Wednesday, October 14, 2009

Humping Dumpty: Plutonomics by Ajay Kapur et al

Markets need stronger government reassurance, said Citigroup's former global equity strategist, Ajay Kapur, on 2.24.09: Only government intervention can save us, he bleated from Hong Kong, where he now does something or other with Mirae.

Kapur, you may not recall, was the lead author of Citigroup's exemplary memoranda on Plutonomy.

In part 1, Oct. 16, 2005, Kapur, along with Niall Macleod and Narendra Singh, opined that "select Plutonomies" exemplified economies so tilted toward the wealthy that they had become resilient in the face of factors that would normally put the skids on growth, things like the price of oil. Prime among the Plutonomies were the US, UK, and Canada, nations with "high dopamine intensity populations" (p. 9 - (Phil K. Dick couldn't make this shit up)).

On p. 10, these leading lights mention the "bearish guru's" lament that global imbalances portend nasty shite happening, and respond with their chart-packed thesis that as the super-rich save less, they spend more, driving Plutonomic economies ever upward. (14 - 21, & fig. 25).

So,
"To summarize so far, plutonomies see the rich absorb a disproportionate chunk of the economy, their decision to lower their savings rate, often corresponding to the asset booms that often accompany plutonomy, has a massive negative impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. We believe the key global imbalance is that some large economies have become plutonomies, and others have not -- this imbalance in inequality expresses itself in the standard scary "global imbalances" that so worry the bears and most observers. They do not worry us much." (emphasis added) (21)
Things to fear: "blatant expropriation of property by governments," changes in taxation that would hurt "the corporates," protectionism or regulation, especially if it improves labor's wages and conditions (23).

So,
Our conclusion? The three levers governments and societies could pull on to end plutonomy are benign. Property rights are generally still intact, taxation policies neutral to favorable, and globalization is keeping the supply of labor in surplus, acting as a brake on wage inflation. (24)
One more possible worry: "a backlash to 'Robber-barron' (sic) economies" - but again, not to worry, and welcome, dear reader, to true fuck-the-lot-of-you thinking at its finest:
...the cleaning up of business practice, by high profile champions of fair play, might actually prolong plutonomy. (25)
This memo was followed up by part 2, March 5, 2006 - the memo featured in Moore's Capitalism, where it notes that another potential crimp in Plutonomy could come from the other 90% of the Plutonomy's populace exercising their democratic voting rights.

So, when Mr. Kapur's prognostics turned to shite, it was Government's responsibility to put it all back together again.

The same government that was duly elected by the problematic proles:
Low-end developed market labor might not have much economic power, but it does have equal voting power with the rich. (24)
Clearly much was amiss with Mr. Kapur's analysis. The worrisome thing is how much was not amiss, and how much, as in dollars, geld, etc., is working to assure its ongoing validity.*

*Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

Goldman Sachs reported quarterly net earnings of $3.19 billion, or $5.25 a share, up from $845 million a year earlier, on net revenue of $12.37 billion. Revenue from equities trading was up substantially, while investment banking posted a decline.

CEO Lloyd Blankfein sees "improving conditions and evidence of stabilization, even growth, across a number of sectors." Goldman set aside $5.4 billion for compensation during the third quarter, raising its total to $16.8 billion for the year, but the ratio of compensation and benefits to net revenue declined from the second quarter. W$J



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2 Comments:

Blogger Brad Parsons said...

In reading these two "Plutonomy" reports, I find them badly written, with punctuation errors, containing repeated slang and colloquialisms, too many "I" and "we" first person references, a boorish misplaced overconfidence, misstated understanding of some of the statistical data presented from limited sources, too many references to just one book, and overall an oversimplified thesis that shows a breathtaking lack of knowledge of finance and economics. It is a wonder that Citigroup and now Mirae pay for badly written junk like this to be published to their clients and beyond.

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

http://www.scribd.com/doc/6674229/Citigroup-Mar-5-2006-Plutonomy-Report-Part-2

11/02/2009 1:15 PM  
Blogger Tom Matrullo said...

Maleducation is a self-garroting noose. US corporate media "culture" makes the best ones.

11/03/2009 9:39 PM  

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