Geopolitics

Discussion: Picketty’s Income Inequality Boiled Down Into Its Core Components

Components of Income Inequality

Incitation: There must be a simpler way to describe the concepts popularized by Thomas Picketty in his recent book, Capital in the Twenty-First Century. If this is true, how can we simply explain these concepts?

Quiddity: Income inequality must exist and only get worse because of this simple equation: Finite resources + rising population = asset prices can only increase (finite supply and increasing demand). Finite resources to manage + rising populations = higher competition for the same jobs (wages rising slower than asset prices).

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I recently heard an interview with Thomas Picketty on the Economist’s In Other Words series. I give Mr. Picketty due credit for bringing awareness to the problem of inequality in his new book, Capital in the Twenty-First Century. I did not read the book yet, but if statistics can offer anything of value, it seems like most others never really tackled this 500+ page behemoth either. That said, in the interview, he offered a few snippets that seemed to summarize his book quite nicely:
1) Even though the top 85 wealthiest people in the world (and now updated to be more like the world’s top 67 wealthiest) have as much wealth combined as the lowest half of the world (3.5 billion people), a simple redistribution isn’t likely the answer. This hypothetical situation would result in a one-time payout of approximately $428 per lower-half-person, or invested, would work out to be $21 per day for a year. The argument was made that this would likely not have as much economic impact as these collective trillionaires’ contribution to investment and jobs.

2) The argument was once again made: the paradox of capitalist society is that asset values rise faster than wages. It seems that this premise is still being debated.

My analysis of the points above comes down to this: 1) I can’t decide if I agree with the first point or not without further research, and 2) this equation makes sense to me in the most confident of ways. To me, “of course, asset values rise faster than wages”. Consider the following ‘equation’.:

Finite resources + rising population = asset prices can only increase (finite supply and increasing demand). Finite resources to manage + rising populations = higher competition for the same jobs (wages rising slower than asset prices).

If you believe my equation is right, or even right in-spirit, the burning question then becomes: What is the real end-game of the global economy? Or, putting in a simpler way: What can we use as our new metric; our substitute for growth if we realize that assets can only be used, grown, and sold so much until they’re dead energy?

As always, I welcome your thoughts and comments on this pressing subject.

 

 

 

 

 

 

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