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You are missing a big point. Sure super rich can only utilize fraction of their wealth however rest of the wealth rarely gets utilized to increase productivity

by sytelus 11y ago

You are missing a big point. Sure super rich can only utilize fraction of their wealth however rest of the wealth rarely gets utilized to increase productivity of the society. The majority of investments in their portfolios (as per Piketty's carefully collected data) are actually in non-productive activities such as real estate, hedge funds, HFT, derivatives, commodity manipulation and so on. These investments manipulates markets such as real estate to perpetually increase value of their investments without positive impact on society. In fact, from analysis of Piketty's data it was found that if wealthy people only invested in "productive" instruments then their wealth accumulation would dramatically deaccelerate. So the argument that wealthy provides most of their capital for economy to bloom is fairly misleading. They do provide this capital for some GDP growth but it's fairly small part of their investment portfolio. The major portion of the portfolio has singular goal of generating massive passive income perpetually for generations by activities such as artificially limiting supply side or ballooning demand side in markets such as real estate. There are no known social advantage of these kind of investments. Next time when you send that $3000 mortgage payment, put a note there: "wealth transfer for 1%" :). See other comment: https://news.ycombinator.com/edit?id=10829915 https://news.ycombinator.com/edit?id=10829915

yummyfajitas 11y ago
How are real estate, hedge funds or derivatives non-productive? A hedge fund or derivative investment ultimately directs productive assets towards real world uses. If the wealthy are getting high returns from this (and Picketty claim the wealthy get the highest returns), then the wealthy are better at directing real investments to their most productive use. Could you point me to the place in Picketty where he does more than speculate about how the wealthy gain more wealth? These investments manipulates markets such as real estate to perpetually increase value of their investments without positive impact on society. You seem to be confusing middle class NIMBYs (the main people manipulating real estate markets) with the very rich. Middle class homeowners are the ones preventing new construction, it's the wealthy developers who are trying (and failing) to be productive.
- sytelus 11y ago
  Money invested in real estate doesn't get used to manufacture goods and services or start industry or research or education or anything good for humanity. It's "sleeping money" as far as economy is concerned. In fact, it's worse because as more and more real estate gets owned by super rich and their investment arms, it puts more pressure on middle class by having to cut higher and higher portion of their income on mortgages and lowering their lifestyle standards, savings and risk taking abilities. As per some reports, as much as 30 to 70% of super rich portfolio gets directly in to real estate investments. As they buy up premium estates in major cities around the world, supply gets constrained, more people gets priced out of home ownership and must agree to pay ever increasing rents to those investors. It should be bewildering to anyone that this situation exists even though population hasn't been increasing much in western countries. This is known as "economic rent" (look up the term in Wikipedia) where investor strives to create a setup that passively generates income ad infinity without contributing to society. It's essentially creating generational entitlement system whereby suddenly usual economics like "you get what you worked for" no longer applies. The real estate has been primary tool for centuries to add phenomenal gains in to most of the super rich wealth and Piketty's data shows that it is the primary reason why wealthy are acquiring more wealth at rate much higher than overall GDP increase. It's hard for most people to see this because many times they are home owners benefiting from this while in reality they are not and also because they don't realize that real estate is basic human necessity just like air and water. No one wants Chinese billionaires or entities like Blackrock to buy up all of the water supply, inflate its price and then ration it to people with bidding wars. So the assertion that as super rich gets more richer, they benefit society by starting industries is pretty misguided. So far the data shows that this kind of productive investment has much lower returns than non-productive investments because of higher risk factors. So if rich were doing only doing productive investments, they would not be able to acquire more wealth at current pace.
  - yummyfajitas 11y ago
    You seem to believe the rich have the ability to somehow buy up all the supply of some good (land, water) and then arbitrarily raise the price. As they buy up premium estates in major cities around the world, supply gets constrained, more people gets priced out of home ownership and must agree to pay ever increasing rents to those investors. You are deeply confused. Buying up housing does not reduce the supply of living space; similarly, a rich person investing in a copper mine does not reduce the supply of copper. If the rich person makes improvements (e.g., buying land and building flats on it, buying a copper mine and expanding it) then they increase the supply. Again, where in Piketty's book do you believe he shows that the rich buy up and artificially limit the supply of a scarce resource? Please cite a page #.

by sytelus 11y ago

yummyfajitas 11y ago

How are real estate, hedge funds or derivatives non-productive? A hedge fund or derivative investment ultimately directs productive assets towards real world uses. If the wealthy are getting high returns from this (and Picketty claim the wealthy get the highest returns), then the wealthy are better at directing real investments to their most productive use. Could you point me to the place in Picketty where he does more than speculate about how the wealthy gain more wealth? These investments manipulates markets such as real estate to perpetually increase value of their investments without positive impact on society. You seem to be confusing middle class NIMBYs (the main people manipulating real estate markets) with the very rich. Middle class homeowners are the ones preventing new construction, it's the wealthy developers who are trying (and failing) to be productive.

sytelus 11y ago
Money invested in real estate doesn't get used to manufacture goods and services or start industry or research or education or anything good for humanity. It's "sleeping money" as far as economy is concerned. In fact, it's worse because as more and more real estate gets owned by super rich and their investment arms, it puts more pressure on middle class by having to cut higher and higher portion of their income on mortgages and lowering their lifestyle standards, savings and risk taking abilities. As per some reports, as much as 30 to 70% of super rich portfolio gets directly in to real estate investments. As they buy up premium estates in major cities around the world, supply gets constrained, more people gets priced out of home ownership and must agree to pay ever increasing rents to those investors. It should be bewildering to anyone that this situation exists even though population hasn't been increasing much in western countries. This is known as "economic rent" (look up the term in Wikipedia) where investor strives to create a setup that passively generates income ad infinity without contributing to society. It's essentially creating generational entitlement system whereby suddenly usual economics like "you get what you worked for" no longer applies. The real estate has been primary tool for centuries to add phenomenal gains in to most of the super rich wealth and Piketty's data shows that it is the primary reason why wealthy are acquiring more wealth at rate much higher than overall GDP increase. It's hard for most people to see this because many times they are home owners benefiting from this while in reality they are not and also because they don't realize that real estate is basic human necessity just like air and water. No one wants Chinese billionaires or entities like Blackrock to buy up all of the water supply, inflate its price and then ration it to people with bidding wars. So the assertion that as super rich gets more richer, they benefit society by starting industries is pretty misguided. So far the data shows that this kind of productive investment has much lower returns than non-productive investments because of higher risk factors. So if rich were doing only doing productive investments, they would not be able to acquire more wealth at current pace.
- yummyfajitas 11y ago
  You seem to believe the rich have the ability to somehow buy up all the supply of some good (land, water) and then arbitrarily raise the price. As they buy up premium estates in major cities around the world, supply gets constrained, more people gets priced out of home ownership and must agree to pay ever increasing rents to those investors. You are deeply confused. Buying up housing does not reduce the supply of living space; similarly, a rich person investing in a copper mine does not reduce the supply of copper. If the rich person makes improvements (e.g., buying land and building flats on it, buying a copper mine and expanding it) then they increase the supply. Again, where in Piketty's book do you believe he shows that the rich buy up and artificially limit the supply of a scarce resource? Please cite a page #.