Preview - Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else

“The world is dividing into two blocks – the Plutocracy and the rest” - Article includes link to the online book

In an era when a random killer is praised for gunning down a millionaire healthcare insurance executive, it is timely to review a ‘map’ of this age and where it is going, by someone who saw it coming.

Chrystia Freeland wrote “Plutocracts And The Rise Of The New Global Super-Rich” (Note: full book text in this link) more than a decade ago, and her analysis has held up. In addition to being an insightful author, she was until today the Deputy Prime Minister of Canada (she resigned). She was born in Peace River Alberta, where my father hailed from more than 100 years ago, and she began her career in journalism at Harvard University with a stopover at the University of Oxford.

So she’s like, really smart.

Her treatment of the plutocracy starts in the ancient world, because this has been with us along time.

Matthew of Capernaum was a Galilean tax collector and the son of a tax collector. He became one of Jesus Christ’s apostles. He noticed the ratchet effect of money: “For unto every one that hath shall be given, and he shall have abundance; but from him that hath not shall be taken away even that which he hath.”

If you have capital, your will get more; if you don’t, whatever wealth you have will drain away.

Between AD 1 and 1000, the GDP of western Europe on average actually shrank at an annual compounded rate of 0.01 percent. People in 1000 were, on average, a little poorer than they had been a thousand years before.

Then the world changed utterly. The economy took off: between 1820 and 1998 in western Europe it grew at an average annual rate of 2.13 percent, and in the Western offshoots it surged at an average annual rate of 3.68 percent.

This was the result of the industrial revolution. Eventually, it made all of us richer than humans had ever been before.

The industrial revolution created the plutocrats — AKA “robber barons” — and the gap grew between them and everyone else.

As their industrial revolution began to surge forward, Europeans started exploring America, and found the First Nations tribes living as Western people had done previously. The wigwam of the chief of a tribe is like the others in external appearance, and even within the shelter the difference is trifling between it and those of the poorest of his braves.

In the late 1970s, things started to change. The income of the middle class started to stagnate and those at the top began to pull away from everyone else. This shift was most pronounced in the United States, but by the twenty-first century, surging income inequality had become a worldwide phenomenon, so recent that our intuitive beliefs about how capitalism works haven’t caught up with the reality. In fact, surging income inequality is such a strong violation of our expectations that most of us don’t realize it is happening.

The surging fortunes at the very top can mask stagnation lower down the income distribution.

Consider America’s economic recovery in 2009 – 2010. Overall incomes in that period grew by 2.3 percent — tepid growth, to be sure, but a lot stronger than you might have guessed from the general gloom of that period.

For 99 percent of Americans, however, incomes increased by a mere 0.2 percent. It was in the top 1 percent that incomes jumped by 11.6 percent. It was definitely a recovery — but only for the 1 percent.

The rise of the 1 percent is a global phenomenon, and in a globalized world economy, the plutocrats are the most international of all, both in how they live their lives and in how they earn their fortunes.

The 1 percent is outpacing everyone else in the emerging economies as well. Income inequality in communist China is now higher than it is in the United States, and it has also surged in India and Russia.

The rich of today are also different from the rich of yesterday.

They tend to believe in the institutions that permit social mobility, but are less enthusiastic about the economic redistribution — i.e., taxes — it takes to pay for those institutions.

An elite team of strategists at Citigroup said that “the World is dividing into two blocs — the Plutonomy and the rest…In a plutonomy there is no such animal as ‘the U.S. consumer’ or ‘the UK consumer’ or indeed ‘the Russian consumer.’

What we are seeing is not a single economy at all, but rather fundamentally two separate types of economy, increasingly distinct and divergent.

Citigroup more recently devised a variation on the theme, a thesis it calls the “consumer hourglass theory.” Its hourglass Index, which includes stocks like Saks at the top end and Family Dollar at the bottom, rose by 56.5 percent between December 10, 2009, when it was launched, and September 1, 2011. By contrast, the Dow Jones Industrial Average went up just 11 percent during that period.

Globalization, and in particular trade with the mighty Middle Kingdom, are today also having a huge impact on American blue-collar workers. Globalization explains at least one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment.”

It is hollowing out of the jobs in the middle.

In 2006 the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented — 13,920 in the United States and 27,250 abroad. It was a more effective driver of job growth outside the United States than it was at home.

Wealth growth, however, largely stayed in the US.

Even though most of the iPod jobs are outside the United States, the lion’s share of the iPod salaries are in the United States. Those 13,920 American workers earned nearly $ 750 million. By contrast, the 27,250 non-American Apple employees took home less than $ 320 million.

That disparity is even more significant when you look at the composition of America’s iPod workforce. More than half the U.S. jobs — 7,789 — went to retail and other nonprofessional workers (office support staff, freight and distribution workers, etc.). Those workers earned just $ 220 million.

The big winners from Apple’s innovation were the 6,101 engineers and other professional workers in the United States who made more than $525 million. That’s more than double what the nonprofessionals in the United States made, and significantly more than the total earnings of all of Apple’s foreign employees.

The truth is we are no longer living in “one nation under God” ; we are living in one world under God. Globalization is working — the world overall is getting richer. But a lot of the costs of that transition are being borne by specific groups of workers in the developed West.

To everyone, thank you for reading Barry’s Substack.

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