A rising tide to lift all yachts?
That’s what one memo from Citigroup Inc. predicted back in 2006, the third in a series outlining to investors the emerging plutocracy.
Basically, a plutocracy is a society ruled by a group of its richest citizens. Citigroup was outlining its apparent emergence to help investors know how best to invest. Of course, this was before the Great Recession.
This memo advised investors not to bet on the middle class or consumer staples but instead to focus on services and products for the ultra wealthy. The author argued the wealthiest people in the U.S. have a disproportionate sway on the economy because of their massive wealth, backing it up with lots of data. Essentially, he’s right. They have a huge impact on the aggregate amounts of money because they have most of it.
There are two types of people in a plutocracy, according to the memos: ”There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the ‘non-rich,’ the multitudinous many, but only accounting for surprisingly small bites of the national pie.”
The authors projected the plutocracy would only grow. Trying to maximize return, they urged investors to put money in companies serving the top one percent.
“Welcome to the plutonomy machine,” the report begins. Welcome indeed.
It doesn’t come as a surprise to hear about a plutonomy machine today, an era where Occupy Wall Street has made economic inequality one of the most talked-about issues.
It’s becoming clearer the invisible hand is too busy pleasuring the one percent to bother reaching out to the middle class when they need help more than ever.
An article in Monday’s The New York Times shows a future dictated by the spending habits of the one percent. It talks about the declining revenues of restaurants like Red Lobster and Olive Garden, while more luxurious entities are up in profits year after year. While J.C. Penney share prices have fallen by more than half, Nordstrom stock has more than doubled. So has Dollar General.
“As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all,” wrote Times reporter Nelson Schwartz. “The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.”
So what does that mean? Citigroup was right. From 2006, they accurately predicted how the economy is today. Last year, a report from The New York Times showed the top 10 percent of earners took more than half of the income. The dichotomy between Nordstrom and Dollar General makes sense — the middle class is disappearing.
Those memos prove the ultra wealthy don’t care if the economy doesn’t improve. They know that the housing crash and market volatility are eroding the middle class, so they’re placing their bets elsewhere. Because they essentially have their own economy at this point, our faltering economy means nothing to them.
This is alarming and infuriating. The invisible hand isn’t coming this time. When it did, people were too busy hurting from the recession to see the already ultra wealthy came in and took it. Now, people are left struggling while the rich continue to bet on themselves, widening the income gap and hurting everyone below them.
Riding the gravy train is how one of those Citigroup memos described it.
Class warfare has hefty undertones, but the one percent declared it years ago. That much is evident from those memos:
“The world is dividing into two blocs — the Plutonomy and the rest.”
[Justin Jones is a UF journalism senior. His columns appear on Thursdays. A version of this column ran on page 6 on 2/6/2014 under the headline "Plutocracy hurts middle class, widens gap"]
