by Jerome a Paris
Mon Apr 21st, 2008 at 06:17:35 AM EST
World's rich shrug off credit crunch
The ranks of the world's rich swelled to 8m during 2007 as the wealthy proved immune to the strains across global economies in the latter half of the year.
There was a 4.5 per cent increase last year in so-called "high net worth individuals", those with investable assets of more than $1m excluding primary residence, according to the 2008 wealth report compiled by Citi Private Bank and Knight Frank, published on Monday.
The report says that the rate of growth of high net worth individuals has outpaced growth in both gross domestic product, and GDP per head, which it believes indicates that the rich are getting richer relative to their respective countries.
"This is not a perfect measure of relative wealth growth across income levels," it says, "but there is an indication here that the plutonomy model retained its strength through 2007 and is in rude health."
The above is self-explanatory: the rich are getting richer, at the expense of everybody else.
Which makes it funny to read this:
Sarkozy urges 'massive' private investment in green technologies
PARIS: President Nicolas Sarkozy of France said Friday that the fight against climate change needed massive new amounts of private investment and globally regulated "green" markets to succeed.
About 90 percent of the money for fighting global warming will come from the private sector over the long term, Sarkozy said at climate talks in Paris with the world's biggest polluters.
Mobilizing a few hundred million euros, or dollars, is not enough, he said, adding that the international community must "massively redirect financial flows toward this new low-carbon economy."
Which brings up the question of how to "redirect financial flows" (which, to a large extent, means convincing your pals the haves and havemores mentioned above to do so)?
Let's see. I have now understood that capital was fully mobile, and went only for the most profitable opportunities - and that this was a Good Thing. So he is saying either that:
- clean energy is not profitable under market rules, and thus should not be promoted, because it is a misallocation of resources (ie, if the rich don't do it spontaneously, so Green is not a Good Idea) and he's just pretending to do it because it sounds PC or something;
- it is not a good thing to let capital roam freely, because these flows do not seem to be going to the "right" places for society as a whole, as determined by the very faceless bureaucrats and politicians we're told are no good at allocating investment (ie even though the haves and havemores have shown us what is correct, we're politicians and can indulge in a bit of reality-making of our own);
- government regulation is needed - and possible - to drive public policies and get international capital to behave as we want it to - but that should not be interpreted as an acknowledgement this can be applied to other topics, and the whole "globalisation is inevitable and cannot be fought" is bunk... because it isn't (otherwise, our rich friends would not be so rich).
When is it a good thing to "redirect financial flows"? ie, when is it a good thing to fuck with money?
The princess's cake gets an added crunch
"I remembered the way out suggested by a great princess when told that the peasants had no bread: `Well, let them eat cake.'" --Jean-Jacques Rousseau, Confessions
When I saw reports of food riots, I was reminded of these immortal words, often attributed to Marie Antoinette, although there is no evidence that she used them. The modern equivalent to "let them eat cake" is: "Core inflation is well contained."
We can waste a lot of time talking about the mechanics of the oil market or about speculators. Persistent inflation is not caused by oil sheikhs, ethanol producers or retailers, but by monetary authorities. A point Milton Friedman once made, and accepted even by many of his detractors, is that "inflation is always and everywhere a monetary phenomenon". The rise in commodity prices is the consequence of a credit-financed economic expansion that has hit natural supply constraints.
What about the fact that the US has a negative savings rate? Surely the country would be better off with higher inflation, as this transfers wealth from foreign creditors to US debtors? My guess would be that under such a scenario the US bond market would implode, the current account deficit would become impossible to finance, the dollar would collapse, inflation would rise even more and the Federal Reserve would have to raise interest rates to high single digits or higher. In that scenario, nobody eats cake anywhere.
I expect that the biggest danger to global economic stability will be not the credit crisis, but the way we are overreacting to it. Both in the US, and increasingly in Europe as well, monetary policies are no longer consistent with price stability. Since a pre-revolutionary contempt for the poor is a side effect of this policy, I suspect Rousseau's unnamed princess would have found our early 21st century most congenial.
The reason I'm quoting this bit is that, fundamentally, the way the rich have become richer in recent years is by printing money, loaning it to them for cheap against security on assets, letting them enjoy the price inflation (increasingly untaxed, of course), and preventing the rest from joining the party via higher wages (or letting them join too late in the cycle, ie making them the last suckers in the big ponzi scheme) - and now that the game is over, by deciding that the pain will be borne by everybody via general inflation.
Financial flows have been 'directed' all right.