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Piketty's idea that r > g leads to wealth inequality just makes me shrug. You can't really have it another way. If r (the rate of return on capital) is less th

Piketty's idea that r > g leads to wealth inequality just makes me shrug. You can't really have it another way. If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital? The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer. If I can grow my wealth more quickly than the nations output, I'm grabbing a bigger slice of the pie. The hope with capitalism is that I'm grabbing that pie because I've earned it and the market hopes I'll be able to steward that wealth. So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way? There certainly is wealth inequality in the world, but it isn't actionable to blame it on r > g. It's more effective to look at things on a micro basis. Does this person have a child that is prohibiting them from saving? Why is the person being excluded from jobs? Do they have a proper education?

jack9 9y ago
> that means that people have no incentive to build wealth Less incentive. The epeen comparison factor is underrated by anyone who ignores game theory.
- AstralStorm 9y ago
  Translated into normal language: status, political power and signalling are vastly undervalued by this theory. Off course since it is not a complete theory, it does not consider the above as major factors in wealth accumulation leading to inequality. That said, each feeds into another.
acover 9y ago
> The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer. Is that true? If I have capital wouldn't I want to allocate it for the best risk/return/effort. That my percentage of the pie is shrinking doesn't mean I would allocate my capital inefficently to accelerate that shrinkage. For example, imagine today you had 1 million dollars. If interest rates were 0.1% would you say no to that risk free $1000 a year? I wouldn't. I would click that button. Perhaps it would encourage me to spend more but I wouldn't sit on cash.
- arkis22 9y ago
  I agree that it makes sense to allocate your capital efficiently. A risk free 0.1% doesn't look like you're being an employer though. It sounds like the rate that comes from your deposits at a bank (which lends your deposits to make money, which in some way most likely depends on them getting a higher rate of return on capital than growth in output)
GavinMcG 9y ago
Let's agree that you can't have it another way. But there are still huge questions attendant to that arrangement. For example, should opportunity be unlimited, or is the prospect of earning enough for a very comfortable life sufficient motivation? Or, how much are we willing to let families build dynastic wealth? Shouldn't wealthy people's children be expected to compete without a huge head start over the children of poor families? Shrugging suggests to me that the conversation is over, but I think it's just beginning once we recognize that this is a fundamental economic force. How do we harness it as a society and pursue a just world?
- CamperBob2 9y ago
  For example, should opportunity be unlimited, or is the prospect of earning enough for a very comfortable life sufficient motivation? One problem with this idea is that the factors that determine what's meant by a "very comfortable life" will necessarily have to be decided by politicians and bureaucrats and imposed by force. By distorting (if not entirely removing) the effects of economic competition, a system of that nature turns the problem of achieving material success into an almost-purely political one. When people who don't actually create value are given excessive power over people who do, economic progress stops. We've seen the outcome in enough places, from the Soviet Union to modern-day Venezuela, that it almost seems inevitable: the rich still get richer, but the rising tide that's supposed to lift all the boats never seems to come in.
  - jorvi 9y ago
    But what's being done in the West isn't working either? The rich (especially the 0.1%) have seen ludicrous spikes in growth whilst the middle class collapses.
    - CamperBob2 9y ago
      The fact that we don't have riots in the streets means that the collapse of the middle class has been greatly exaggerated. Most people are better off in most material ways than they were in decades past, like it or not. Even if the numbers in their bank accounts aren't as large. Meanwhile, in Venezuela...
bjourne 9y ago
> If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital? The idea is that you consider yourself a smart and educated investor. Therefore, you are confident that even with r = g, your particular investment is wise and will yield a huge profit. > So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way? You can get a rate of return that will consistently be higher than the growth of the economy by dumping your money into an index fund. I would consider that more like taking advantage of other people's work than "outperforming" anything.
- arkis22 9y ago
  How can it be a huge profit if r = g? You'd need to invest more in g to increase r by an equal amount. The fact that you can consistently get higher growth in an index fund than GDP is just a symptom of r > g. It incentivizes you to save. But this simple example also ignores volatility in stocks, GDP can drop by 3% and index funds can drop by far more. Also is it really taking advantage of other peoples work if they go through a public offering and offer to sell you the stock of their own free will?
  - bjourne 9y ago
    As I said, because you are such a brilliant investor! Think of the economy as a casino and the investor as a gambler. The casino flips coins. You can bet $1 for heads or tails and if you guess right, you win $2.00.01. This is r > g. Clearly, it is nice to have dollars spare so you can bet in this casino. For the casino, it is not so nice. In another casino you can also bet on coin flips, but you only get $2 for winning bets. On average, gamblers are neither winning nor losing money. This is r = g. Gamblers still continue to play because they think they have figured out how to get an edge. In real world casinos, r < g but people still happily play. And perhaps the game isn't coin flipping but something skill-based like chess played against other gamblers? I hope you see how r = g wouldn't stop investment money from flowing in the economy.
umutisik 9y ago
> If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital? You can still spend the principal you made without having to be employed. If I understand correctly, r>g is about how much of new wealth is coming to labor vs rent on existing capital.
dragonwriter 9y ago
> So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way? You mean would I want capitalism to be different, or would I want a system that wasn't driven to inequality because it relied on capital returns to drive both the economic system and (due to fungibility of power) and the political system? The first is a pointless question, the second, well, yeah. It's the fundamental problem with capitalism that led both socialist critics to identify and seek to overthrow it, and more moderate social democrats to seek to reform and moderate it. > There certainly is wealth inequality in the world, but it isn't actionable to blame it on r > g. Sure it's actionable, and if it's the true cause, no micro action is meaningful. You may not like the actions that are implied by understanding the root cause, but that doesn't make it not actionable.
- arkis22 9y ago
  The idea that outperformance should be rewarded with wealth is fundamental to the idea of capitalism. It is well represented by the idea of r > g. Also, just because r > g, doesn't mean that the economy relies on capital returns. It means it relies on capital returns being able to outstrip increases in output. If you want a system where r = g, you are requiring some sort of top down wealth allocation system to cap r, (a morally and legally supreme government...socialism?). I'll avoid that system. If you think it's actionable perhaps you could suggest an action? If you think no micro action is meaningful, does this mean you would be comfortable walking up to a homeless person and saying that you're not going to bother helping them with their problems because no matter what they do, r > g and they're screwed? That's a pretty lame excuse, I'd feel bad saying that.
  - dragonwriter 9y ago
    > The idea that outperformance should be rewarded with wealth is fundamental to the idea of capitalism. It is well represented by the idea of r > g. No, the idea that aggregate performance should redound principally to the benefit of capital holders is fundamental to the idea of capitalism, and, yes, that pretty much implied that r > g leads to greater inequality under capitalism. > If you think it's actionable perhaps you could suggest an action? If the problem is fundamental to capitalism, the action to correct it is to move away from capitalism. > If you think no micro action is meaningful, does this mean you would be comfortable walking up to a homeless person and saying that you're not going to bother helping them with their problems because no matter what they do, r > g and they're screwed? No, it means when I do something to momentarily alleviate the immediate problems of a homeless person, I know that unless I am also working to reform the fundamental politico-economic system to deal with the structural problem, I'm doing nothing more than putting a band-aid on a sucking chest wound. r > g is not the problem, r > g is aggregate prosperity. Capitalism is the problem that turns aggregate prosperity into greater relative deprivation and narrow concentration of wealth.
lsseckman 9y ago
> The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer. This is interesting. Let's say there is a a r=g, to r is slightly less than g world. Then people would try to maximize employment & investing that income. Sortof double dipping. Am I thinking about that correctly? Also, r<g doesn't mean that you're 'never' going to make more than the growth in output, right? Theoretically good stewards would outpace the market.

jack9 9y ago

> that means that people have no incentive to build wealth Less incentive. The epeen comparison factor is underrated by anyone who ignores game theory.

AstralStorm 9y ago
Translated into normal language: status, political power and signalling are vastly undervalued by this theory. Off course since it is not a complete theory, it does not consider the above as major factors in wealth accumulation leading to inequality. That said, each feeds into another.

acover 9y ago

> The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer. Is that true? If I have capital wouldn't I want to allocate it for the best risk/return/effort. That my percentage of the pie is shrinking doesn't mean I would allocate my capital inefficently to accelerate that shrinkage. For example, imagine today you had 1 million dollars. If interest rates were 0.1% would you say no to that risk free $1000 a year? I wouldn't. I would click that button. Perhaps it would encourage me to spend more but I wouldn't sit on cash.

arkis22 9y ago
I agree that it makes sense to allocate your capital efficiently. A risk free 0.1% doesn't look like you're being an employer though. It sounds like the rate that comes from your deposits at a bank (which lends your deposits to make money, which in some way most likely depends on them getting a higher rate of return on capital than growth in output)

GavinMcG 9y ago

Let's agree that you can't have it another way. But there are still huge questions attendant to that arrangement. For example, should opportunity be unlimited, or is the prospect of earning enough for a very comfortable life sufficient motivation? Or, how much are we willing to let families build dynastic wealth? Shouldn't wealthy people's children be expected to compete without a huge head start over the children of poor families? Shrugging suggests to me that the conversation is over, but I think it's just beginning once we recognize that this is a fundamental economic force. How do we harness it as a society and pursue a just world?

CamperBob2 9y ago
For example, should opportunity be unlimited, or is the prospect of earning enough for a very comfortable life sufficient motivation? One problem with this idea is that the factors that determine what's meant by a "very comfortable life" will necessarily have to be decided by politicians and bureaucrats and imposed by force. By distorting (if not entirely removing) the effects of economic competition, a system of that nature turns the problem of achieving material success into an almost-purely political one. When people who don't actually create value are given excessive power over people who do, economic progress stops. We've seen the outcome in enough places, from the Soviet Union to modern-day Venezuela, that it almost seems inevitable: the rich still get richer, but the rising tide that's supposed to lift all the boats never seems to come in.
- jorvi 9y ago
  But what's being done in the West isn't working either? The rich (especially the 0.1%) have seen ludicrous spikes in growth whilst the middle class collapses.
  - CamperBob2 9y ago
    The fact that we don't have riots in the streets means that the collapse of the middle class has been greatly exaggerated. Most people are better off in most material ways than they were in decades past, like it or not. Even if the numbers in their bank accounts aren't as large. Meanwhile, in Venezuela...

bjourne 9y ago

> If r (the rate of return on capital) is less than g (the growth in output) that means that people have no incentive to build wealth or become more intelligent to deploy that capital more profitably. If I'm never going to make more than the growth in output, why bother with capital? The idea is that you consider yourself a smart and educated investor. Therefore, you are confident that even with r = g, your particular investment is wise and will yield a huge profit. > So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way? You can get a rate of return that will consistently be higher than the growth of the economy by dumping your money into an index fund. I would consider that more like taking advantage of other people's work than "outperforming" anything.

arkis22 9y ago
How can it be a huge profit if r = g? You'd need to invest more in g to increase r by an equal amount. The fact that you can consistently get higher growth in an index fund than GDP is just a symptom of r > g. It incentivizes you to save. But this simple example also ignores volatility in stocks, GDP can drop by 3% and index funds can drop by far more. Also is it really taking advantage of other peoples work if they go through a public offering and offer to sell you the stock of their own free will?
- bjourne 9y ago
  As I said, because you are such a brilliant investor! Think of the economy as a casino and the investor as a gambler. The casino flips coins. You can bet $1 for heads or tails and if you guess right, you win $2.00.01. This is r > g. Clearly, it is nice to have dollars spare so you can bet in this casino. For the casino, it is not so nice. In another casino you can also bet on coin flips, but you only get $2 for winning bets. On average, gamblers are neither winning nor losing money. This is r = g. Gamblers still continue to play because they think they have figured out how to get an edge. In real world casinos, r < g but people still happily play. And perhaps the game isn't coin flipping but something skill-based like chess played against other gamblers? I hope you see how r = g wouldn't stop investment money from flowing in the economy.

umutisik 9y ago

dragonwriter 9y ago

> So yeah, capitalism may be inherently inclined to wealth inequality because some people outperform. But do you really want it another way? You mean would I want capitalism to be different, or would I want a system that wasn't driven to inequality because it relied on capital returns to drive both the economic system and (due to fungibility of power) and the political system? The first is a pointless question, the second, well, yeah. It's the fundamental problem with capitalism that led both socialist critics to identify and seek to overthrow it, and more moderate social democrats to seek to reform and moderate it. > There certainly is wealth inequality in the world, but it isn't actionable to blame it on r > g. Sure it's actionable, and if it's the true cause, no micro action is meaningful. You may not like the actions that are implied by understanding the root cause, but that doesn't make it not actionable.

arkis22 9y ago
The idea that outperformance should be rewarded with wealth is fundamental to the idea of capitalism. It is well represented by the idea of r > g. Also, just because r > g, doesn't mean that the economy relies on capital returns. It means it relies on capital returns being able to outstrip increases in output. If you want a system where r = g, you are requiring some sort of top down wealth allocation system to cap r, (a morally and legally supreme government...socialism?). I'll avoid that system. If you think it's actionable perhaps you could suggest an action? If you think no micro action is meaningful, does this mean you would be comfortable walking up to a homeless person and saying that you're not going to bother helping them with their problems because no matter what they do, r > g and they're screwed? That's a pretty lame excuse, I'd feel bad saying that.
- dragonwriter 9y ago
  > The idea that outperformance should be rewarded with wealth is fundamental to the idea of capitalism. It is well represented by the idea of r > g. No, the idea that aggregate performance should redound principally to the benefit of capital holders is fundamental to the idea of capitalism, and, yes, that pretty much implied that r > g leads to greater inequality under capitalism. > If you think it's actionable perhaps you could suggest an action? If the problem is fundamental to capitalism, the action to correct it is to move away from capitalism. > If you think no micro action is meaningful, does this mean you would be comfortable walking up to a homeless person and saying that you're not going to bother helping them with their problems because no matter what they do, r > g and they're screwed? No, it means when I do something to momentarily alleviate the immediate problems of a homeless person, I know that unless I am also working to reform the fundamental politico-economic system to deal with the structural problem, I'm doing nothing more than putting a band-aid on a sucking chest wound. r > g is not the problem, r > g is aggregate prosperity. Capitalism is the problem that turns aggregate prosperity into greater relative deprivation and narrow concentration of wealth.

lsseckman 9y ago

> The logical conclusion to that would be that everyone wants to be an employee and nobody wants to be an employer. This is interesting. Let's say there is a a r=g, to r is slightly less than g world. Then people would try to maximize employment & investing that income. Sortof double dipping. Am I thinking about that correctly? Also, r<g doesn't mean that you're 'never' going to make more than the growth in output, right? Theoretically good stewards would outpace the market.