This is one of 1122 articles in my book Now and Then Again, The Way We Were and the Way We Are, second edition. The book is available from Amazon for $20.95 print and $9.95 Kindle and also as an ebook from Apple, Kobo, and Scribd for $9.95. It's fixed format so it's better with a tablet, laptop, or computer. There are more articles from the book on another blog here. And there is a book preview website.
Requiem for the Middle Class
There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning." Warren Buffet — The New York Times, November 26, 2006.
"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."
This is from leaked Citigroup internal memos from 2005 and 2006. Plutonomy: Buying luxury, Explaining Global Imbalances and Revisiting Plutonomy: The Rich Getting Richer see the U.S. as a plutonomy, a society in which most of the wealth goes to an ever-shrinking minority. A race to the top.
According to the memos, the Top 1% accounted For 20% of income*, 40% of financial wealth and 33% of net worth in the U.S. (more than the net worth of the bottom 95% of households put together) in 2001.
The memos reason that since the rich do most of the spending (they estimate that the top 20% did 60% of spending in 2005), investors should buy stocks of companies that sell to the rich. Citi put together a basket of "plutonomy stocks" of companies that cater to the wealthy. Tiffanys, Coach, Porsche, Burberry, Sothebys and Four Seasons Hotels are a few in the basket.
So what could go wrong? "At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich." That pesky one man one vote thing. But don't blame the messenger: "We should make clear that we have no normative view on whether plutonomies are good or bad. Our analysis is based on the facts, not what the society should look like."
(According to Deutsche Bank, 24% of luxury goods are bought by those middle-class Japanese egalitarians. The Japanese scrimp on other things to buy upscale status symbols. Since the earthquake and tsunami, they're in an austerity mindset and Japan-ese demand for luxury is expected to decline substantially for some time.)
Citigroup was bailed out in November 2008 with $50 billion and loan guarantees of over $300 billion. It paid it back by December, 2010, with a $12 billion profit to the taxpayers. Citigroup was kicked out of the Dow after the stock price fell to 97 cents in 2009. In 2011, a 10 to 1 reverse split instantly boosted the stock to over $40.
Legendary Marine Chesty Puller fed his troops from the bottom up, officers last. One Marine serving with him on Guadalcanal in 1942 groused that when he was with him in Nicaragua in the late 1920's the mules ate first, "and brother, them mules could eat!"
You’d think that those at the top of the financial heap would have learned this ancient lesson in leadership. Instead of agitating for lower taxes on their income, the wealthy should take care that they don’t kill the goose that lays their golden nest egg so they’ll still have a country to be rich in. I'm no dismal scientist, but it seems to me that everybody's income ultimately derives from middle class people buying stuff. We're the plankton in the economic food chain. If regular folks can't afford stuff, what will become of "plutonomy"? Indeed, what will become of us all?
* 24% by 2007. in 1915 it was 18%, rose to 23% by 1929, fell with the crash to 15%, then fell to under 10% from 1953 to the late 70's. Economists call this the "Great Compression". Ushered in by the New Deal, the rise of labor, and the GI Bill, it coincides with the golden era of the middle class in America. The subsequent rise in income inequality is called the "Great Divergence."
Copyright © Joseph Mirsky 2020