[OPE] Plutonomies redux

I mentioned the concept of plutonomy on OPE-L last year
http://archives.econ.utah.edu/archives/ope-l/2008m06/msg00008.htm

Now the FT's Gillian Tett has taken it up with an interesting angle:

Michael Moore must leave US to find new elite
By Gillian Tett
FT October 16 2009

(...) Five long years ago, Mr Kapur and some of his Citi colleagues penned a
dense research note on the issue of "plutonomy" - a word they invented to
describe economies powered (and controlled) by a rich elite, such as the US
and UK. (...) The essential thesis is that plutonomies arise when there are
factors such as "disruptive productivity gains, financial innovation,
capitalist-friendly governments, overseas conquests and dopamine-heavy
immigrants, the rule of law, patent protection and great complexity
exploited by the wealthy of the time". This description has applied to
countries such as the US, UK, Canada and Australia recently: in the US, for
example, the top 1 per cent control almost a quarter of the wealth. And that
has big implications for consumer spending or global financial flows. For
while economists tend to watch factors such as unemployment to predict
consumption, Mr Kapur thinks this can be misleading because it is the elite
rich - not the middle class - who tend to drive consumption. (...) Even if
the west becomes less market friendly and unequal, Mr Kapur thinks new
plutonomies will occur in emerging markets such as China, Brazil, Russia and
India. Thus, Mr Kapur's recommendation to investors is to keep buying shares
of companies selling luxury goods or services - but only if they sell in
places such as Shanghai.

Complete article
http://www.ft.com/cms/s/0/fe92f40e-ba67-11de-9dd7-00144feab49a.html?nclick_check=1
Robert Frank's article http://blogs.wsj.com/wealth/2007/01/08/plutonomics/

Somewhat contradicting the plutonomy thesis is the news about Larry Summers'
friend Mukesh:

Mukesh Ambani, Asia's richest man, who is spending about $1bn to build a
lavish 27-storey house and buy his wife a luxury Airbus jet, this week gave
himself a 66 per cent pay cut. In cutting his remuneration to "set a
personal example of moderation in executive compensation", Mr Ambani, who
controls Reliance Industries, became the first high-profile Indian executive
to heed his government's call for austerity in corporate compensation.
http://www.ft.com/cms/s/0/fdeca116-bab3-11de-9dd7-00144feab49a.html

Ahhh, life is so very difficult. When you get all this lovely loot, you
can't be seen to stand out of the crowd!

Meanwhile, as I wrote in my wiki,

In the 1993 UNSNA standards, offensive weaponry and their means of delivery
were excluded from capital formation, regardless of the length of their
service life. Conceptually, the UNSNA accounts regarded military assets as
providing "defence services" only at the point of their acquisition. Arms
expenditure regarded as intermediate consumption could, according to this
accounting treatment, only refer to sales or exports in a different
accounting period. If weapons were sold during the same year or a quarter,
this necessitated "counter-intuitive" entries in the accounts for government
(a capital addition is cited as a capital deduction, and vice versa). The
2008 UNSNA revision therefore recommends that all military expenditure that
meets general UNSNA criteria for capital formation (investment in goods
which are used in production for more than one year) will be treated as
capital formation. Weapons systems and military inventories will be
separately distinguished within fixed capital formation and inventories.
http://en.wikipedia.org/wiki/Gross_fixed_capital_formation

There is no separate category for luxury spending in UNSNA because the
definition of luxury is rather subjective or relative. But we can be sure
that the defence of wealth is a growing business, and it will be accounted
for now.

J.

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Received on Sun Oct 18 14:47:01 2009