
Thomas Piketty Goes Global - mitchbob
https://www.newyorker.com/magazine/2020/03/09/thomas-piketty-goes-global
======
bretpiatt
This is the same reason we have the following problem in the United States:

(1) Owning a home in the US is a good investment.

(2) Housing in the US is affordable.

Both 1 and 2 cannot be true over the long term, if the price of housing
appreciates faster than inflation and wages it is a good investment and if it
does that it is no longer affordable because wages have not kept up with the
cost of housing.

~~~
majormajor
Doesn't housing primarily only need to be a better "investment" than _renting_
, not vs other assets?

Housing-as-investment seems to come in two forms, but I don't think either
needs unsustainable growth?

1) you'll have at least _one_ asset going into retirement, or

2) you're going to borrow against the first one to buy another, rent it out,
etc, which doesn't need a ton of appreciation in value as you start getting
the cumulative income streams

Consider that in many parts of the country housing is still a "good
investment" but you don't have coastal-California-level unaffordability.

Housing prices in the most desirable cities are a result of extremely
heightened inequality. However, ownership is a path to security and insulation
from the whims of the super-wealthy, so undercutting that doesn't seem like a
great anti-inequality strategy.

~~~
bretpiatt
Home ownership has created wealth for two independent reasons:

1\. In many markets in the US housing has been a good investment (for a bunch
of reasons too long to discuss here).

2\. Owning a home with a mortgage on it forces the owner to "put money in
savings" each month as they pay down principal on the loan.

The rent v. own discussion is a complex financial decision. If you buy a house
with 20% down you're using 5:1 leverage. Even in historically strong housing
markets if you put the same amount of principal into a 5:1 levered SP500 you'd
have made much more money buying stocks than you would that home. So if your
rent = interest + maintenance and you could afford to invest the same in
principal in equities you'd do much better. Now I don't know any investment
advisor who would tell a client (and I'm not one at all so take my advice for
what it is -- the thoughts of a business person) to go all in on a 5x
leveraged equity portfolio.

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thedudeabides5
_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...

~~~
tryptophan
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.

~~~
H8crilA
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).

~~~
H8crilA
Update: I mean stocks are cheaper on the timescales that Piketty uses. It is,
obviously, not true that they always outperform within any decade or two.

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bjourne
Sal Khan has a good lecture series about Piketty's theory of capital:
[https://www.khanacademy.org/economics-finance-
domain/macroec...](https://www.khanacademy.org/economics-finance-
domain/macroeconomics/macroeconomics-income-inequality/piketty-
capital/v/piketty-capital)

------
leftyted
I'm happy to pay more taxes so people poorer than me can have healthcare. But
stuff like this strikes me as monumentally silly:

> They include a schedule of taxation on income and wealth that reaches ninety
> per cent and the elimination of nation-states in favor of “a vast
> transnational democracy,” which will secure “a universal right to education
> and a capital endowment, free circulation of people, and de facto virtual
> abolition of borders.”

I think arguments like these can serve a useful function. Based on their
appeal, maybe we'll move in the right direction. But the arguments themselves?
A "transnational socialistic union" is a bizarre dream. And dreams can be
dangerous when people take them too seriously.

~~~
voldacar
Any kind of one-world government would be pathological to the extreme. With no
competitors or alternatives where people it treated poorly (or even just
people who preferred a different style of governance) could go, it would
rapidly become unimaginably tyrannical

~~~
rolltiide
In my experience people take a dim view that market based competition controls
governments more so than any kind of representation or ideology can. They take
a dimmer view that people on this planet take advantage of this reality, but
they arent really perceiving that this is what those people and corporations
are doing. Its definitely a privilege though!

------
keithnz
I like that Piketty is super aggressive with some of the ideas and I generally
support the idea that a baseline is set for everyone that is some kind of
equalizer (even though it will never be perfect) that covers
income/health/education. However, creating a practical wealth tax seems a bit
tricky especially in terms of assessing wealth.

~~~
Barrin92
>However, creating a practical wealth tax seems a bit tricky especially in
terms of assessing wealth.

the radicalXChange people have revitalized a somewhat older idea, _harberger
taxation_. The mechanism is relatively straight forward, people self-assess
the value of their stuff and pay a periodical tax on it. At any point in time,
anyone can force the sale of said commodity.

Point being that if someone sets the price at above market rate, they're
reducing allocative efficiency (by exercising monopoly power over their
property) so they pay a tax. If goods are exchanged at market rate, then that
improves the utilization of the property.

~~~
qwertycrackers
I would like this taxation scheme, but that's because it privileges trashing
all your assets to the maximum extent you can tolerate. So sure, you can buy
my house for 50k. But I've removed all the labels from the circuit box, run
spurious wires everywhere, and added some very hazardous electrical traps that
will be hell to remove without my notes (which I have conveniently misplaced).
I found some lead paint in the shed and just slathered it in every room that
would make a good nursery. This house used to have a paved driveway but I
don't mind if my car gets dirty so I tore it out. I'm an avid gardener, but
I've also down the yard with poisonous flora and whatever else I feel will be
hard to remove.

This example is a little contrived, but one could do something similar by just
aggressively neglecting one's property.

~~~
Seenso
> and added some very hazardous electrical traps that will be hell to remove
> without my notes (which I have conveniently misplaced).

I'm pretty sure laying traps like that is illegal, like felony illegal.

------
frisco
Piketty’s main point is that if the return on capital is greater than the
return on labor then over time you will get inequality. But like... what would
a world in which that is not true look like? What would it even mean for labor
to scale? I’ve thought about this a bunch and cannot imagine what such a
system would look like or how it would work, except for maybe utopian
socialism, which basically isn’t physical.

What kind of system is he proposing in which capital doesn’t create leverage?

~~~
billjings
The world and social structure we grew up in was a world where that wasn't
true. This idea that you can start a business and pull yourself up by your own
bootstraps - that's made possible by the fact that the return on labor is
greater than the return on capital. YC is kinda built on that idea: work hard,
get rich.

The other kind of society is one in which the best way to establish a secure
place for yourself is to take secure control of some piece of income
generating property. Piketty uses Jane Austen's novels to show what these
societies look like: marriage and other political arrangements become far more
important than how hard working you are. Hard work and toil is generally
associated with the poor.

So Piketty's argument is that, while we may believe we are in a pull-yourself-
up-by-your-bootstraps society of hard work, the numbers show that we are in
fact in a work-your-political-connections-to-establish-control-over-
productive-capital society.

So it should be no surprise that HN is a great place to find counterarguments
for Piketty's theories. :) But that's his theory, and I believe it's worth
keeping an open mind as to whether it's true. If it were, we would see that
it's easier to get richer by already being rich or making friends with the
rich than it is to get rich by working to build something yourself.

~~~
kortilla
Isn’t that trivial to refute then by showing the huge portion of
millionaires/billionaires that aren’t generational?

~~~
billjings
Maybe? If r only exceeded g in the past 20 years or so, though, we would
expect that most of the wealthy would have acquired their wealth at a time
that g > r.

Point being that wealth is a lagging indicator. If I'm 25, I'm making my way
in a different world than the one my grandfather grew up in.

------
mychael
Here is an e-book debunking Piketty's ideas

[https://www.cato.org/sites/cato.org/files/pubs/pdf/anti-
pike...](https://www.cato.org/sites/cato.org/files/pubs/pdf/anti-piketty.pdf)

~~~
jacobolus
Pretty unsurprising that the Koch brothers’ pet “think tank” would want to
fight back against anything questioning extreme inequality and concentration
of power.

Before you examine something published by Cato, you can predict its position,
and will rarely if ever be surprised by what you read there. The data will be
cherry picked or massaged and the argument will be contorted to support the
pre-chosen position favorable to the donors funding it.

Cato generally opposes all kinds of taxes and regulations, supports
privatization of public institutions and services, opposes a public safety
net, opposes campaign finance reform, disputes or downplays global climate
change, etc.

~~~
mychael
This is a Level 1 comment in the disagreement hierarchy (aka very poor
argument)

[http://www.paulgraham.com/disagree.html](http://www.paulgraham.com/disagree.html)

~~~
jacobolus
When people affiliated with an institution habitually lie to you (I’ve tried
carefully critically analyzing Cato publications several times before, and
every time came away extremely disappointed), it makes sense to at least be
very skeptical of their arguments and independently validate all of their
evidence.

Personally I would just rather skip reading them in the first place and focus
on sources whose intellectual integrity I have some faith in. I have found it
saves time and mental energy with little downside.

But feel free to read what you like.

