't tend to save out of income. They are apparently impervious to US$70 oil, run negative savings rates, and are, we believe, largely to 'blame', for the negative savings rates in plutonomy countries. Not that rich people in nonplutonomy countries aren't doing exactly the same, or feeling the same forces. It's just that in egalitarian countries like Japan or most of Europe ex the UK, there simply aren't enough rich folks to influence the data in the way that there are in plutonomy countries like the UK, US or Canada.
Our Plutonomy Symposium in London looked at the challenges and opportunities presented by this fast growing market. The general message was that the rich wanted great service, uniqueness, quality and that the traditional concept of cost was far less than value. Time is of great value, rather than money. The rich value personal attention and uniqueness. While it is difficult for companies to retain prestige and continue to provide excellent service, the underlying market/demand looks exceptionally strong.
Our own view is that the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years. We think rising profit margins will keep profit growth strong, and equities are at any rate undervalued.
And the rich tend to be disproportionately exposed to the equity markets. While there are challenges to this, not least through populations/the political process demanding a more "equitable" share of the wealth, in the short term we think the trend of the rich getting richer is likely to persist. Plutonomy related stocks should, we think, continue to see strong demand and inflation-beating pricing power.