Introducing Plutonomy

At the back of the latest issue of the Real World Economics Review, there’s an interesting piece by Richard Fullbrook. Called ‘The Political Economy of Bubbles‘, Fullbrook argues that over the last thirty years, Britain, Canada and the US have morphed into plutonomies.

Plutocracy is rule by the rich, as opposed to democracy (rule by the people), or technocracy (rule by experts and scientists). Plutonomy is the economic equivalent, an economy that is run by and for the richest in society.

We can consider ourselves a plutonomy because economic policy works best for the rich, and that there has been an upward redistribution towards the top 1% and 0.01% of earners.

The average incomes of the richest in society have been rising far faster than the poorest, while government spending cuts and austerity measures fall hardest on the lower end of the income spectrum. Hence the rallying cry of the Occupy movement, claiming to speak for the 99%. (If you still doubt the validity of the 99% idea, consider that even The Economist says it is “underpinned by some solid economics.”)

The question isn’t whether or not inequality has increased, but why it has happened and who permitted it, and whether or not we ought to tolerate it. Fullbrook argues that since it has only happened in some developed countries and not others, it must be the result of deliberate policy – “organized, systematic, conceptualized and financially motivated subversions of the democratic process.” Since no party has campaigned on a platform of upward redistribution, he goes on, the real economic priorities of the government must be secret.

That sort of conspiracy is hard to prove, and Fullbrook cites two things: the links between the US government and Goldman Sachs, and the leaked CitiGroup reports on plutonomy. The first are fairly well known and involve some of America’s highest ranking public officials. The second are less well known. A few years ago, CitiGroup put together a series of think-pieces for investors, detailing the benefits of Plutonomy and possibly coining the word in the first place.(Here’s the first) To CitiGroup, an economy run for the benefit of the rich is unquestionably a good thing. They insist that they’re neutral in the report, but they also freely discuss the progressive policy changes that “might disrupt Plutonomy – or worse, reverse it.”

Eye-opening these reports may be, but I don’t think they constitute evidence of a secret cabal plotting to create an unequal society. It is advice to investors on how to capitalise on the world as it is, rather than a plan to reshape it. I think it is far more likely that we have sleep-walked into plutonomy, one policy at a time, cheered on by corporate lobbyists. We have deferred too often to economists, perhaps because our politicians’ ideology is more obvious and well recognised, while economists’ ideology is presented as simply business.

Most of all, we are driven by the need to promote economic growth at all costs. GDP must rise, and many of the things that we have pursued in the name of growth have caused instability and inequality in the process.

I agree with Fullbrook that we do indeed live in a plutonomy, but I don’t see a conspiracy at work. I just see greed, justified by conveniently self-serving economic theory. If we want to change it, we need to raise the standards of economic literacy, among voters and politicians alike.