Michael Lind: Is America a Plutonomy?
[Michael Lind is Policy Director of the Economic Growth Program at the New America Foundation.]
Has the American economy turned into a "plutonomy"?
In 2005, three Citigroup analysts -- Ajay Kapur, Niall MacLeod and Narendra Singh -- answered yes. They explained: "Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S ... Often these wealth waves involve great complexity, exploited best by the rich and educated of the time." According to the Citigroup experts, a plutonomic economy is driven by the consumption of the classes, not the masses: "In a plutonomy there is no such animal as 'the U.S. consumer' or 'the UK consumer,' or indeed the 'Russian consumer.' There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the 'no-rich,' the multitudinous many, but only accounting for surprisingly small bites of the national pie." The Citigroup analysts speculated that a plutonomic world economy could be driven by the spending of the world’s rich minority, whose ranks are "swelling from globalized enclaves in the emerging world."...
In his book "Successful Living in This Machine Age" (1932), [Edward] Filene argued that the drive for lower wages and the privileging of investment over consumption had produced chronic overcapacity: "At a time when more buying was the need of the hour, [capitalists] were still calling upon the masses to refrain from buying goods, and to invest their savings in more production; and when industries languished from want of customers, they advised reducing wages, a process which must result in a further falling off of sales." As in the stock bubbles of the 1990s and 2000s, financial experts in the 1920s urged ordinary Americans to emulate the rich by gambling in stocks. According to Filene, financial experts recommended that ordinary people "should better themselves by investing their savings and drawing either interest or dividends, instead of having to depend forever upon the wages which they might receive from week to week."
The Great Recession is not an exact replay of the Great Depression. For one thing, the problem of industrial overcapacity is now global, with too many factories producing too many goods in China, Japan and Germany and not enough consumers in chronic trade deficit countries like the U.S, Britain, Spain and Greece. But history makes it clear that when economies mutate into plutonomies they become dangerously volatile. Just as a ship with a broad base is more stable than a top-heavy boat, so an economy in which well-paid workers create mass consumer markets for the goods and services they provide is more stable than a top-heavy plutonomy.
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Has the American economy turned into a "plutonomy"?
In 2005, three Citigroup analysts -- Ajay Kapur, Niall MacLeod and Narendra Singh -- answered yes. They explained: "Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S ... Often these wealth waves involve great complexity, exploited best by the rich and educated of the time." According to the Citigroup experts, a plutonomic economy is driven by the consumption of the classes, not the masses: "In a plutonomy there is no such animal as 'the U.S. consumer' or 'the UK consumer,' or indeed the 'Russian consumer.' There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the 'no-rich,' the multitudinous many, but only accounting for surprisingly small bites of the national pie." The Citigroup analysts speculated that a plutonomic world economy could be driven by the spending of the world’s rich minority, whose ranks are "swelling from globalized enclaves in the emerging world."...
In his book "Successful Living in This Machine Age" (1932), [Edward] Filene argued that the drive for lower wages and the privileging of investment over consumption had produced chronic overcapacity: "At a time when more buying was the need of the hour, [capitalists] were still calling upon the masses to refrain from buying goods, and to invest their savings in more production; and when industries languished from want of customers, they advised reducing wages, a process which must result in a further falling off of sales." As in the stock bubbles of the 1990s and 2000s, financial experts in the 1920s urged ordinary Americans to emulate the rich by gambling in stocks. According to Filene, financial experts recommended that ordinary people "should better themselves by investing their savings and drawing either interest or dividends, instead of having to depend forever upon the wages which they might receive from week to week."
The Great Recession is not an exact replay of the Great Depression. For one thing, the problem of industrial overcapacity is now global, with too many factories producing too many goods in China, Japan and Germany and not enough consumers in chronic trade deficit countries like the U.S, Britain, Spain and Greece. But history makes it clear that when economies mutate into plutonomies they become dangerously volatile. Just as a ship with a broad base is more stable than a top-heavy boat, so an economy in which well-paid workers create mass consumer markets for the goods and services they provide is more stable than a top-heavy plutonomy.