7 ms·

Over the past century, the rate of return on capital (r) and existing wealth, owned disproportionately by the rich, had exceeded the rate of growth in the econo

Over the past century, the rate of return on capital (r) and existing wealth, owned disproportionately by the rich, had exceeded the rate of growth in the economy (g) as a whole. Piketty's calling out some good things, but by linking r to interest rates, Piketty's telling us we need to lower interest rates to deal with inequality, when in reality lower interest rates just benefit those already wealthy...

averros 7y ago
Agreed. Piketty is a total economic ignoramus and has absolutely zero clue about basics of macroeconomics. Not sure why anyone takes that clown seriously.
throw0101a 7y ago
>> rate of return on capital (r) > but by linking r to interest rates Where does he do this? I was under the impression that this is, to a first approximation, the return on equities—of which the top 10%/1%/0.1% own the vast majority of.
- onlyrealcuzzo 7y ago
  R is the return on capital, 50% of which is owned by the top 1%. 83.3% of capital is owned by to top 8.4%. This is pretty off base from the 80-20 rule, and way out of line with what people think is fair. Since $100k net worth puts you in the top 8.4% globally -- a lot of us probably fall into that category. I think the biggest problem is that 70% of the world has a net worth less than $10k. We're not properly investing in our human capital. Taking from the rich to give to the poor sounds great, and the rich probably have way too much. But a lot of people think it's just a distribution problem. It isn't. The pie isn't big enough yet. It really is the biggest problem. If all the wealth was shared equally, the average person would have $32k. That won't even buy you a shack in Nigeria.
  - xapata 7y ago
    The key is that the pie would get bigger faster, in the long run, if wealth were more evenly distributed. As inequality grows, the behavior of the market approaches a command economy, with all the fragility and inefficiency that brings. As wealth distribution approaches uniform, market decision-making approaches maximally distributed. There's some optima of wealth distribution which maximizes risk-adjusted growth. We've probably gone a little too centralized, at least for some industries.
    - kortilla 7y ago
      We’re nowhere near a command economy. For that to happen the holders of 99% of the wealth would have to be coordinating (or be the same person/org). The wealthy compete and disagree all of the time. The most valuable companies in the world still got there by catering to the middle class and poor.
      - xapata 7y ago
        No, intentional coordination is unnecessary for ill effects. Stratechery had a relevant article about the razor blade market recently. Oligopolies are quite common.
        kortilla 7y ago
        That’s not related to command economies. The razor blade market is anything but catering to the wealthy.
  - flak48 7y ago
    If the pie were to become bigger, wouldn't the shack in Nigeria also cost more?
    - onlyrealcuzzo 7y ago
      A shack in Nigeria would cost more if there was more demand and the same supply for shacks in Nigeria. Or it would cost more if the value of money decreased. My idea of a bigger pie, is not debasing the value of our currency. I think you're assuming that if we "made more money" Venezuela-style that the value of money would be less / things would be more expensive. I'm not saying we should "make more money". I'm saying we should "make progress". Progress is REAL growth. We measure GDP growth in REAL terms. An inflated pie would not be a bigger pie. A pie that's bigger in REAL terms would be a bigger pie.
  - bjourne 7y ago
    > Since $100k net worth puts you in the top 8.4% globally -- a lot of us probably fall into that category. Where does those numbers come from? And for the record, my net worth is nowhere near $100k! > But a lot of people think it's just a distribution problem. It isn't. The pie isn't big enough yet. It really is the biggest problem. How do you know that? How large does the pie needs to be and for how long should we wait for it to grow?
  - throw0101a 7y ago
    > But a lot of people think it's just a distribution problem. It isn't. If you look at the data that Piketty puts forward in his earlier book ('Capital-21st'), it shows that things were much more evenly distributed in past decades, and that since ~1980 there's been a lot more concentration of wealth. Further, if you look at Gini coëfficient (a metric which Piketty is not a fan of, but it can be useful) of various countries, you can see some have more equality than others. The US is at roughly 41, but Canada is at 34; that hot bed of socialism, Switzerland, is at 32. * https://en.wikipedia.org/wiki/List_of_countries_by_income_equality https://en.wikipedia.org/wiki/List_of_countries_by_income_eq... Why can't the US be 34 (or 32) as well? Why is the pie not big enough for the US, but is in CA or CH? In 1979 the GINI for the US was 34: * https://fred.stlouisfed.org/series/SIPOVGINIUSA https://fred.stlouisfed.org/series/SIPOVGINIUSA The pre-tax income share of the Top 1% was below 15% from 1953 to 1983 (almost going down to 10%), but now it is at 20%: what about the "pie" has changed such that it cannot be brought down again: * https://en.wikipedia.org/wiki/File:U.S._Pre-Tax_Income_Share_Top_1_Pct_and_0.1_Pct_1913_to_2016.png https://en.wikipedia.org/wiki/File:U.S._Pre-Tax_Income_Share... * https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite... > If all the wealth was shared equally Straw man: how many people are asking for 'perfect' inequality, i.e., a Gini of 0? Norway is at 26, Denmark and the Netherlands at 28, Austria at 30, Germany at 31. Are these places where you can't buy a private jet because the government is taking away "too much" from the rich?
- thedudeabides5 7y ago
  I think it's in the book. Like if you look at how he constructs his r I could be wrong, the thing is like 500 pages and it's been a while. Does anyone know how he gets his r? https://en.wikipedia.org/wiki/File:TaxRateAndGrowthPiketty10_10.png https://en.wikipedia.org/wiki/File:TaxRateAndGrowthPiketty10...
tryptophan 7y ago
The whole R vs G doesnt make to much sense to me. Its like comparing speed vs acceleration, and deciding that since speed > acceleration, the bike will move in a sine pattern. Say we have 2 people who spend all their money every year. $A makes 100K a year. $B has 1M capital. Say the rate of growth is 2%, and that the return on capital is 10%. Year 0, $A makes 100k, $B makes 100k. Year 1, $A makes 102k and $B makes...100K, again. Even if they both save 50% of income, the worker still "wins", although his performance asymptotically trends towards the other's performance as a greater share of income comes from capital. Even though the return is 5x greater than growth ( and growth is part of the return), the person who relies on salary (ie not capital return) benefits and the other does not. Now if $B has 10M, and r=g at 2%, lets recalculate. Year 0 $B makes 200k, $A 100k, then at year 1 $A 102k, $B 200k. But consider, to have the same consumption, $B can save 50% and invest the other 100K. If he did that he would have 102k to spend like $A. Obviously this is a convoluted scenario, but for me, it seems this example punches a huge logical hole in the r vs g thing. Inequality seems to have more to do with personal savings rate than r>g. And note - its WEALTH inequality that rises, not consumption inequality (in that case, does it even matter?). I don't really know what to think about this subject anymore.
- xapata 7y ago
  You've misunderstood the growth term. It's the growth of the entire economy, not just of wages. If average growth is X and capital grows faster than X (on average), then we can deduce that non-capital growth is slower than X (on average).
- H8crilA 7y ago
  The point of R is that it also compounds, much like G. Imagine that B has $2M instead of $1M but needs to spend only $100k/year. For B: first year: $100k spending, $100k extra capital gains, $2.1M total capital second year: $102k spending, $108k extra capital gains, $2.208M total capital third year: $104k spending, $117k extra capital gains, $2.325M total capital. And so on. The real argument against Piketty is that people don't stay rich for long, i.e. they don't really get R, but a crazy volatile version of R. There's a large rotation in the top %. Nassim Taleb is quite vocal on the fact that, in the end, pretty much nobody gets market returns. Most people get below average returns, while very very few outperform a lot. This is the same reason why stocks should outperform bonds - they're more risky, and you need more capital to take more risk. Therefore not everyone can afford stocks, therefore stocks are cheaper (from a return point of view).
deleted 7y ago
[deleted]

averros 7y ago

Agreed. Piketty is a total economic ignoramus and has absolutely zero clue about basics of macroeconomics. Not sure why anyone takes that clown seriously.

throw0101a 7y ago

>> rate of return on capital (r) > but by linking r to interest rates Where does he do this? I was under the impression that this is, to a first approximation, the return on equities—of which the top 10%/1%/0.1% own the vast majority of.

onlyrealcuzzo 7y ago
R is the return on capital, 50% of which is owned by the top 1%. 83.3% of capital is owned by to top 8.4%. This is pretty off base from the 80-20 rule, and way out of line with what people think is fair. Since $100k net worth puts you in the top 8.4% globally -- a lot of us probably fall into that category. I think the biggest problem is that 70% of the world has a net worth less than $10k. We're not properly investing in our human capital. Taking from the rich to give to the poor sounds great, and the rich probably have way too much. But a lot of people think it's just a distribution problem. It isn't. The pie isn't big enough yet. It really is the biggest problem. If all the wealth was shared equally, the average person would have $32k. That won't even buy you a shack in Nigeria.
- xapata 7y ago
  The key is that the pie would get bigger faster, in the long run, if wealth were more evenly distributed. As inequality grows, the behavior of the market approaches a command economy, with all the fragility and inefficiency that brings. As wealth distribution approaches uniform, market decision-making approaches maximally distributed. There's some optima of wealth distribution which maximizes risk-adjusted growth. We've probably gone a little too centralized, at least for some industries.
  - kortilla 7y ago
    We’re nowhere near a command economy. For that to happen the holders of 99% of the wealth would have to be coordinating (or be the same person/org). The wealthy compete and disagree all of the time. The most valuable companies in the world still got there by catering to the middle class and poor.
    - xapata 7y ago
      No, intentional coordination is unnecessary for ill effects. Stratechery had a relevant article about the razor blade market recently. Oligopolies are quite common.
      - kortilla 7y ago
        That’s not related to command economies. The razor blade market is anything but catering to the wealthy.
- flak48 7y ago
  If the pie were to become bigger, wouldn't the shack in Nigeria also cost more?
  - onlyrealcuzzo 7y ago
    A shack in Nigeria would cost more if there was more demand and the same supply for shacks in Nigeria. Or it would cost more if the value of money decreased. My idea of a bigger pie, is not debasing the value of our currency. I think you're assuming that if we "made more money" Venezuela-style that the value of money would be less / things would be more expensive. I'm not saying we should "make more money". I'm saying we should "make progress". Progress is REAL growth. We measure GDP growth in REAL terms. An inflated pie would not be a bigger pie. A pie that's bigger in REAL terms would be a bigger pie.
- bjourne 7y ago
  > Since $100k net worth puts you in the top 8.4% globally -- a lot of us probably fall into that category. Where does those numbers come from? And for the record, my net worth is nowhere near $100k! > But a lot of people think it's just a distribution problem. It isn't. The pie isn't big enough yet. It really is the biggest problem. How do you know that? How large does the pie needs to be and for how long should we wait for it to grow?
- throw0101a 7y ago
  > But a lot of people think it's just a distribution problem. It isn't. If you look at the data that Piketty puts forward in his earlier book ('Capital-21st'), it shows that things were much more evenly distributed in past decades, and that since ~1980 there's been a lot more concentration of wealth. Further, if you look at Gini coëfficient (a metric which Piketty is not a fan of, but it can be useful) of various countries, you can see some have more equality than others. The US is at roughly 41, but Canada is at 34; that hot bed of socialism, Switzerland, is at 32. * https://en.wikipedia.org/wiki/List_of_countries_by_income_equality https://en.wikipedia.org/wiki/List_of_countries_by_income_eq... Why can't the US be 34 (or 32) as well? Why is the pie not big enough for the US, but is in CA or CH? In 1979 the GINI for the US was 34: * https://fred.stlouisfed.org/series/SIPOVGINIUSA https://fred.stlouisfed.org/series/SIPOVGINIUSA The pre-tax income share of the Top 1% was below 15% from 1953 to 1983 (almost going down to 10%), but now it is at 20%: what about the "pie" has changed such that it cannot be brought down again: * https://en.wikipedia.org/wiki/File:U.S._Pre-Tax_Income_Share_Top_1_Pct_and_0.1_Pct_1913_to_2016.png https://en.wikipedia.org/wiki/File:U.S._Pre-Tax_Income_Share... * https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite... > If all the wealth was shared equally Straw man: how many people are asking for 'perfect' inequality, i.e., a Gini of 0? Norway is at 26, Denmark and the Netherlands at 28, Austria at 30, Germany at 31. Are these places where you can't buy a private jet because the government is taking away "too much" from the rich?
thedudeabides5 7y ago
I think it's in the book. Like if you look at how he constructs his r I could be wrong, the thing is like 500 pages and it's been a while. Does anyone know how he gets his r? https://en.wikipedia.org/wiki/File:TaxRateAndGrowthPiketty10_10.png https://en.wikipedia.org/wiki/File:TaxRateAndGrowthPiketty10...

tryptophan 7y ago

The whole R vs G doesnt make to much sense to me. Its like comparing speed vs acceleration, and deciding that since speed > acceleration, the bike will move in a sine pattern. Say we have 2 people who spend all their money every year. $A makes 100K a year. $B has 1M capital. Say the rate of growth is 2%, and that the return on capital is 10%. Year 0, $A makes 100k, $B makes 100k. Year 1, $A makes 102k and $B makes...100K, again. Even if they both save 50% of income, the worker still "wins", although his performance asymptotically trends towards the other's performance as a greater share of income comes from capital. Even though the return is 5x greater than growth ( and growth is part of the return), the person who relies on salary (ie not capital return) benefits and the other does not. Now if $B has 10M, and r=g at 2%, lets recalculate. Year 0 $B makes 200k, $A 100k, then at year 1 $A 102k, $B 200k. But consider, to have the same consumption, $B can save 50% and invest the other 100K. If he did that he would have 102k to spend like $A. Obviously this is a convoluted scenario, but for me, it seems this example punches a huge logical hole in the r vs g thing. Inequality seems to have more to do with personal savings rate than r>g. And note - its WEALTH inequality that rises, not consumption inequality (in that case, does it even matter?). I don't really know what to think about this subject anymore.

xapata 7y ago
You've misunderstood the growth term. It's the growth of the entire economy, not just of wages. If average growth is X and capital grows faster than X (on average), then we can deduce that non-capital growth is slower than X (on average).
H8crilA 7y ago
The point of R is that it also compounds, much like G. Imagine that B has $2M instead of $1M but needs to spend only $100k/year. For B: first year: $100k spending, $100k extra capital gains, $2.1M total capital second year: $102k spending, $108k extra capital gains, $2.208M total capital third year: $104k spending, $117k extra capital gains, $2.325M total capital. And so on. The real argument against Piketty is that people don't stay rich for long, i.e. they don't really get R, but a crazy volatile version of R. There's a large rotation in the top %. Nassim Taleb is quite vocal on the fact that, in the end, pretty much nobody gets market returns. Most people get below average returns, while very very few outperform a lot. This is the same reason why stocks should outperform bonds - they're more risky, and you need more capital to take more risk. Therefore not everyone can afford stocks, therefore stocks are cheaper (from a return point of view).

deleted 7y ago

[deleted]