Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • CCPA in Europe for CETA speaking tour October 17, 2017
    On September 21, Canada and the European Union announced that the Comprehensive Economic and Trade Agreement (CETA), a controversial NAFTA-plus free trade deal initiated by the Harper government and signed by Prime Minister Trudeau in 2016, was now provisionally in force. In Europe, however, more than 20 countries have yet to officially ratify the deal, […]
    Canadian Centre for Policy Alternatives
  • Twelve year study of an inner-city neighbourhood October 12, 2017
    What does twelve years of community organizing look like for a North End Winnipeg neighbourhood?  Jessica Leigh survey's those years with the Dufferin community from a community development lens.  Read full report.
    Canadian Centre for Policy Alternatives
  • Losing your ID - even harder to recover when you have limited resources! October 10, 2017
    Ellen Smirl researched the barriers experienced by low-income Manitobans when faced with trying to replace lost, stolen, or never aquired idenfication forms. Read full report here.  
    Canadian Centre for Policy Alternatives
  • CCPA recommendations for a better North American trade model October 6, 2017
    The all-party House of Commons trade committee is consulting Canadians on their priorities for bilateral and trilateral North American trade in light of the current renegotiation of NAFTA. In the CCPA’s submission to this process, Scott Sinclair, Stuart Trew, and Hadrian Mertins-Kirkwood argue for a different kind of trading relationship that is inclusive, transformative, and […]
    Canadian Centre for Policy Alternatives
  • Ontario’s fair wage policy needs to be refreshed September 28, 2017
    The Ontario government is consulting on ways to modernize the province’s fair wage policy, which sets standards for wages and working conditions for government contract workers such as building cleaners, security guards, building trades and construction workers. The fair wage policy hasn’t been updated since 1995, but the labour market has changed dramatically since then. […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Plutonomy?

I put this post out for comments and discussion since this is an important question for which I don’t have an answer.

A 2005 Citigroup report – apparently cited in Michael Moore’s new movie, which I have not yet seen – argues  that “plutonomy” – the extreme concentration of income and wealth in the hands of the very affluent – changes some fundamental capitalist economic dynamics.

http://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1

The core of the argument is that countries which have shown an extreme concentration of income and wealth at the very top of the distribution – the US, Canada and the UK are the examples – also have, as a result, very low national savings rates.  Evidence is cited to show that the very affluent in the US became net dis-savers  as they became much more affluent as the result of asset booms and the shift of resources in their favour towards the top of the the recent boom. The same pattern is held to be true of the UK and Canada, while more equal European countries had higher savings rates.

Alternatively put, the argument is that the very affluent increasingly and disproportionately drive up overall consumption – and they advise investors to buy stocks weighted towards companies producing the consumption items of the very rich since these are the most dynamic and fastest-growing markets.   Indeed ,they argue pretty explicitly (and  offensively) that we shouldn’t worry about growing income and welath inequality since it increases rather than lowers consumption and demand.

This argument is at odds with the traditional Keynesian view that the very affluent have a lower propensity to consume and much higher savings rates than the middle class and the poor.  An article in today’s Globe and Mail cites US figures (for 2007) which seem to show that this is still true.  Goldman Sachs research is cited to show that the top 10% in the US account for 33% of pre tax income and 59% of household net worth, but just 22% of spending.  By contrast,  the bottom 40%  – with 12.1% of income – account for 22.2% of spending. A reasonable implication might be that redistribution would be positive for consumption.

http://www.theglobeandmail.com/report-on-business/the-wealthy-spend-less-than-you-think/article1325828/

A problem with the Keynesian view would seem to be that it is at odds with the apparently strong correlation between increased concentration of income at the top, and declining national savings rates in the US, the UK and Canada. This is a major part of the evidence base of the Citigroup report.

So the question is – what are the implications of hyper income inequality for aggregate consumption and savings?

Enjoy and share:

Comments

Comment from jdean
Time: October 16, 2009, 11:10 am

Maybe the rich are hiding their incomes in large enough amounts that it’s dragging down the overall savings rate. Hiding them in overseas tax havens, writing it off through tax loopholes? Does the report address that possibility?

Comment from Erin Weir
Time: October 16, 2009, 11:20 am

I have seen Moore’s movie, but you have provided a more complete summary of the Citigroup report.

You make two empirical observations: increasing wealth at the top end corresponded to lower national savings rates, but the rich save proportionally more than the poor. My hypothesis would be that the rise of the super-rich increased the consumption bar to which the rest of society aspires.

The issue was not that the super-rich were spending proportionally more of their incomes on consumption, but that their visibility was inducing those with less income to borrow to finance more consumption. Most or all of the consequent increase in consumption was for positional goods, which expand the economy but not total well-being.

Comment from Paul Tulloch
Time: October 16, 2009, 11:42 am

Not sure if you knew this or not Andrew, but it is no longer considered a planet, and therefore any theory based on an iceball that is no longer classified as a planet most likely must go through a similar process!

Seriously though, I hate to be a suspicious person, but I do have a bit of a problem with data collection and quantification process of these aggregates.

With the recent action on rich hoarding in swiis banks and such, I do wonder just how much of the savings are actually included in these measures. I also know from personal experience trying to monitor incomes of the wealthy through various means from a public policy perspective is quite difficult. Unlike other respondents to a survey, say the census or such, asking how much an individual of the hyper rich might take a hundred or so accounts and I am sure the banks that produced this had a difficult time measuring such constructs.

My feeling is we will never get to the bottom of such a question because the facts are just too difficult to collect.

Just a point on methods.

Comment from Purple Library Guy
Time: October 17, 2009, 12:24 am

Does investment by Canadians in, say, China or Indonesia count as “savings” in Canada?

Comment from Travis Fast
Time: October 17, 2009, 3:50 pm

Erin I think you have nailed to some degree. Anyone who hung out in the major metro-poles saw a lot of conspicuous consumption going on during the late nineties through to the present. Housing being the ultimate positional good. The sparsely (and poorly) decorated 4000 square-foot house comes to mind. But the SUVs and the designer sunglasses, designer rims on reading glasses, and oh yes the must have chicklette white teeth also spring to mind. Never mind the chalet owners with industrial grade chainsaws. As for me, my friends bought me a “proper” espresso machine: not only is the espresso soo good (1/4 inch of chrema every time) but I just do not know how I lived with out one all these years:).

Comment from Travis Fast
Time: October 17, 2009, 3:52 pm

Incidentally it is why I like living in Quebec city. The rich are not quite as showy and the income compression is greater so I feel less poor than I would if I lived in Toronto or Vancouver.

Comment from Darwin O’Connor
Time: October 18, 2009, 3:16 pm

Studies have shown the income disparody in a society leads to worse health, even among the well off even though there is no obvious economic reason why that would be.

Perhaps the lack of savings a similar effect.

Comment from Andrew Jackson
Time: October 12, 2011, 11:45 am

The Plutonomy report has disappeared from the web. Surprise Surprise.
Robert Frank wrote on it here.
http://blogs.wsj.com/wealth/2007/01/08/plutonomics/

Comment from Marc Lee
Time: October 12, 2011, 1:27 pm

Here it is:
http://jdeanicite.typepad.com/files/plutonomy-1.pdf

Write a comment





Related articles