Wednesday, July 23, 2014

Piketty (21) Lack of Wealth

Piketty explains that wealth is unequally distributed. He sees this as a flaw in capitalism, but he does not ask the most important question. Why is wealth so rare? Why do so few families have any wealth?

r>g means that people with capital do better than people without capital. If everyone has some capital, then everyone benefits from r>g. It only creates inequality, if capital is concentrated in the hands of a few people.

The widespread lack of wealth was understandable in a subsistence economy, as it was really hard to escape poverty. However, income has risen amazingly in the last couple of centuries, so it would be expected that the ownership of capital would become more widespread. Yet, income has risen immensely, but wealth and ownership of capital is still rare. There are several reasons”

  1. We consume almost everything we earn.
  2. Our only asset is a residential dwelling, but the shelter produced is all consumed, so nothing is earned.
  3. Very people start real businesses that would produce jobs and wealth for their families.
Most people in the western world have no wealth, because they have chosen to be poor.

While I was reading Piketty, I was also reading Family Fortunes by Bill Bonner. He is a bit obsessed with money, but he makes some important points. He explains how to create a family inheritance. He also explains why so few families do it.

A person on the average wage will earn a million dollars over their lifetime. If they were to save half of what they earned, and get a steady rate of return, they would be a millionaire by the time they retired, but very few people do that.

Paul explains why this is the case for the people of the world. They have no hope.
Let us eat and drink, for tomorrow we die (1 Cor 15:32).
If there is no hope for the future, we might as well consume everything. There is no point saving for a future that is uncertain.

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