And my point is that the totals (the integrals) will not have the relationship Piketty is describing over the long run.
For the inherent r>g issue, I believe you were saying things like "war" would "fix it," if I recall. Which I contested as counting as an "economic solution" to the inherent increased wealth disparity in a free market society, to which you didn't respond. I mean, if I loot some mansions during WW1, is that somehow supposed to factor into "r?" I don't think it would, its not an economical action. Or, -even if you're counting it as one- I didn't really make any capital investment to get my money. And, the system that WAS tracking the guy who owned the mansion would simply now be tracking me now. I would start counting for "r" (assuming I invested the money I looted) and he would drop off the "r" radar.
Regardless, I'm still not sure how you can feel a system that inherently causes a greater and greater concentration of wealth -elevated only with some kind of social upheaval (like war)- could be "good."
It's not about the constant of integration. It's the fact that we can have r > g most of the time, and then have short periods of time where r <<< g. Basically discontinuities in the function, or at least you can approximate them that way. Crashes, revolutions, currency collapses, disruption of large economic sectors (i.e. the car replacing the horse), etc. These kinds of events will wipe out large capital investments in the impacted sectors/countries and will tend to undo long periods of capital growth in a short period of time.
Now I'm pretty sure you have it wrong. The r (growth on return) would pretty much always be bigger than g (growth of the economy), but the economy would simply BE bigger, even if its growth was always slower.
My example from before was how WWI and WWII wiped out most of the old fortunes of Europe. That money was build up over hundreds of years of feudal and monarchical rule, then wiped out in just a decade or two. The sum(r) of those fortunes, if you start from feudal times and go through the end of WWII, is zero or negative, even though r was positive for most of those years.
See, with statements like this you sound like your advocating for war as some kind of necessary occasional 'solution' to the wealth inequality inherent in your system. Are you really building into your ideal economic system necessary occasional wars?
And, if you are, how does "war" fit into your libertarian sensibilities? I would assume a bunch of peasants with shotguns stealing other people's hard earned money to be -essentially- the libertarian definition of 'evil.'
I mean, I'm asking because I assume I'm reading you wrong. I don't know how anyone could think occasional raping and pillaging is better than a constant tax hike. I must be misunderstanding.
Here's a very brief summary of Capital in the XXI Century and it's most commons critique. It's is even done by a heterodox author so you can only begin t grasp what ortodox authors have to say about this. The first and forth concerns are spot on, the first being the reason why this book is above everything confusing. Piketty himself tries as much as he can to not be compared to Marx but the irony is that there are some similarities: it does not respect established definitions, nor it does justify the deviations, the allegations does not have a direct links with the evidence and the obscure nature of the argument makes it really hard to prove or disprove. The proper scholarly response (denying his theory or confirming it) will take some time because of those things (like in Marx's case) but it won't stop people from believing in it because they want to (again, like in Marx's case). Hopefully this time the worst that can come out of this is some bad tax policies that will be questioned and reviewed for the end of times (gladly, unlike Marx's cases).
Piketty is right about r>g being true most of the time. But he's focused on the wrong quantities. It's not the changes we should care about, it's the total accumulation of wealth. And my point is that the totals (the integrals) will not have the relationship Piketty is describing over the long run.
But then you're just saying "the amount of wealth rich people have is never more than the total amount of wealth". That's true, of course, but it doesn't strike me as a meaningful rebuttal of concerns about inequality.
Private Mod Note
():
Rollback Post to RevisionRollBack
Vive, vale. Siquid novisti rectius istis,
candidus inperti; si nil, his utere mecum.
Piketty is right about r>g being true most of the time. But he's focused on the wrong quantities. It's not the changes we should care about, it's the total accumulation of wealth. And my point is that the totals (the integrals) will not have the relationship Piketty is describing over the long run.
But then you're just saying "the amount of wealth rich people have is never more than the total amount of wealth". That's true, of course, but it doesn't strike me as a meaningful rebuttal of concerns about inequality.
Right, it's an almost painfully trivial observation. When I presented it way back on page three of this thread, it was a throwaway line meant as a starting point or premise for the ultimate arguments I was interested in making about wealth inequality:
I won't launch into one of the many excellent critiques of Picketty out there; I'll take him at his word for now. However it must, mathematically, be the case that Sum(r) <= Sum(g) in the long run, assuming we control for things like inflation. In other words, the aggregate return on capital cannot exceed the aggregate growth of the economy in the long run; you physically can't generate more total return than total value.
But then it took three pages of meticulously (and at times mathematically) belaboring the point to convince people like Taylor and Tiax that you can't in fact generate wealth out of thin air using debt.
I'm still not sure Taylor is convinced. If he is, we can move on. If not, feel free to help me out with my argument, BS.
My example from before was how WWI and WWII wiped out most of the old fortunes of Europe. That money was build up over hundreds of years of feudal and monarchical rule, then wiped out in just a decade or two. The sum(r) of those fortunes, if you start from feudal times and go through the end of WWII, is zero or negative, even though r was positive for most of those years.
See, with statements like this you sound like your advocating for war as some kind of necessary occasional 'solution' to the wealth inequality inherent in your system. Are you really building into your ideal economic system necessary occasional wars?
And, if you are, how does "war" fit into your libertarian sensibilities? I would assume a bunch of peasants with shotguns stealing other people's hard earned money to be -essentially- the libertarian definition of 'evil.'
I mean, I'm asking because I assume I'm reading you wrong. I don't know how anyone could think occasional raping and pillaging is better than a constant tax hike. I must be misunderstanding.
I think there are some nuances that you're missing here:
I'm not saying inequality causes war. I'm saying wars happen anyway, and one of the effects is a reduction in stagnation of wealth. (Certainly economic inequality can cause war under specific circumstances, but that's not what I'm talking about here).
War is just an example. I chose it because it's very obvious that wealth is changing hands and/or being destroyed on a large and immediate scale without any intentional policy intervention. I don't think war is the primary way inequalities are eliminated, and I definitely don't advocate it as a way of dealing with inequality.
My only purpose in bringing up WWII is to say "look, here's a super clear empirical example of how r>g does not go on forever. It's not sustainable in the real world."
And, once again, I made this clear very early on in the thread:
That said, I'm not arguing letting inequality fix itself is necessarily the best option. I'm just saying it is, in fact, an option to consider.
To clarify what I mean by the above statement -- we need to first consider the state of things as they are before we can talk intelligently about how to fix or improve the status quo. I'm pointing out with my examples (which have included not only war, remember, but also economic sea changes like the rise of Silicon Valley) that wealth already experiences a natural, periodic rate of turnover. There is no investment that can reap an eternal r>g.
Once we're on the same page about how wealth and the economy currently operate, once we comprehend the nuances of the delicate machine we're trying to repair or re-design, then we an give more sophisticated answers to the question "how do we address inequality." We can give responses that are more thought-out than knee-jerk "tax the rich, they have too much money" talking points (or the dumb argument from the other side: "trickle down economics").
I'm still not sure Taylor is convinced. If he is, we can move on. If not, feel free to help me out with my argument, BS.
I'm not convinced that "It's the fact that we can have r > g most of the time, and then have short periods of time where r <<< g" is true. But, I do understand this isn't really important to the main thrust of the discussion and am more than willing to drop it on those grounds.
For whatever reason, I like to discuss tangents, but I understand they're often vestigial nature.
That said, I'm not arguing letting inequality fix itself is necessarily the best option. I'm just saying it is, in fact, an option to consider.
Alright, fair enough.
Anyway, you've seemed to acknowledge that your system has the inherent characteristic of causing wealth concentration, and that this is undesirable in the long run. We've also established that... Umm... 'traditional' ways of 'fixing' this problem -AKA 'War'- is also bad.
But, even "economic sea changes" are unpredictable in occurrence and outcome (and I don't see why people with 'r' can't just invest in them, but anyway...).
Do you have any -more reliable- (and likely hypothetical, which is perfectly fine) solutions to the acknowledged problem in your system?
I'm still not sure Taylor is convinced. If he is, we can move on. If not, feel free to help me out with my argument, BS.
I'm not convinced that "It's the fact that we can have r > g most of the time, and then have short periods of time where r <<< g" is true. But, I do understand this isn't really important to the main thrust of the discussion and am more than willing to drop it on those grounds.
For whatever reason, I like to discuss tangents, but I understand they're often vestigial nature.
I'm happy to talk about tangents if you find them illuminating, I just want us to be clear about what we're debating and what we agree on.
That said, please clarify what you're trying to argue on this "tangent" issue. I'm not sure I understand your point based on your last few posts.
Anyway, you've seemed to acknowledge that your system has the inherent characteristic of causing wealth concentration, and that this is undesirable in the long run.
I started this argument with "let's say Piketty's assumptions about how the world works are true." In other words, I'm taking a premise you seem to largely agree with (Piketty) and working from there to show you why I think re distributive economic policies don't effectively solve the problem he claims to identify (and propose solutions that I think might actually work).
To the extent my personal beliefs on the subject matter to you: (1) I think every large-scale economic system that has ever existed has the "the inherent characteristic of causing wealth concentration" to varying degrees including capitalism (but also every practical implementation of socialism, communism, feudalism, etc.), and; (2) I think wealth concentration can be undesirable, but isn't necessarily so. Or it may be less undesirable than any attainable alternative.
We've also established that... Umm... 'traditional' ways of 'fixing' this problem -AKA 'War'- is also bad.
War is bad. The fact that war "fixes" the inequality is not necessarily bad, and might be good.
It's like if we were having a debate about population growth, and you were focused only on birth rates. Then I said "yes, but you also need to consider death rates." And you respond with "Death rates? Are you advocating death as a means of population control? Obviously death is a bad thing and we should be avoiding death whenever possible." Obviously I wasn't saying death is good, I was saying death happens and you need to factor it into your understanding of the world.
I'm not saying war is good, I'm saying war happens from time to time and it has certain effects when it does.
But, even "economic sea changes" are unpredictable in occurrence and outcome (and I don't see why people with 'r' can't just invest in them, but anyway...).
Sentence 1 answers sentence 2. It's precisely because they're entirely unpredictable that they can't be leveraged consistently by savvy investors.
But they have a kind of "predicable unpredictability." As long as we continue growing as a human race and as long as we continue innovating, we will always have these kinds of upheavals from time to time. We just can't know exactly when or where they're coming.
Do you have any -more reliable- (and likely hypothetical, which is perfectly fine) solutions to the acknowledged problem in your system?
This is the core question, isn't it? As I've been saying, there's no easy or straightforward fix. I don't have any magical solution, but I do have some general ideas about what the solution should look like.
I'll tell you about these ideas, I promise, but first I want to make sure we agree (or at least understand each other) regarding the way things currently are. We need to understand each others' premises before we can understand each others' conclusions. And who knows, maybe you'll poke a hole in my premises along the way and I'll change my mind about the conclusions.
So, let's recap where we are:
Solutions that attempt to directly fix the problem of wealth inequality by centrally redistributing wealth cause collateral damage to the economy. Sometimes the collateral damage is worse than the problem we're attempting to solve. I talked a little about this in posts #63 & #67. I'm not sure if you agree with me here, but you seem to at least acknowledge that what I'm saying is plausible.
Sum(r) <= Sum(g) in the long run.
Now let's throw some new observations into the mix:
By the mean value theorem if sum(r) <= sum(g) then average(r) <= average(g) over the same interval of time. [EDIT: On further reflection I don't actually think I need to invoke the MVT here. You can just trivially divide both sides of the equation by the length of time "t" and you get the averages.]
Remember that we're using "r" and "g" to represent economy-wide quantities equal to the sum of individual contributions. In other words, "r" is the sum of the marginal returns on each individual investment at a given time. So r = r1 + r2 + r3 + ... + rn; where r1, r2, etc. are the returns attributable to each individual capital investment at some particular point in time.
The average of a sum is equal to the sum of averages, so if avg(r) <= avg(g) over a certain time period, then: avg(r1) + avg(r2) + ... avg(rn) <= avg(g) over that same time period.
With me so far? Or do I need to clarify any of these points?
The expected return of each individual's investment is indeed lower then the expect growth rate, after all someone cannot gain more then what was produced in the economy. You are basically saying fortunes are made on the creation of new things (return of investment) and not on the expropriation of existing things, which is indeed true but not Pikkety's theory.
Inequality does not come from rich people getting more rich while poorer gets more poor. Everyone is getting richer but the rich is getting richer faster, which does promote inequality (Note: it does not 'cause' inequality. The income movement described by Pikkety might occur but a better distribution on the base might drag the inequality index down anyway).
The problem is that overall most people income increases comes from pure economic growth and human capital returns, both which are smaller then investment returns for a number of reasons (investments are harder to manage then careers, they have larger risks, they have higher entrance barriers and they have much larger extra-economic returns in short terms for all those reasons). The flaw in Pikkety's argumentation is that he mix financial investments with real investments, so in his model if you are really rich you can just lend your money, relax, and gets richer faster then the rest of the populace. This is not true in practice because the return of lending money is actually very small and something that is equally at the disposal of basically everyone who has a bank account.
The large financial gains, the ones that creates the great fortunes, comes from extra-economic gains of entrepreneurship, such as arbitrage, private equity, real investments and a giant number of other things. A number of intellectuals does not consider being rewarded by taking risks no one cared to take as actual productive activity. Schumpeter is the greatest political economist of all times for being the first to stand up and elaborate why this as in fact not true.
Is it true that the productivity or not of those giant gains is a tangent point to weather inequality is or not bound to endlessly increase. I felt like clearing that point because a lot Pikkety's supporters have this wrong picture of reality that the 1% richer gets richer by simply lending money. This confusion is originated by the awkward terminology used by Pikkety when he mix extra-economic profits, real capital returns and financial capital return in one only thing. Although this is no argument against the inequality problem , it's a giant argument against the regulation, as it would create dead weight in the single most important industry for human development (the industry of entrepreneurship).
There's no mechanism inherent to capitalism that makes so that the income of 1% richer must be higher then growth. Pikkety look at time series, but time series are not bound to endlessly replicate then-self. Also, a lot of the data analysed by him shows the opposite, such as the war periods and his justification for the exception is very convoluted. It's almost like he is using a theory only he knows. And if you look into different capitalists countries individually you will see Piketty's income pattern does not repeats itself so consistently. It means nothing stops income from concentrating and distributing in different periods as far as we know.
Regardless, I'm still not sure how you can feel a system that inherently causes a greater and greater concentration of wealth -elevated only with some kind of social upheaval (like war)- could be "good."
Now I'm pretty sure you have it wrong. The r (growth on return) would pretty much always be bigger than g (growth of the economy), but the economy would simply BE bigger, even if its growth was always slower.
See, with statements like this you sound like your advocating for war as some kind of necessary occasional 'solution' to the wealth inequality inherent in your system. Are you really building into your ideal economic system necessary occasional wars?
And, if you are, how does "war" fit into your libertarian sensibilities? I would assume a bunch of peasants with shotguns stealing other people's hard earned money to be -essentially- the libertarian definition of 'evil.'
I mean, I'm asking because I assume I'm reading you wrong. I don't know how anyone could think occasional raping and pillaging is better than a constant tax hike. I must be misunderstanding.
Here's a very brief summary of Capital in the XXI Century and it's most commons critique. It's is even done by a heterodox author so you can only begin t grasp what ortodox authors have to say about this. The first and forth concerns are spot on, the first being the reason why this book is above everything confusing. Piketty himself tries as much as he can to not be compared to Marx but the irony is that there are some similarities: it does not respect established definitions, nor it does justify the deviations, the allegations does not have a direct links with the evidence and the obscure nature of the argument makes it really hard to prove or disprove. The proper scholarly response (denying his theory or confirming it) will take some time because of those things (like in Marx's case) but it won't stop people from believing in it because they want to (again, like in Marx's case). Hopefully this time the worst that can come out of this is some bad tax policies that will be questioned and reviewed for the end of times (gladly, unlike Marx's cases).
BGU Control
R Aggro
Standard - For Fun
BG Auras
candidus inperti; si nil, his utere mecum.
Right, it's an almost painfully trivial observation. When I presented it way back on page three of this thread, it was a throwaway line meant as a starting point or premise for the ultimate arguments I was interested in making about wealth inequality:
But then it took three pages of meticulously (and at times mathematically) belaboring the point to convince people like Taylor and Tiax that you can't in fact generate wealth out of thin air using debt.
I'm still not sure Taylor is convinced. If he is, we can move on. If not, feel free to help me out with my argument, BS.
I think there are some nuances that you're missing here:
And, once again, I made this clear very early on in the thread:
To clarify what I mean by the above statement -- we need to first consider the state of things as they are before we can talk intelligently about how to fix or improve the status quo. I'm pointing out with my examples (which have included not only war, remember, but also economic sea changes like the rise of Silicon Valley) that wealth already experiences a natural, periodic rate of turnover. There is no investment that can reap an eternal r>g.
Once we're on the same page about how wealth and the economy currently operate, once we comprehend the nuances of the delicate machine we're trying to repair or re-design, then we an give more sophisticated answers to the question "how do we address inequality." We can give responses that are more thought-out than knee-jerk "tax the rich, they have too much money" talking points (or the dumb argument from the other side: "trickle down economics").
For whatever reason, I like to discuss tangents, but I understand they're often vestigial nature.
Alright, fair enough.
Anyway, you've seemed to acknowledge that your system has the inherent characteristic of causing wealth concentration, and that this is undesirable in the long run. We've also established that... Umm... 'traditional' ways of 'fixing' this problem -AKA 'War'- is also bad.
But, even "economic sea changes" are unpredictable in occurrence and outcome (and I don't see why people with 'r' can't just invest in them, but anyway...).
Do you have any -more reliable- (and likely hypothetical, which is perfectly fine) solutions to the acknowledged problem in your system?
I'm happy to talk about tangents if you find them illuminating, I just want us to be clear about what we're debating and what we agree on.
That said, please clarify what you're trying to argue on this "tangent" issue. I'm not sure I understand your point based on your last few posts.
I started this argument with "let's say Piketty's assumptions about how the world works are true." In other words, I'm taking a premise you seem to largely agree with (Piketty) and working from there to show you why I think re distributive economic policies don't effectively solve the problem he claims to identify (and propose solutions that I think might actually work).
To the extent my personal beliefs on the subject matter to you: (1) I think every large-scale economic system that has ever existed has the "the inherent characteristic of causing wealth concentration" to varying degrees including capitalism (but also every practical implementation of socialism, communism, feudalism, etc.), and; (2) I think wealth concentration can be undesirable, but isn't necessarily so. Or it may be less undesirable than any attainable alternative.
War is bad. The fact that war "fixes" the inequality is not necessarily bad, and might be good.
It's like if we were having a debate about population growth, and you were focused only on birth rates. Then I said "yes, but you also need to consider death rates." And you respond with "Death rates? Are you advocating death as a means of population control? Obviously death is a bad thing and we should be avoiding death whenever possible." Obviously I wasn't saying death is good, I was saying death happens and you need to factor it into your understanding of the world.
I'm not saying war is good, I'm saying war happens from time to time and it has certain effects when it does.
Sentence 1 answers sentence 2. It's precisely because they're entirely unpredictable that they can't be leveraged consistently by savvy investors.
But they have a kind of "predicable unpredictability." As long as we continue growing as a human race and as long as we continue innovating, we will always have these kinds of upheavals from time to time. We just can't know exactly when or where they're coming.
This is the core question, isn't it? As I've been saying, there's no easy or straightforward fix. I don't have any magical solution, but I do have some general ideas about what the solution should look like.
I'll tell you about these ideas, I promise, but first I want to make sure we agree (or at least understand each other) regarding the way things currently are. We need to understand each others' premises before we can understand each others' conclusions. And who knows, maybe you'll poke a hole in my premises along the way and I'll change my mind about the conclusions.
So, let's recap where we are:
Now let's throw some new observations into the mix:
With me so far? Or do I need to clarify any of these points?
The expected return of each individual's investment is indeed lower then the expect growth rate, after all someone cannot gain more then what was produced in the economy. You are basically saying fortunes are made on the creation of new things (return of investment) and not on the expropriation of existing things, which is indeed true but not Pikkety's theory.
Inequality does not come from rich people getting more rich while poorer gets more poor. Everyone is getting richer but the rich is getting richer faster, which does promote inequality (Note: it does not 'cause' inequality. The income movement described by Pikkety might occur but a better distribution on the base might drag the inequality index down anyway).
The problem is that overall most people income increases comes from pure economic growth and human capital returns, both which are smaller then investment returns for a number of reasons (investments are harder to manage then careers, they have larger risks, they have higher entrance barriers and they have much larger extra-economic returns in short terms for all those reasons). The flaw in Pikkety's argumentation is that he mix financial investments with real investments, so in his model if you are really rich you can just lend your money, relax, and gets richer faster then the rest of the populace. This is not true in practice because the return of lending money is actually very small and something that is equally at the disposal of basically everyone who has a bank account.
The large financial gains, the ones that creates the great fortunes, comes from extra-economic gains of entrepreneurship, such as arbitrage, private equity, real investments and a giant number of other things. A number of intellectuals does not consider being rewarded by taking risks no one cared to take as actual productive activity. Schumpeter is the greatest political economist of all times for being the first to stand up and elaborate why this as in fact not true.
Is it true that the productivity or not of those giant gains is a tangent point to weather inequality is or not bound to endlessly increase. I felt like clearing that point because a lot Pikkety's supporters have this wrong picture of reality that the 1% richer gets richer by simply lending money. This confusion is originated by the awkward terminology used by Pikkety when he mix extra-economic profits, real capital returns and financial capital return in one only thing. Although this is no argument against the inequality problem , it's a giant argument against the regulation, as it would create dead weight in the single most important industry for human development (the industry of entrepreneurship).
There's no mechanism inherent to capitalism that makes so that the income of 1% richer must be higher then growth. Pikkety look at time series, but time series are not bound to endlessly replicate then-self. Also, a lot of the data analysed by him shows the opposite, such as the war periods and his justification for the exception is very convoluted. It's almost like he is using a theory only he knows. And if you look into different capitalists countries individually you will see Piketty's income pattern does not repeats itself so consistently. It means nothing stops income from concentrating and distributing in different periods as far as we know.
BGU Control
R Aggro
Standard - For Fun
BG Auras