Plutonomy: The Murph misunderstands

Quelle surprise, eh?

Ajay Kapur, global strategist at Citigroup, and his 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.

In a series of research notes over the past year, Kapur and his team explained that Plutonomies have three basic characteristics.

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.”

That\’s the description from the WSJ of what \”Plutonomy\” means.

So, we\’ve now got a description of what causes inequality. \”disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions.\”

Note that there\’s nothing there about Thatcher, neo-liberalism, greed, inadequate Christianity or any of the other things that Ritchie blames inequality upon. Simply that liberal capitalism (the liberal is that rule of law bit plus the immigration: a society which doesn\’t have either can fairly be called illiberal) (the capitalist bit being patents, innovation etc), in a time of disruptive technology-driven productivity gains, produces inequality.

OK…..

It’s almopst laughable but for three things.

It’s true.

It’s what these people think.

Their wealth has recovered even if no one else’s has.

So the opprtunity for the game to start again already exists.

Eh? What connection is there between Ritchie\’s comments and the diagnosis of why inequality has risen? We are in a time of great technological change (globalisation being just one such) and therefore we have rising inequality.

And further, if Ritchie buys this explanation (which I myself do) for rising inequality why in buggery doesn\’t he start advocating the only thing that will reduce it? A restriction on technology-driven productivity gains?

17 thoughts on “Plutonomy: The Murph misunderstands”

  1. Worstall
    Those comments came after the front page of the report.

    “The Global Investigator

    The Plutonomy Symposium — Rising Tides Lifting Yachts

    ? Time to re-commit to plutonomy stocks – Binge on Bling.

    Equity multiples appear too low, the profit share of GDP is high and likely going higher, stocks look likely to beat housing, and we are bullish on equities. The Uber-rich, the plutonomists, are likely to see net worth-income ratios surge, driving luxury consumption.

    Buy plutonomy stocks (list inside).

    ? Plutonomy stocks at a premium, but relative pricing power is key.

    ? Our Plutonomy Symposium take-aways.

    The key challenge for corporates in this space is to maintain the mystique of prestige while trying to grow revenue and hit the mass-affluent market. Finding pure-plays on the plutonomy theme, however, is tricky.

    ? Plutonomy and the Great Conundrums of our age.

    We think the balance sheets of the rich are in great shape, and are likely to continue to improve. Don’t be shocked if the savings rate worsens as equities do well.

    ? What could go wrong?

    Beyond war, inflation, the end of the technology/productivity wave, and financial collapse, we think the most potent and short-term threat would be societies demanding a more ‘equitable’ share of wealth.”

    it kinda makes more sense then, doesn’t it?

    Is rising inequality a good thing? I don’t see any proposals from you that seek to mitigate the pain. Is that because you think it’s ‘natural’ for there to be a majority of unfortunates (or as you’d no doubt splunge, losers).

    What a pile of shit, again, Timothy.

    Tim adds: “Is rising inequality a good thing? I don’t see any proposals from you that seek to mitigate the pain. Is that because you think it’s ‘natural’ for there to be a majority of unfortunates (or as you’d no doubt splunge, losers).”

    Actually, shithead, I’ve repeatedly argued, here and elsewhere, that globalisation is producing two different trends in inequality. It’s producing greater in country inequality and at the same time reducing global inequality.

    I don’t think that rising incountry inequality is a good things, no. I also most certainly don’t think it’s as bad a thing as shite like The Spirit Level makes it out to be.

    I most certainly do think that absolute poverty, that $1 a day kind, is an abomination and I heartily applaud and approve of the quite amazing reduction, in recent decades, of those who have to suffer it. Hundreds and hundreds of millions have escaped it since we started this Washington Consensus, neo-liberal globalisation thing. And yes, I do indeed go on to say that if rising in country inequality is the price to be paid for that quite delightful decrease in absolute poverty and global inequality that that’s a price well worth paying. Even, to the point that people who whine about it should shut the fuck up and celebrate the achievement.

  2. @Arnald

    “Is rising inequality a good thing?” is it inherently bad, then? What if everyone’s better off than before, but some are further ahead of the pack? You know, the whole smaller slice of a bigger pie thing?

    Or are you arguing that the best of all worlds kicks in only if everyone gets the same amount of money, regardless of ability and merit? If so, what motivates the more able?

    If not, who gets to decide how much extra money a particular individual is worth?
    And how?

  3. I saw a Richard Murphy piece the other day, on Liberal Conspiracy about Nick Clegg and the privatisation of RBS and Northern Rock, and the argument was broadly correct with no obvious examples of mind numbing stupidity.

    Do I win a prize or something?

  4. Rising inequality, but still increasing the wealth of the poorest, or the equality in poverty of a dirigiste society espoused by the likes of RM and and Arnald?

    I’ll take the former.

  5. Being a fair-minded cove ,I might accept that inequality would increase in a time of technological change in the manner of Kondratieff but now is not a time of great technological change .Great technical change should encompass the invention of new sources of energy:steam , piped gas,electricity.The last big thing was the application of small electric motors.Cheap cars , trains ,aeroplanes are yesterday’s news .What is creating inequality nowadays is not helter skelter investment in mass produced new inventions but too much investment in property and the oldest , unwhizziest thing of all, land ,creating world wide popped housing bubbles.Dan Dare and the Treens, so retro.

    Tim adds: Globalisation, the international division and specialisation of labour, is itself a technolgy.

  6. Only new sources of energy constitute disruptive technical change? Theat is obviously, shall we say, questionable.

    It can be argued that the biggest driver of the recent round of globalisation was the invention of the shipping container, allowing unprecedented amounts of goods to be moved economically be removing dockyard inefficiency. And one only has to look at the classic Indian fishermen example for one aspect of how affordable mobile comms can revolutionise productivity in a seemingly unrelated sphere; consider tehe effect of that sort of change across the entire logistics world…

  7. In what way, if my income remains the same, and my neighbour gets rich, am I a victim of efficiency gains from technological advance? My neighbour has captured those gains (good for him, I should have paid attention at school too) without depriving me. Also good of him. A rising tide doesn’t just raise the yachts, it floats my boat too, because efficiency gains are deflationary and my nominal income is unchanged.
    The only way I can see increasing inequality being a problem is if my neighbour and I are competing for unique goods like Van Goghs or pearls of great price where yes my bidding power is relatively smaller. But to extend this to prices at a supermarket is ludicrous.
    Oh, I see. Arnald and Rithci are compaining they can’t afford Van Goghs. (sigh) (diddums)

  8. Not a very long list of major technological change in recent times: shipping containers (affecting distribution not production) and the international sub-division of labour caused by globalisation.
    Sub-division of labour can be effective with work done by hand as in Adam Smith’s time.
    When you consider the fate of Liverpool, trading with” the Peninsula and Orient “,processing the products of plantations worked by slave and then indentured labour: sugar (Tate’s); tobacco (Ogdens) and cotton all over North East England so thatL’pool became the last home port of the Confederate navy,it would appear that the present benefits of globalisation are very much more narrowly distributed.Probably just to the City of London
    where they skim flows of global finance.

  9. “Not a very long list of major technological change in recent times: shipping containers (affecting distribution not production) and the international sub-division of labour caused by globalisation.”

    Right, no technology change at all in recent times… the Internet and the ways to access it that we have today also exist since about 100 years or so …

    “,it would appear that the present benefits of globalisation are very much more narrowly distributed.”

    Who cares about all those dark-skinned fellows no longer dying from famine or living in absolute poverty

  10. The” dark skinned fellows” often died of famine more often when forced to enjoy the benefits of colonialism with compulsory laissez faire,so that grain was exported out of drought-stricken areas ,often under armed guard, so that it could be sold at a scarcity premium on world markets rather than used for traditional methods of famine relief > See “Late Victorian Holocausts” by Mike Davies .These early forms of globalisation made famines worse.
    Of course, British right-wingers bend over backwards to pay the locals $2 a day instead of $1 – when they can get $10 of work out of them and not have to pay Brit workers the Brit market rate to do the same jobs. And then ,of course,they describe themselves as the perfect philanthropists.
    The availabilty of cheap “coolie” labour ,to use C19th terms ,also retards mechanical inovation,(to get back to the subject) as you can get cheap hands to do mass work.

    Tim adds: Please don’t be a twat DBC. If we’re all now paying $2 a day then all $1 a day jobs must be mechanised or they won’t be done. So the very paying of $2 a day encourages mechanisation.

    BTW, what is the Brit market rate a day to shovel shit in Soweto?

  11. You really do beggar belief, Worstall.

    Your belief that business is charging the right rate for business is pure bunkum. Absolute shit.

    There is no market forces here, only a desire for exploitation.

    Just because you are rich, like all the other schtums on here, doesn’t make it a valid point that you should desire its continuation.

    All it does is single you out as a sociopath.

  12. You’re rather missing my point; it is not the nature of the technology that matters, but the changes it brings. And changes to logistics networks have massive impacts on the production, both in terms of what it is possible to produce and what it is worthwhile producing. It’s rather akin to our genial host’s distinction between invention and innovation. Shipping containers are an exapmle of a simple innovation that has had radical effects on the global economy, disproving your assertion that a technological change that disrupts the world economy has to include a power source.

  13. DBC;

    “Of course, British right-wingers bend over backwards to pay the locals $2 a day instead of $1 – when they can get $10 of work out of them and not have to pay Brit workers the Brit market rate to do the same jobs.”

    Yes, that’s the whole point, the very poor are better off than they would be otherwise, this is a good thing

    “And then ,of course,they describe themselves as the perfect philanthropists.”

    No, they don’t, they just get on with doing business

    Arnald:

    “Your belief that business is charging the right rate for business is pure bunkum. Absolute shit.

    There is no market forces here, only a desire for exploitation.”

    What is the “right rate” if not the one charged in voluntary exchanges? Who should decide it?

  14. @TJ
    I dunno that we have a” genial host”: he has just called me a twat for adducing the age- old ,positively antique, argument that the presence of mass cheap labour retards mechanisation/ the absence encourages it, as in the early United States.(There the trans continental railways and homesteading opened up a mass market which the productive capacity back East could not,at first, fulfil.)
    As for his argument that people getting $10 of profit out of a local labourer (not shovelling shit in Soweto but producing goods in a factory for the world market/be sensible) cannot afford $2
    and resort to mechanisation …what can you say?
    That it completely destroys his alleged argument that mechanical advance is implacable but dispassionate and bound to produce inequality (in the long run,when we’re all dead)? Not if its been introduced specifically to preserve inequality and not pay the going rate (computed from the exploiters’ balance sheets /how much the products sell for abroad and not what other poor sods are making round about) .
    This line of talk almost proves the poor old Luddites right : mechanisation is a tool of the capitalists bent on their destruction as a class of self employed crafstmen.Your argument not mine.
    BTW The employers would only have to mechanise $1 a day work if they were re-selling its products for $2 .The trick is ,of course to pay for labour in destitute areas and sell the products in countries where the workers have very much greater [email protected]$10 a pop.
    But of course,people hiring cheap foreign labour do so out of single -minded benevolence , thoughts of profit not intruding into their noble
    endeavours.

  15. Offshore Observer

    Arnald are you being deliberately dense. “There is no market forces”.

    Really? No supply and demand? No price mechanism?

    So who decided how much I should pay for the bananas sitting on my desk?

    As far as globalisation is concerned we are living through the second great age of globalisation. The first being the British Empire. Of course by having open markets and international trade with no regulation Britain became the richest and most powerful nation on earth. The current age of globalisation is driven by the Washington Consensus and if you truely want to understand it read Andrew Bachevich “American Empire” to understand the world we live in. We live in a globalised world with open markets because that is the best way (that we currently know) to grow global economic output and decrease poverty. Unfortunately socialism and communism have been proven not to work. There may be a better economic system that liberal capitalism but we aint found it yet.

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