Sunday, January 8, 2012

Crystal Balling America's Future

Blogger The Big Picture has a post that notes that five years ago the Wall Street Journal had an article by Robert Frank clearly identifying the brave new world of "plutonomy" that the US, UK, Canada, and Australia were entering.
Exactly 5 years ago today, the WSJ published this post (Plutonomics) about a rather fascinating study on wealth inequality.

It was written by of all folks, Citigroup global strategist Ajay Kapur. In 2005, Kapur’s research team “came up with the term ‘Plutonomy’ in 2005 to describe a country that is defined by massive income and wealth inequality. According to their definition, the U.S. is a Plutonomy, along with the U.K., Canada and Australia.”

What are the basic characteristics of Plutonomies? According to Kapur:
1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”

2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.

3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.
Kapur also noted the impact massive income and wealth inequality had on other aspects of the economy: Savings rates, national debt level, spending patterns, reaction to high commodity prices, and more. All of these, he claimed are substantially affected by the ultra wealthy.

Note that this was from 5 years ago today — circa January 2007 was, ten months before the market peaked, 11 months before the Great Recession began, and 15 months before Bear Stearns, 21 months before Wall Street (AIG BAC C FNM LEH, etc.) collapsed, and about 55 months before Occupy Wall Street began.

Quite fascinating . . .
It is worth your time to go read the entire Robert Frank post in the WSJ. I haven't read his upcoming book The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust but I've got a hold on it at the library and expect to be entertained and appalled.

Here is a different Robert Frank, this is Robert H. Frank who teaches at Cornell University in a PBS Newshour interview with Paul Solman:

If you listen to 8:00 into the above video you find an interesting straddling of the middle. He argues from the right for the value of the free market and from the left for the importance of government in regulating the market and ensuring a fair playing field. (Funny, this isn't Darwinian. This is Adam Smith who has been misconstrued by the political right to be only the "invisible hand" guy when, in fact, he very much appreciated the role of government in helping to establish the possibility of a market.)

Don't confuse the Robert Frank who writes for the Wall Street Journal with the Cornell professor. Both have something interesting to say, but they are two different voices, but unfortunately with the same name.

As for America's future, it will succeed only if it gets off the destructive path that is creating a more and more unequal society and gets back to something more like the 1950s and 1960s when the middle class bloomed, America was prosperous, and the future looked unlimited. The future requires a more pragmatic politics that isn't dogmatic right or dogmatic left. It needs a politics that overthrows the idiocy of Reaganism and that overthrows the idiocy of a nanny state. The US needs a renewed robust middle, a real middle class, and a real political middle.

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