Deutsche Bank’s Ajay Kapur coined the term “plutonomy” five years ago.
Today Kapur tells Wealth Report the world economy is even more dependent on the spending and consumption of the rich.
The number one thing that means is more volatility:
WR But aren’t luxury stocks and plutonomy stocks far more volatile than the broader stock market?
Mr. Kapur: Yes, of course. That’s because the volatility of the earnings stream for these companies is much higher than the average retailer or average Dow Jones Average company. Most people need to buy toothpaste or broccoli or daily needs, while plutonomists may get a lower bonus one year and decide not to buy a plutonomy item. Plutonomist consumption is almost 10 times as volatile that of the average consumer.
Another symptom is bigger budget deficits:
Mr. Kapur: We have an economy today where a large fraction of the population doesn’t pay federal income taxes and, because of demand for entitlements, we have a system of massive representation without taxation. On the other hand, you have plutonomists who protect their turf and the taxation amounts are not enough to pay for everyone’s demand. So I’ve come to the conclusion that budget deficits are biased toward getting bigger and bigger. Budget deficits are going to become a manifestation of a plutonomy.