{"id":6033,"date":"2014-06-02T23:08:36","date_gmt":"2014-06-03T03:08:36","guid":{"rendered":"http:\/\/philip.greenspun.com\/blog\/?p=6033"},"modified":"2014-06-02T23:08:36","modified_gmt":"2014-06-03T03:08:36","slug":"stupid-piketty-question-why-does-it-matter-if-the-rich-get-nominally-richer","status":"publish","type":"post","link":"https:\/\/philip.greenspun.com\/blog\/2014\/06\/02\/stupid-piketty-question-why-does-it-matter-if-the-rich-get-nominally-richer\/","title":{"rendered":"Stupid Piketty Question: Why does it matter if the rich get (nominally) richer?"},"content":{"rendered":"

Thomas Piketty’s\u00a0Capital in the Twenty-First Century<\/a>\u00a0urges readers to take drastic action to prevent what he says is an inevitable explosion in the wealth of rich people worldwide. Piketty assumes the following: (1) rich people get a better return on their investments than regular investors, (2) governments will stop taxing dividend and capital gain income, (3) the world economy will grow at best slowly for the next 50-100 years, (4) the return on capital will be high, and (5) rich people won’t consume too much (which means most of their income gets plowed into additional investment). If one accepts these assumptions today’s disgustingly\u00a0rich will become tomorrow’s ridiculously rich in a runaway process. This is why we need to take immediate action to tax wealth so that it doesn’t spiral upward out of control (and actually Piketty says that we need also to take immediate action on climate change<\/a> for the same reason).<\/p>\n

I have a feeling that this is a stupid question but I haven’t figured out a clear answer…. Why does it matter if today’s billionaires become tomorrow’s trillionaires?<\/p>\n

As the Detroit realtor no doubt would have said 20 years ago, “they’re not making any more land.” I.e., once rich people own most of the world’s land all that can happen is that the nominal price of the land goes up, but the total amount of land owned doesn’t change. Similarly,\u00a0there are only a certain number of factories in the world. If every rich person suddenly has 100X the wealth it will take a long time before more factories are built so the dominant effect will be bidding up the price of existing factories. General Electric is still the same company even if its shares in the aggregate become worth 10X as much as they are today.<\/p>\n

How about personal lifestyle? Will the huge wealth increases allow rich people to live more lavishly? Not if they want to live around other rich people and show off. See the June 1, 2014 “Sky-High Demand for Luxury”<\/a> in the New York Times: “multimillion-dollar apartments have been snatched up hours after they hit the market and buyers have shelled out $1 million over the asking price to secure a winning bid.” Sure the S&P 500 is up, but the price of a Manhattan duplex, a Range Rover, and a parking spot for that Range Rover, have gone up even more. A rich person could now buy all of Detroit, but why would he or she want to?<\/p>\n

Will the super rich becoming super duper rich affect the lifestyles of the non-rich? Consider that millions of Americans have a lifestyle that is set by the government in absolute terms, i.e., they are provided with whatever housing, medical care, and food that a government official decides that they should have. Additional millions of Americans are employees of the government or government contractors. Once again, the government decides what to pay these employees, generally without reference to the market (example<\/a>). How about the shrinking group of private industry workers who don’t work for government contractors? Can the uber rich force them into accepting minimum wage? It seems unlikely. The rich have to give the capable and hard-working some incentive to show up, so the wage of a good worker should be bid up until it is sufficient to support a comfortable lifestyle.<\/p>\n

Natural resource consumption seems like the place where the rich could do some serious damage to the middle class. When people who don’t care about money travel, for example, they burn a lot of oil. The President of the United States, for example, will send out a couple of Air Force cargo planes a couple of days ahead. These are stuffed full of SUVs, helicopters, and other vehicles. Then the President shows up in his private Boeing 747. If there were another 10,000 people worldwide who traveled in the same style this would put a real dent in oil supplies and middle class people might be reduced to walk\/biking\/Guatemalan chicken bus<\/a>. The middle class private car era will draw to a close.<\/p>\n

But except for oil, what good will it do the rich to become uber rich? Won’t they just bid against each other and generate inflation in the prices of 20-carat diamonds, townhouses in Paris, used Gulfstream jets, etc.? Once the rich own all of the world’s land, all of the world’s factories, and all of the world’s gems and gold, how can they actually get richer from a functional point of view?<\/p>\n

And finally why does it matter to the rest of us if a family holds onto a lot of wealth for a while? If they’re holding it aren’t they investing some of it in productive enterprises? And don’t they have to eventually spend a lot of it to get any value out?<\/p>\n","protected":false},"excerpt":{"rendered":"

Thomas Piketty’s\u00a0Capital in the Twenty-First Century\u00a0urges readers to take drastic action to prevent what he says is an inevitable explosion in the wealth of rich people worldwide. 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