In a "plutonomy", according to Citigroup global strategist Ajay Kapur, economic growth is powered by and largely consumed by the wealthy few.
If this wealth concentration in a democracy is good, bad, or indifferent is the subject for an entirely different blog but that's neither here or there right now.
According to new Internal Revenue Service data announced last week, income inequality in the U.S. is at its worst since the 1920s (before the Great Depression). The top percentile of wealthy Americans earned 21.2% of all income in 2005, up from 19% in 2004, while the bottom 50% of wage earners earned 12.8% that year, down from 13.4% a year earlier.
More interesting are what the views are from within investment banking circles on why the economy acts differently than it used to as wealth is concentrated in a level seen in the States similar to only the 1920s. Below is at least part of the report; a quite fascinating read. An entry in the Wall Street Journal Blog section from January 2007 does a quick summary of the report's findings/opinion. I vaguely remember reading about this at the time, but now in retrospect - after what has happened in the financial system - it is interesting from a totally different prism.
[sidenote: 1 bit of humor - Citigroup listed "financial crisis" as one of the threats to the plutonomy status quo. Oh, irony.]
Now that it has become clear that unlike the 1930s where this historic concentration of wealth was reversed for a good 4 decades post-crisis, this time around, a financial crisis is actually serving to concentrate wealth even further, it might be helpful to readers to see how the entrenched money thinks on how to benefit from it. Basically the same way you'd invest in feudal Europe in the 1400s - avoid the peasants, stick with the lords. I don't see this changing anytime soon; as I said in 2007, in time you will not want to have anything to do with the bottom 80% of the country; it won't be a fun place to be. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] I think in the nearly 2 years since written, the fissures I spoke about have already begun to widen considerably.
Citigroup Mar 5 2006 Plutonomy Report Part 2