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Monday, March 29, 2010

 

extension of the egalitarian defense


james livingston's articulation of how societies with concentrated wealth maldistribute their way into vulnerability was one of the more memorable posts of the last few years to my mind (subsequently referenced here here here and perhaps especially here).

an additional effect of wealth concentration was today postulated at naked capitalism, titled 'high income disparity leads to low savings rates', which goes over the notorious research from citi citing the rise of an american plutonomy. from citi:

In a plutonomy, the rich drop their savings rate, consume a larger fraction of their bloated, very large share of the economy. This behavior overshadows the decisions of everybody else. The behavior of the exceptionally rich drives the national numbers – the “appallingly low” overall savings rates, the “over-extended consumer”, and the “unsustainable” current accounts that accompany this phenomenon….

Feeling wealthier, the rich decide to consume a part of their capital gains right away. In other words, they save less from their income, the wellknown
wealth effect. The key point though is that this new lower savings rate is applied
to their newer massive income. Remember they got a much bigger chunk of the
economy, that’s how it became a plutonomy. The consequent decline in absolute savings for them (and the country) is huge when this happens. They just account for too large a part of the national economy; even a small fall in their savings rate overwhelms the decisions of all the rest.


an extension of this postulate is that societies with high wealth disparities should can tend to run high current account deficits, as low savings drives a need for capital importation as well as accommodating high consumption. this, citi feels, is reflected in the data.



ponder for a moment the deeply-held sentiment, explored by richard duncan, that imbalances in the current and capital accounts are what drive global debt bubbles and concomitant busts, and citi's ruminations amount to another avenue of indictment for excessive wealth concentration -- and perhaps further a rational impetus for a measure of redistribution.

alternatively, we might instead simply wait for an L-shaped financial markets crash to disproportionately destroy the wealth and income of the wealthy.

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Wow what a great website! Very informative and well done. At least there are people paying attention to this economic situation.

Do you think October 2010 will be the meltdown? If not when?

 
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