Forum Post: citibank plutonomy report 2009

• The World is dividing into two blocs - the Plutonomy and the rest.

The U.S., UK, and Canada are the key Plutonomies - economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc.

• Equity risk premium embedded in "global imbalances" are unwarranted.

In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc.

This imbalance in inequality expresses itself in the standard scary "global imbalances". We worry less.

• There is no "average consumer" in a Plutonomy.
  [...] Indeed, traditional thinking is likely to have issues with most of it. We will posit that:

  the world is dividing into two blocs - the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest.

Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S.

What are the common drivers of Plutonomy?

Disruptive technology-driven productivity gains, creative financial innovation, capitalist-friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions.

Often these wealth waves involve great complexity, exploited best by the rich and educated of the time.

We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization.

[...]

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 "non-rich", the multitudinous many, but only accounting for surprisingly small bites of the national pie. [...] i.e., focus on the "average" consumer are flawed from the start.