Business Law Prof Blog: Plutonomy

Business Law Prof Blog: Plutonomy: "Plutonomy

Speaking of comments, my colleague over at the Akron Law Cafe, Brant Lee, has generated quite a few of them with his recent post: Facts about inequality. As I understand him, he basically is asking at what point the American Dream becomes a lottery ticket. In other words, one version of the U.S. social contract is that we forgo any meaningful safety net for the poor in exchange for seemingly limitless upside for the wealthy. The consideration that gets the poor to go along with this contract is the possibility that they too might join the wealthy if they just work hard enough. Lee points out that there is data to suggest this consideration may be illusory.

Purely by coincidence, I happened to watch Michael Moore's 'Capitalism: A Love Story' recently. In the movie, Moore references a 2006 Citigroup memo that discusses investment strategies designed to take advantage of the fact that the U.S. is essentially what the memo refers to as a plutonomy: an economy 'powered by the wealthy, who aggrandize[] larger chunks of the economy to themselves.' (The quoted language is apparently from a 2005 memo.) The related point the memo makes is that democracy is actually a potential drag on a plutonomy because at some point the poor may exercise their right to vote and change the rules of the game for the rich. (For more on the Citigroup memo, go here.)

Then today we get news on a report on Iceland's financial crisis that criticizes:

Iceland's three biggest banks -- Landsbanki, Kaupthing and Glitnir -- for creating a system that benefited powerful businessmen and banking tycoons at the expense of creditors and shareholders.

Of course, there are very compelling alternative formulations of our social contract. But at least the news out of Iceland provides some cold comfort to those who buy the version discussed above--it's not just a U.S. thing.

SJP

- Sent using Google Toolbar"