Inequality.org

connecting the dots on a growing divide

The Realonomy Explained

In 2005 Citigroup stock analysts Ajay Capur, Niall Macleod, and Narendra Singh had an incredible insight.

Once upon a time GDP growth meant that the whole economy improved.  But in an age of rapidly rising inequality, it could just as well mean that a few people got much better off while everyone else stagnated.

It goes like this.  Imagine an economy with 300 million people.  All of them get a 2% raise every year.  Overall GDP per capita rises at a 2% annual rate.

Now imagine another economy with 300 million people.  The richest 3 million get 10%, 20%, or 30% raises every year.  The rest get nothing.  Overall GDP per capita rises at a 2% annual rate

In the first economy, the benefits of growth are widely shared.  In the second, the benefits are all garnered by an aggressive ruling clique.

Leaving aside the Plutonomy, the rest of the economy where the “other 99%” of the population live is the Realonomy.

Either way, annual GDP growth is 2%, but that 2% growth figure means very different things in the two different economies.  In the second economy, only the rich matter.  The other 297 million people can all go to hell.

Capur, Macleod, and Singh’s insight led them to coin a new word for this brave new economy, the “Plutonomy.”  They said the US, UK, and Canada were all Plutonomies.  Anyone seeking to sell in a Plutonomy should focus on the richest 1% of the population.  The rest be damned.

Investors who followed Capur, Macleod, and Singh’s advice have made a killing over the past six years.  Despite global recession, luxury goods sales have been growing by double digits every year.  Rolls Royce and super-yacht sales are at all-time highs.

Leaving aside the Plutonomy, the rest of the economy where the “other 99%” of the population live is the Realonomy.  The Realonomy is the Plutonomy as experienced by the other 99% who are not mass-affluent, near-wealthy, wealthy, or super-wealthy.  The Realonomy is our economy.

The Plutonomy and the Realonomy are flip-sides of the same coin.

On the Plutonomy side of the coin, rich (or even just comfortable) Americans, Canadians, and Britons are doing better every year.  The recession was scary only when stock markets were tanking.  After the 2008 bank bailout, life went back to normal and things have been looking up ever since.

The Plutonomy could not exist without the Realonomy.

On the Realonomy side of the coin, the recession is now entering its fifth year.  Jobs are uncertain.  Unemployment is a real and constant worry.  Government services are being rolled back, and retirement savings are at risk.  Austerity looms large as a threat to middle class ways of life that once seemed secure and unquestionable.

The Plutonomy could not exist without the Realonomy.  Real economic growth hasn’t increased or decreased.  It’s been about 2% per year since the 1950s.  What’s changed is who gets the extra income generated by that 2% growth.

The economy isn’t in recession.  The economy has been growing again since July, 2009.  The problem isn’t the economy.

The problem is that for the past decade, nearly all of America’s economic growth has gone to the top 1% — to the Plutonomy.  The Realonomy has been stagnant since the turn of the millennium.

The economy isn’t in depression.  It’s just you.  It’s the Realonomy.

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