The term plutonomy refers to an economy where the balance of wealth is extremely uneven. In a plutonomy, a small percentage of the population controls the majority of the wealth. This wealthy group has the highest income, and controls much of the spending and economic growth. This phenomenon is usually created by explosive economic growth powered by advances in technology, where enormous amounts of money are made by a select few. Some people think that this contributes to the loss of the middle class, that there are the rich and everyone else.
The word plutonomy was coined by Ajay Kapur, a financial analyst for Citigroup, to describe countries that have inequality of wealth distribution, and tremendous national income. The United States was identified as one of these countries. The term actually combines the words economy and plutocracy, with plutocracy meaning government by the wealthy, to create a word that refers to the control of the economy by the wealthy.
In the United States, it is estimated that the richest 10 percent of American households control more wealth including money and other assets than the remaining 90 percent. This is one of the things that makes the United States an example of a plutonomy. The massively uneven distribution of wealth means that this small percentage of extremely wealthy people have a much greater effect on the economy than the rest of the population combined.
According to some theories, a plutonomy occurs when a relatively small number of people earn huge sums of money, frequently during an economic boom. One of the noted causes of these enormous incomes would be advances in technology. When a new technology becomes part of the mainstream culture, it generates wealth for the relative few people who control the new technology. An example of this would be the spread of internet use generating large sums for the internet service providers and the owners of major websites, particularly now that the majority of households have internet connections.
Another aspect of plutonomy states that this uneven distribution of wealth creates just two economic classes, the rich and everyone else, or the non-rich. This is because there is such a large gap between the rich and the non-rich that very little middle ground exists. The rich control the economy not only through generating wealth, but by spending much more than the non-rich, close to 70 percent of all spending, according to some estimates. They also further influence the economy by affecting the national debt; they spend a much larger percentage of their incomes, borrowing more and saving less than the non-rich.
