r > g?

[cherdano]

So, is it?

[billw55]

Obviously. r is far superior to g. Poll should have been unanimous.

[hrothgar]

Haven't finished Capital in the 21st Century, however, I am learning a lot from what I have read.

 

Some of Piketty's basic ideas are very interesting. I'm embarrassed to say that I hadn't considered issues like basing taxes on the property value of a house rather than the assessed value of a house prior to looking at this book.

[y66]

According to Thomas Piketty and Emmanuel Saez (page 96)

 

available evidence shows that the aggregate rate of return to wealth is generally much larger than the growth rate

 

http://graphics8.nytimes.com/images/2014/03/14/opinion/031414krugman3/031414krugman3-blog480.png

 

If Justin Lall says the available evidence for something is such and such, I take him at his word. Ditto for these guys.

[cherdano]

I haven't read too much commentary about it. But I don't know whether the book contains a convincing answer to

http://georgecooper.org/2014/05/01/credit-in-the-twenty-first-century/

[hrothgar]

According to Thomas Piketty and Emmanuel Saez (page 96)

 

 

 

http://graphics8.nytimes.com/images/2014/03/14/opinion/031414krugman3/031414krugman3-blog480.png

 

If Justin Lall says the available evidence for something is such and such, I take him at his word. Ditto for these guys.

 

That diagram is a good example why I listed that I thought they were correct, but I'm unsure...

 

I trust his pre-war numbers, however, his two observed post war figures shows that g > r.

He is projecting that r > g for the forseeable future.

 

I suspect that he is correct, however, can't be sure...

[hrothgar]

According to Thomas Piketty and Emmanuel Saez (page 96)

 

 

 

http://graphics8.nytimes.com/images/2014/03/14/opinion/031414krugman3/031414krugman3-blog480.png

 

If Justin Lall says the available evidence for something is such and such, I take him at his word. Ditto for these guys.

 

That diagram is a good example why I listed that I thought they were correct, but I'm unsure...

 

I trust his pre-war numbers, however, his two observed post war figures shows that g > r.

He is projecting that r > g for the forseeable future.

 

I suspect that he is correct, however, can't be sure...

[shyams]

I haven't read too much commentary about it. But I don't know whether the book contains a convincing answer to

http://georgecooper.org/2014/05/01/credit-in-the-twenty-first-century/

 

I am unable to comprehend how George Cooper's "hypothetical kingdom" example discredits r>g entirely.

 

He says the economy doubles because twice the land as a 1000 years ago is now productive farmland. My problem is if we put one more constraint into Cooper's example. What about the impact of population? Let's say the King had 1 million subjects in year 1 and due to the fatalistic beliefs of the King and his subjects, diseases remain a problem even in year 1000. Let's assume the population in year 1000 is still 1 million. In such a situation, would the economy really have doubled in a 1000 years?

[mike777]

I thought it was interesting to compare the trend of this data to GDP

 

Data for this Date Range

 

US Government Gross Output Historical Data

 

March 31, 2014 3.061T

Dec. 31, 2013 3.040T

Sept. 30, 2013 3.048T

June 30, 2013 3.038T

March 31, 2013 3.044T

Dec. 31, 2012 3.049T

Sept. 30, 2012 3.082T

June 30, 2012 3.046T

March 31, 2012 3.045T

Dec. 31, 2011 3.018T

Sept. 30, 2011 3.042T

June 30, 2011 3.028T

March 31, 2011

------------------------------------------------

 

usa GDP

 

 

Data for this Date Range

 

 

 

March 31, 2014 17.15T

Dec. 31, 2013 17.09T

Sept. 30, 2013 16.91T

June 30, 2013 16.66T

March 31, 2013 16.54T

Dec. 31, 2012 16.42T

Sept. 30, 2012 16.36T

June 30, 2012 16.16T

March 31, 2012 16.04T

Dec. 31, 2011 15.82T

Sept. 30, 2011 15.61T

June 30, 2011 15.46T

March 31, 2011

---------------------------------------------------

 

 

 

 

The book recommends 80% tax rates above 1M and 50% above 200k also a 10% wealth tax

The goal is less income inequality not to increase revenues.

[awm]

I haven't read too much commentary about it. But I don't know whether the book contains a convincing answer to

http://georgecooper.org/2014/05/01/credit-in-the-twenty-first-century/

 

First off, r>g is not some sort of mathematical identity. As is mentioned in Piketty's book, it's easy to construct imaginary examples where r=g or even r<g. However, the historical record supports r>g almost always, with the only exception being immediately after WW2 when there were a large number of unusual things going on in Europe (very high economic growth due to war reconstruction, very low amounts of capital due to the war, very high rates of inflation in order to pay off public sector debts, extremely high marginal tax rates and a series of "one time" taxes, etc).

 

He also mentions in the book that (contrary to George Cooper's straw man argument) r and g are not necessarily independent and certainly r is not independent of the supply of capital. It's clear that as the amount of capital in the economy increases, we cannot maintain r>g (else the share of income to capital would exceed 100%). In fact he even does some analysis of the effect of the aggregate amount of capital on r; the problem is that historical evidence indicates this process is not sufficient to prevent wealth concentrations similar to the 19th century (or more extreme). In George Cooper's example, ALL of the nation's wealth owned by the king, which seems to trivially imply that labor's share is zero (as well as r=g).

 

Right now the largest fortunes are seeing r around 0.1 (Piketty gives examples from the list of Forbes billionaires and the largest college endowments). We have never in recorded history seen g approach 0.1 in the United States (from Piketty's historical analysis, the only way to approach such rates is in "catch up" economies like present-day China).

[mike777]

It may be helpful to define and to explain standard measurement of r and g

 

It may be helpful to put r and g in comparison and contrast in a historical perspective.

 

Not that history repeats itself but ideas do indeed.

 

Hence this book.

 

:)

[kenberg]

According to Thomas Piketty and Emmanuel Saez (page 96)

 

 

 

http://graphics8.nytimes.com/images/2014/03/14/opinion/031414krugman3/031414krugman3-blog480.png

 

If Justin Lall says the available evidence for something is such and such, I take him at his word. Ditto for these guys.

 

 

The first line of the Introduction:

"According to the profession's most popular theoretical models, optimal tax rates on capital should be equal to zero in the long run including from the viewpoint of those individuals

or dynasties who own no capital at all."

 

Already I am lost. I am unfamiliar with the professions most popular theoretical models. I had no idea that these models claim that "optimal tax rates on capital should be equal to zero in the long run".

 

After a few lines of expanding on this, he says

 

"Few economists however seem to endorse such a radical policy agenda. Presumably this reflects a lack of faith in the standard models and the zero-capital tax results - which are indeed well known to rely upon strong assumptions."

 

OK, few economists agree with the implications of these most popular models. That's a bit weird. In his footnote he tells us that

 

"In particular, Atkinson and Stiglitz (1976; 1980, pp. 442-451) themselves have repeatedly stressed that their famous zero capital tax result relies upon unplausibly strong assumptions (most notably the absence of inheritance and the separability of preferences), and has little relevance for practical policy discussions. See also Atkinson and Sandmo (1980) and Stiglitz (1985)"

This makes a guy wonder what they think or say about the less than "most popular" models.

 

 

I am not in fact dissing the paper. But he is an economist writing for other economists, and those of us outside the profession may need a guide to figure out just how to interpret all of this. I don't doubt for a moment that it is a major paper, seriously written, worthy of serious study. This is not the same as saying that I have printed it out and am reading it page by page. Best of luck to those who do.

[Trinidad]

Obviously. 650 nm > 510 nm.

 

See e.g. here for a full explanation.

 

Rik

[mike777]

r>g is a hypothesis

 

 

It may be true but not proven at this point.

 

 

fwiw I find in the long run it very difficult if not impossible to earn more than a business or business's in the aggregate are worth. You may do better.

----------------

 

if you want to reduce income inequality does reducing r makes economic sense, this book says yes.

 

Hence tax rates of 80% on incomes of 500k and an annual wealth tax of 10% on the top.

 

to repeat the goal is to reduce income inequality, not to increase revenue

[mike777]

As this book makes clear there are many ways to reduce income inequality.

 

1) have a world wide depression

2) have world wars....multiple times.

[hotShot]

It is reported here that W. Buffett said something like this: We will soon have more money than what could be intelligently invested.

 

I read that as: There is so much money around that some investors already don't know where to put it intelligently.

It would explain the recent economic crises like the mortgage crisis. Assuming there was more money to loan than what people were able to borrow and repay.

It would also explain why people invest into financial products (e.g. derivatives) that they don't understand.

[mike777]

It is reported here that W. Buffett said something like this: We will soon have more money than what could be intelligently invested.

 

I read that as: There is so much money around that some investors already don't know where to put it intelligently.

It would explain the recent economic crises like the mortgage crisis. Assuming there was more money to loan than people what people were able to borrow and repay.

It would also explain why people invest into financial products (e.g. derivatives) that they don't understand.

 

where?

[hotShot]

where?

 

Well Berkshire Hathaway had it's yearly stock holder meating.

 

A german newspaper reported he said: "Es kann bald sein, dass wir mehr Geld haben, als wir intelligent investieren können."

 

 

 

[gwnn]

Obviously. 650 nm > 510 nm.

 

See e.g. here for a full explanation.

 

Rik

Why do you take the wavelength and not the frequency or the energy? The magenta stuff is interesting though :)

[mike777]

Well Berkshire Hathaway had it's yearly stock holder meating.

 

A german newspaper reported he said: "Es kann bald sein, dass wir mehr Geld haben, als wir intelligent investieren können."

 

 

 

 

fwiw I will take your german better than mine.

 

 

he has said somewhat this often....lets say 60 years if I understand your quote...but you do not note this

 

at the very least you misquote out of full...60 year context.

 

and want to make you investments on this?

 

You want the world to do this?

[hrothgar]

I read that as: There is so much money around that some investors already don't know where to put it intelligently.

It would explain the recent economic crises like the mortgage crisis. Assuming there was more money to loan than what people were able to borrow and repay.

It would also explain why people invest into financial products (e.g. derivatives) that they don't understand.

 

There are some additional nuances that you might want to consider: Namely, if an investment portfolio becomes too large as a percentage of the market, it becomes almost impossible to beat the performance of the market.

[helene_t]

The magenta stuff is interesting though :)

I think it is related to the fact that our "red" receptors have a second peak in the violet end of the spectrump, creating the illusion that red and violet are similar. But I don't claim to udnerstand it fully.

[Trinidad]

Why do you take the wavelength and not the frequency or the energy?

Hushhh... Quiet... You are making it so complicated that these financial guys can't follow us.

 

But I will explain it clearly: ">" means "larger than", right? So it needs to refer to something that has a "largeness" or size. A bag of money has a size. A bag with a billion dollar bills has a bigger size than a bag with a million dollar bills which again is larger than my wallet. A wave has a length, clearly a size. The length of the red waves is larger than the length of the green waves. Simple.

 

You now come and claim that a wave also has a frequency or even an "energy" (?! whatever ?!). That may or may not be true, but a frequency or energy doesn't have a size. You cannot take a frequency or an energy and put it next to a yardstick. Therefore, it cannot be larger or smaller. Which is why one obviously needs to take the wavelength and not this frequency or energy thingy. Duuhhh.

 

Rik

[gwnn]

On the one hand you are right that they are larger but still purple photons have almost twice the value on the atomic market. So for economists g>r probably.

 

Mods could you split the off topic stuff and create a new thread on this? I'd like to learn more about magenta.

[helene_t]

I nominate Rik for best hijack of 2014.