Plutonomy

3 May

Plutonomy was a term coined by the Global Strategy Team at Citigroup back in 2005 to describe an economy that is driven by or that disproportionately benefits wealthy people, aided by market-friendly governments. You can read the two part report here and here.

Why is a five year old report relevant today?  Because one of America’s best journalists signed off his last broadcast with a discussion of plutonomy and gave us a parting editorial on why plutocracy (rule by the wealthy) and democracy (government by the people) don’t mix.

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Unless you’ve been asleep since 1980, our country has been moving towards a plutonomy and a growing inequality in wealth distribution.  As wealth centralizes, social and economic mobility at the bottom is limited. (click image to enlarge and make readable)

It’s ironic that conservative politicians, pundits and talking heads long for a “better time” when the American Dream was never far away from any person (aside from minorities or women) who simply had the gumption and guts to work for it.  You know why they remember it that way?  Because their formative years were spent in the greatest economic boom in world history, supported by higher marginal tax rates on the wealthy and legitimate corporate taxation and regulation.

Hourly rates of pay have been stagnant in the bottom 80% of the workforce for nearly fifty years and CEO pay continues to rise at unprecedented rates, we’re entering another era of robber barons and the super rich.

It’s also relevant as The Buffalo News posted a story on Sunday about rising CEO pay at local publicly traded companies.

While wages for the average worker in Erie County were virtually stagnant over the last year, the top executives at the publicly traded companies in the Buffalo Niagara region still managed to increase their overall median pay by an average of 6.6 percent, to more than $872,000 during 2009.

While the deepest economic slump since the Great Depression had companies cutting costs, slashing jobs and imposing pay cuts and wage freezes on many workers, local CEOs capitalized on the sharp rebound in the stock market to keep their paydays growing far faster than the pay of their employees.

This isn’t intended to be some socialist treatise on how the workers need to control the means of production and seize control of corporations from the plutocrats.  It serves as a reminder about the current state of our economic culture and the underlying motivations of our public policy decisions and political choices.  I believe in the entrepreneurial economy, I believe in the power of regulated markets, I believe in capitalism as an economic theory, I just believe we need balance.  We currently lack balance and honest discourse about the implications of our policy choices and it is slowly eating away at the fabric of our republic.

Those who would begrudge a public school teacher (who might equip their children with the skills to exceed their current standard of living) a good living at $60K per year, also defend the right for Bob Wilmers to earn tens of millions of dollars and his effort to strip the public schools of funding.  We complain about gasoline taxes, yet we care little that the majority of the inflated price of gas has to do with transactional profits taken by energy traders at Goldman Sachs and other Wall Street firms.  We get angry with people who bought into a bloated mortgage market, but care little about the banks who purposefully created the bubble by structuring mortgage securities which needed failure prone sub-prime loans to realize profits for the banks themselves.  The examples are almost too numerous to cite.

It’s bizarre, the system is out of whack by any empirical measurement, and many of those on the outside want to keep it that way.

Welcome to America, where many members of the working class fight for their right to be screwed daily by Plutocrats.

6 Responses to “Plutonomy”

  1. Gabe May 3, 2010 at 1:14 pm #

    You speak the truth. I’m always amazed at how so many ordinary people who act as unapologetic apologists for the Plutocratic model of our contemporary society. They shill for this system (or at least just downplay the drawbacks) merely because they have a sentimental (i.e. emotions trumping empiricism) attachment to the process (market economy) involved that enables the Plutocracy in the first place.

    Until our collective thought process can become something the focuses on results instead of processes, we’re pretty much doomed to devolve into a techno-feudalistic dystopian society that would the stuff of the late Philip K. Dick’s most vivid dreams.

  2. Ethan May 3, 2010 at 3:53 pm #

    very succinct analysis, there. 

  3. Mike Walsh May 3, 2010 at 11:00 pm #

    You got this one right except it has nothing to do with taxes and/or wealth redistribution. Both parties are to blame for this as they’ve allowed themselves to be captured by plutocrats and game the system in their favor. Real free enterprise/free markets hardly exist anymore.

  4. Rick May 3, 2010 at 11:02 pm #

    Well said.

    It is good to be King.

  5. Ben McD May 4, 2010 at 3:52 am #

    Why does the income gap matter?

    • valerie May 5, 2010 at 10:58 am #

      The income gap only matters if you don’t have enough income.

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