Bank of America Merrill Lynch is siding with Thomas Piketty, the French economist
whose data on inequality was recently questioned by the Financial Times.
“We are aware of the controversy over Piketty’s maths (see the FT Money Supply blog), but are generally comfortable with the thrust of his analysis, having read his 577-pager, looked at his (problematic) spreadsheets, and cross-checked his data with alternative, credible sources,” write BofA Merrill Lynch’s Ajay Kapur. “His questionable assumptions do not detract from the power of his thesis.”
Kapur and his team said this in a lengthy report titled, “Piketty and Plutonomy: The revenge of inequality,” outlining the impacts of plutonomists, or the super rich, on investors.
They lead by stating, “Plutonomists — the very rich — cannot be ignored.”
The skew toward the super-rich makes looking at averages an incomplete exercise, they argue (emphasis ours):
“When wealth and income are as concentrated as they are, and expected (a la Piketty) to get even more so, examining the ‘average’ consumer or ‘average’ investor makes little sense. Examining the fat tail — the behaviour of the plutonomists, rather than that of the multitudinous many — is more advantageous to investors. Plutonomists determine and dominate spending and investment decisions and their magnitudes. Any analysis that does not tease out the skewed global income and wealth distribution, but focuses on the average is flawed from the start and is incomplete, as we step into its deeper extremes.”
“Economic and earnings surprises are linked to their behaviour,” they write.
These charts from the report show how among the wealthiest Americans, the biggest wealth gains have been made mostly among not just the rich, or pretty rich, but super rich.
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