The Citigroup Plutonomy Memos
Saturday, October 16, 2010 at 04:37PM
Skeptic in Employment, Favorites, Free trade, Globalization, Immigration, Middle Class

The ongoing agony of the Great Recession has focused public discussion on the dramatic increase in the inequality of income and wealth among Americans. The real cash incomes and wealth of middle class and working class have stagnated since 1973 while there has been a spectacular rise in income and wealth for the owners, managers, and servants of capital. Realitybase readers know that I think this is in large part due to unbalanced foreign trade and even more to globalization by exposing Americans to foreign labor competition. That view is vigorously denied in public by banks, other business organizations, their trade groups, editorial boards, economists, policy elites, and other guardians of conventional wisdom. So it's interesting when we catch them agreeing with me when they give private advice to the investor class. In one of the two memos made famous in Michael Moore's film Capitalism: A Love Story, Ajay Kapur, then Citigroup's chief global equities strategist, says this:

Back in October, we coined the term 'Plutonomy' (The Global Investigator, Plutonomy: Buying Luxury, Explaining Global Imbalances, October 14, 2005). Our thesis is that the rich are the dominant drivers of demand in many economies around the world (the US, UK, Canada and Australia). These economies have seen the rich take an increasing share of income and wealth over the last 20 years, to the extent that the rich now dominate income, wealth and spending in these countries. Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in plutonomy countries. . . . [T]he lawyers and bankers who intermediate globalization and productivity, the CEOs who lead the charge in converting globalization and technology to increase the profit share of the economy at the expense of labor . . . contribute to plutonomy.

. . . .

[W]e think that global capitalists are going to be getting an even greater share of the wealth pie over the next few years, as capitalists benefit disproportionately from globalization and the productivity boom, at the expense of labor.

. . . .


. . . . [A] policy error leading to asset deflation, would likely damage plutonomy. Furthermore, the rising wealth gap between the rich and poor will probably at some point lead to a political backlash. . . . 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. This could be felt through higher taxation (on the rich or indirectly though [sic] higher corporate taxes/regulation) or through trying to protect indigenous laborers, in a push-back on globalization—either anti-immigration, or protectionism.

From Citigroup, Equity Strategy, March 5, 2006 (emphasis added). The October 2005 memo is here.

Do we think this is what Citi, through its trade associations, lobbyists, and flacks, was contemporaneously telling lawmakers and the public and, if not, which should we believe? Here's a clue: The last 4 pages of this 18-page report consist of conflict disclosures and disclaimers, starting with this "Analyst Certification."

We, Ajay Kapur, Niall MacLeod and Narendra Singh, research analysts and the authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

The SEC requires this so investors will not be misled. No such requirement applies when Citi speaks to the rest of us—we expect to be lied to, and we are seldom disappointed.

Update on Thursday, November 11, 2010 at 06:18AM by Registered CommenterSkeptic

The March 2005 Plutonomy memo, quoted above, has been taken down from the linked site at the request of Citi.  It is still available here, but for how much longer?  Hat tip to Edward Fullbrook at Real-World Economics Review Blog

Update on Wednesday, December 1, 2010 at 01:34PM by Registered CommenterSkeptic

PIMCO's Bill Gross is also advising investors in the world's largest mutual fund that policies that protect US wages from developing world competition would be bad for investment returns.

Update on Sunday, January 2, 2011 at 08:53AM by Registered CommenterSkeptic

Edward Fullbrook has posted some new locations for the Plutonomy Memos.

The second one took a very long time to download, but it's there.

Update on Monday, May 30, 2011 at 03:34PM by Registered CommenterSkeptic

Picking up on the advice in the plutonomy memos, advertisers are being urged to give up on the middle class and target the 1-2% with the highest incomes because the middle class can no longer afford much of what they are selling. Sam Pizzigoti discusses and links to the recent Ad Age story, with this lede:

The American middle class, concludes a new study from the ad industry’s top trade journal, has essentially become irrelevant. In a deeply unequal America, if you’re over 35 and your income hasn’t yet topped $200,000 a year, you don’t matter.

Update on Thursday, October 6, 2011 at 10:15AM by Registered CommenterSkeptic

Both memos can be downloaded as PDFs from here.

Update on Tuesday, January 24, 2012 at 11:29AM by Registered CommenterSkeptic

Both memos can be downloaded here, but the first one seems to be a bit corrupted.

Update on Wednesday, March 14, 2012 at 01:08PM by Registered CommenterSkeptic

Edward Fullbrook has found and written about another Citi plutonomy memo. From his post (bolding is his):

Report no. 3

This is the longest of the three reports.  Significantly it notes that:

The rise of this inequality is not universal. In a number of other countries – the non-plutonomies – income inequality has remained around the levels of the mid 1970s. Egalitarianism rules.    (p.9)

It singles out Japan, France, Switzerland and the Netherlands as examples and dubs them “The Egalitarian Bunch”.  Their deviance is then illustrated with a graph titled “The Income Share of the Top 1% Is Relatively Small Compared to Plutonomies”.

Further on, after reminding the readership that “plutonomy countries” are those with “economies powered by a relatively small number of rich people” and geared to “financial wealth creation”, and noting that the previous week a “Plutonomy Symposium” was held in London, “the risks to plutonomy” are, as in previous reports, considered.

Perhaps the most immediate challenge to Plutonomy comes from the political process. Ultimately, the rise in income and wealth inequality to some extent is an economic disenfranchisement of the masses to the benefit of the few. However in democracies this is rarely tolerated forever. One of the key forces helping plutonomists over the last 20 years has been the rise in the profit share – the flip side of the fall in the wage share in GDP. As plutonomists or capitalists tend to be long {on} the profit share, they have benefited from trends like globalization and the productivity revolution, disproportionately. However, labor has, relatively speaking, lost out. We see the biggest threat to plutonomy as coming from a rise in political demands to reduce income inequality, spread the wealth more evenly, and challenge forces such as globalization which have benefited profit and wealth growth.  [emphasis added]


Our own view is that the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years.

These three plutonomy tracts, being windows both into the plutonomist’s mind and to their strategies, contain many interesting points, but for democrats the most significant one is that plutonomists see the subversion of democratic process as the ultimate key to their success.  If the “political enfranchisement remains” and is allowed to remain, then the “economic disenfranchisement of the masses” is only possible if they can be bamboozled into voting against their interests.  It seems inevitable therefore, that plutonomists and their agents have gone to great lengths to suppress these documents.

Fullbrook has a longer, more comprehensive, and worthwhile paper on all the Plutonomy Memos in Real-World Economics Review.

Update on Tuesday, April 30, 2013 at 04:11PM by Registered CommenterSkeptic

All three Citi plutonomy memos are available here.  

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