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How are real estate, hedge funds or derivatives non-productive? A hedge fund or derivative investment ultimately directs productive assets towards real world us

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 #.
  - sytelus 11y ago
    When there are 100 houses and 100 buyers in market, demand and supply is met and likelihood that transactions will yield fair prices is high. When investors from China and Wall Street descend on markets, you suddenly have 200 buyers and only 100 houses in market. If you live in a major city in western world, go meet the real estate agent nearest to you. Ask them how many bidding wars happen and how many deals are all cash. Most all-cash deals are almost always investor purchase. This is the reason (along with local laws on new construction) why we have housing inflated by massive 10% a year even though population gain is all but negligible. The result is that typical family now pays huge chunk of their income in highly inflated mortgage payment which is nothing but wealth transfer from them to super rich who hogged up critical resource in the hope to increase their investment return. As per Piketty's book, read this paper which has analysis on where major capital gains for rich come from: http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf.
    - yummyfajitas 11y ago
      You are conflating supply of housing with real estate speculation. You might as well complain that GOOG is up $750 and AMZN is $630; this is completely true, but it doesn't make searching the internet or buying stuff online cost more.

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 #.
- sytelus 11y ago
  When there are 100 houses and 100 buyers in market, demand and supply is met and likelihood that transactions will yield fair prices is high. When investors from China and Wall Street descend on markets, you suddenly have 200 buyers and only 100 houses in market. If you live in a major city in western world, go meet the real estate agent nearest to you. Ask them how many bidding wars happen and how many deals are all cash. Most all-cash deals are almost always investor purchase. This is the reason (along with local laws on new construction) why we have housing inflated by massive 10% a year even though population gain is all but negligible. The result is that typical family now pays huge chunk of their income in highly inflated mortgage payment which is nothing but wealth transfer from them to super rich who hogged up critical resource in the hope to increase their investment return. As per Piketty's book, read this paper which has analysis on where major capital gains for rich come from: http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf.
  - yummyfajitas 11y ago
    You are conflating supply of housing with real estate speculation. You might as well complain that GOOG is up $750 and AMZN is $630; this is completely true, but it doesn't make searching the internet or buying stuff online cost more.