So, r is greater than g is it?

Let me list the problems. First, wealth grows exponentially. Income from work does not. We have a society now designed to become more unequal.

This is problematic. By definition the wealthy do not so end all their income. As they capture a growing part of national income this means the return to those who really work will decline due to the negative multiplier effects of saving.

And the wealthy save, but do not invest. Savings guarantee that they do not lose their wealth status. Risky investments might. And since status is what really matters to the wealthy a supposedly wealthy economy is bad for innovation.

Which does rather miss the point being made by Piketty. Which is that r is greater – greater greater that is – for richer people because they can afford to take more risk. Which is the only reason it is great. But then that conflicts with the second point, that they don’t take risk, doesn’t it?

The poor might save in cash, or savings accounts, or even NS&I. The rich are in property, equities and…..higher risk, d’ye see?

15 thoughts on “So, r is greater than g is it?”

  1. “Savings guarantee that they do not lose their wealth status. Risky investments might.”

    Looks like an outright admission the green infrastructure bonds or whatever are explicitly designed to destroy wealth.

    I believe NEST may have made some sort of announcement recently.

  2. basically the argument is that the wealthy “capture a growing part of national income” because they “capture a growing part of national income”

  3. To which I reply, SFW? and furthermore, who asked you? And, when you are comparing the very rich and the struggling poor, aren’t you missing most of the population?

  4. It’s an interesting one – why take the risk if you don’t need the returns?

    I suppose the stinking rich diversify by owning property in half a dozen countries, owning arable and woodland all over the place, storing bullion, and owning lots of private and public equities. For the last umpteen years they may also have owned US Treasuries, including TIPS. Maybe even oil and gas wells.

    That should cover lots of different risks.

  5. There are many times when it looks as if Fatf*ck does not understand the meaning of the technical terms he is using. Here he doesn’t seem to understand “savings” and “investment”, arguably not the hardest words in the lexicon of Economics. If the wealthy are saving, where are they putting their savings? There is no requirement for the saver to be the investor. If you buy a Premium Bond, is it normal for you to tell the Government how to spend the money you have just paid out? Spud delenda est. He goes beyond understandable levels of stupidity

  6. “Savings guarantee that they do not lose their wealth status. Risky investments might. And since status is what really matters to the wealthy.. ”

    Really? Seems a rather large generalization.

    I’d much rather go for the argument that wealth is the way to keep score in the game of life.

    If you just save passively your rank (relative wealth) will go down. You have to be in it to win it. He who gambles big wins big. The winners are the ones who take the biggest risks. So wealthy are likely to be the ones who take the biggest risks, either they win and get even wealthier, or lose and potentially are no longer the wealthy.

  7. “And the wealthy save, but do not invest.

    Since when does S ≠ I ?”

    Remember the Left work on the Scrooge McDuck version of wealth – a large pile of gold coins to wallow in whenever the fancy takes them……….

  8. …a supposedly wealthy economy is bad for innovation.

    Right – we see much more innovation in (say) Zimbabwe than England. It’s obvious, innit? To eliminate cultural or other differences that might come into play in that pairing, we might compare the stagnant, low-innovation and almost stagnant economy of South Korea with the vibrant, imaginative dynamo that is North Korea.
    Honestly, what world does spuddo live in?

  9. He thinks he’s discovered a variant of Malthus; savings increase exponentially, wages don’t.

    Just like Malthus, it sounds reasonable.

    Just like Malthus, it’s missing a massive mitigating factor which makes the theory incorrect.

    He’s got some time to go before he’s been incorrect for as long as Robert Malthus, but one can’t fault the scale of his ambition.

  10. The joy of Malthus is that he was right up to the point he sat down to write. It was the capitalist – bourgeois even – revolution that made him wrong. It’s the same thing that makes Ritchie wrong here. The churn of market competition. To disprove Malthus it was the speed of technological advance – outrunning population change – that did it. For the P³ it’s that same churn that does it. There is no place in an advancing economy where you can just “save” and maintain wealth over long periods of time.

  11. If the ‘wealthy’ speculated in risky investments he’d just call it greed. By his rules, he wins either way.

    Anyway, to call investment in property ‘risky’ in the UK is quite funny.

  12. Murphy is following Picketty in pretending that the idle wealthy will grow richer from accumulating income from their wealth because they neither pay taxes nor spend any of their income, living in a garret on stale bread from the local food bank.

    Even those buying into his Scrooge McDuck theory can point out that if McDuck hoards all his gold coins in his vault then he doesn’t get any income from them and doesn’t grow richer.

  13. @John77

    “Even those buying into his Scrooge McDuck theory can point out that if McDuck hoards all his gold coins in his vault then he doesn’t get any income from them and doesn’t grow richer.”

    Ah, no, mumble mumble, rentier, mumble mumble, exploitation, mumble mumble rich get richer, mumble mumble tax avoidance, mumble mumble, graph, mumble mumble which is PROOF that Spud is right.

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