Posts Tagged ‘rich’

Capital in the Twenty-First Century

Thursday, July 16th, 2015 | Books

How has wealth inequality changed over the previous few centuries and what does that tell us about the present? That is the rather large question that French economist Thomas Piketty attempts to answer in this book.

No doubt his writing is in a far more coherant and structured format than my description of it, but here goes.

H begins with a global outlook. Poor countries are gradually catching up with rich countries, and he notes that wealth inequality is primarily within a country. China is making rapid progress in catching up with Europe for example, while the working class of Europe are not making the same gains on the upper class.

Nevertheless, it is a long and hard struggle. Once one country has an advantage, it can essentially own another. This is how European nations managed to maintain colonial domination while running a trade deficit. We could simply put our colonies into debt and then force them to work for us to pay it off.

Once they do grow, they are unlikely to overtake us because as they become a first world country the growth levels off. They are also a long way behind. Europe has 2000% the wealth of China for example, so even growing at 8% a year, once you factor in that Europe is also growing, that is a long way to catch up.

The oil countries could see huge growth though because of their sovereign wealth funds.

Europe itself remains incredibly rich. Richer than anyone else in the world. Though admittedly the United States are the only real competition. However this wealth is all in private hands. European governments themselves are heavily in debt, mostly to their own citizens, and typically have a capital of 0, because their public assets only just cover said debts.

It is traditionally highly unequal wealth. Far from being the land of the financially free, it was the United States that pioneered high tax of the wealthiest and it is only in recent decades that America’s wealth inequality has become greater than Europe’s.

This wealth is very concentrated. One way is labour inequality. Some people are paid far more than others. Though this is not always the close. In 1970s Scandinavia the top 10% of earners claimed 20% of the earnings. This seems a reasonable level of inequality to me.

A much more pressing issue though is capital inequality. Even in the most equal societies the bottom 50% will typically own nothing. Before the World Wars 1% typically owned 50% and 10% owned another 40%. The Wars changed this, but only as far as to allow the next 40% to buy their own home, which is not much by comparison, and still leaving 50% without assets.

Capital inequality is typically inherited. Thus it is not a useful form of inequality because it does not provide motivation for people to earn money. The point of inequality is to motivate people to work hard and earn money, but there is no utility in allowing people to merely inherit large amounts of capital – in fact this encourages them to do nothing.

It is also worth noting that labour inequality does not necessarily provide this motivation either. This is because the differences in “super manager” compensation cannot be directly related to a persons output but rather by industry and non-talent based conditions (luck).

Once people are rich the problem of wealth inequality perpetuates itself. Inflation, which many assume would reduce wealth, actually makes the situation worse. This is because poor people see their savings eroded by inflation while large amounts of capital is able to better protect itself.

It does this in a number of ways. By being larger, the capital of American university endowments when compared to individual savers for example, can afford to spend far more on management. Harvard has around $30 billion, so can spend $100 million a year on management with that only being 0.3% of their capital, which will be more than made up for in growth.

Secondly, with a bigger fund you can diversity into more risky assets. This produces a less predictable short term but a more profitable long term. Thirdly, many options that Harvard invest in may simply be entirely unavailable to small amounts of capital, such as products which require a large minimum investment.

Thus the rich get richer and the poor get poorer with no relation to the work, productivity or utility of the individual. There is no self-correcting mechanism for this.

What can we do about this?

Free university could be one way. It seems to have reduced inequality in the Nordics, though this has not been entirely proven. Picketty also suggests minimum wage will not help in the long run.

He suggests a global tax on capital. This would be low, initially at 0.1% of total capital, progressively rising to 0.5% for the largest fortunes.

This would have to be done in a global level, or at least a European level and require cooperation from banks. Otherwise people would just hide their assets. Indeed, it should be noted that the balance of payments for Earth is currently negative! More wealth flows out that comes in. This is of course theoretically impossible, but could be accounted for by tax heavens not being transparent.

A global tax on capital would encourage people to generate money and become rich, which ensuring that these fortunes cannot be used by future generations to unfairly dominate the economic landscape.

In summary, the following points:

  • Capital inequality is the biggest form of inequality
  • The twentieth century saw some reduction in the importance of inheritance, but this is now returning
  • Large inherited fortunes serve no utility to society
  • Large fortunes are able to perpetuate themselves and thus the rich get richer and the poor get poorer
  • There is no natural self-correcting mechanism for this
  • The best way to tackle this would be with a global tax on capital

Capital in the 21st century

See you soon

Saturday, August 18th, 2012 | Friends

Recently, we said a fair well to Rich, who is moving down to London to further his career in medicine. Rich has been a dear friend to many of us since we first met five and a half years ago, and I wish him all the best.

Party party

Saturday, January 2nd, 2010 | Friends, Life

In the true spirit of the holiday period there has been a fair bit of drinking within the past week.

Tuesday was Lil’s birthday and as such we went for our traditional Lil’s birthday celebration steak. She wasn’t there or anything because she was busy having a meal at some other restaurant but it was still excellent steak.

Wednesday afternoon Mike went on some kind of mission to get everyone to the pub for a few pints as it was the final time we would be in before New Year. I still had things to do however so I ended up going out for a drink and then back to work!

Finally Kieran arrived in the evening and we headed out for drinks on Call Lane with Rich and Tim. Fun times.

The truth is out there

Thursday, October 29th, 2009 | Friends, Humanism

On Tuesday Rich delivered an updated version of his talk to A-Soc (not that he bothered to update the title slide lol). This was a rather good lead in to the night’s social at Vodka Revolution in which several people managed to work their way through several sticks of shots (a stick being a variety pack of 6 shots)! A messy, messy evening.

Rich Stick of shots Nicola and her sister Kerry

Question Time

Saturday, October 24th, 2009 | Events, Friends, Life, Religion & Politics

On Thursday evening I headed round to Rich’s along with George and Jonni for a Question Time pizza party. Between us we got through about five pizzas, as well as several bottles of win and half of Rich’s carton 😀 . This was of course to watch British National Party leader Nick Griffin appear on the programme.

It was at least an entertaining show if nothing else though was mostly just BNP bashing. Not that we should have expected any less of course but I’m not sure it was the most productive thing to do. As Bill points out, it was half way though the show before someone managed to fit an intelligent comment in – that perhaps the failure of the major parties had led to a rise in BNP support.

In the end though it was essentially a witch hunt which didn’t produce the desired result. If a better course of action as Rich pointed out would have been to ask the panel what their policies on health, education and the economy were so they could be compared side by side.

This would have likely done far more damage than the constant barrage of insults that were thrown at Nick and his party which no doubt made us Guardian readers feel good but actually won him a lot of sympathy and support in other social groups. Will the appearance be a good or bad thing for the BNP? I guess we’ll find out soon.


Friday, September 18th, 2009 | Friends, Humanism, Life

I was feeling ill on Monday but with work to be done I headed round to Rich’s flat with George to get editing away on Something Good ’09.

I had already spent three hours the day before on pre-editing and Rich had spent the morning doing some too so luckily we were able to dive straight in and get things done. Even with this big head start it was still 1am by the time we were finished as well as being several bottles of wine later.

The result, however, was well worth it.

Chris George Rich

Zoltan and the steak

Saturday, August 22nd, 2009 | Friends, Humanism, Life

A-Soc social rolled around on Tuesday though despite it being steak night the Cuthbert Brodrick had, somehow, managed to run out of rump and sirloin steak! Luckily we were all ordering mixed grills so it worked out alright in the end.

What followed was a night of long debate and drinking – Rich getting through two bottles of wine by himself! Probably suggested to him by Kate who then proceeded to try and molest him.

Chris Kate and Rich Rich and Kate

Will & Grace

Sunday, August 16th, 2009 | Friends, Photos, Thoughts

As I’ve long maintained, Kate and Rich would make a great couple, they would be just like Will & Grace out of the self-title show. If any further proof were needed just like at what a cute couple they look like when taking faux-wedding photos.

Rich and Kate Richard Parker Kate Richardson

Evolution and homosexuality

Sunday, August 16th, 2009 | Events, Humanism

Saturday saw Skeptics in the Pub roll round again with this month’s talk being delivered by Rich on evolution and homosexuality – the talk which he gave on the Thursday of Rationalist Week 2009. As always the talk was excellent and turn out was quite reasonable given it was summer. Good times.

Skeptics Richard Parker Skeptics in the Pub

Limited or no connectivity

Sunday, June 28th, 2009 | Friends, Humanism, Life

Thursday was an evening of problems. Having left work at a reasonable time to run home and get a shower I phoned Nicola to sort out times for the evening. Which didn’t work because her phone is broken. And her backup phone is lost. That is like a double RAID array failure. I did say that girl was trouble.

Anyway I Facebooked her all the details but she didn’t reply. Running late I decided to run by Parkinson building anyway just to see if she had got the message and turned up but she hadn’t. So I headed off towards Rich’s when I got a phone call from her asking where I was as she was about to get to Parkinson 😀 .

Minor problems compared to when we got down to Rich’s and realised that we didn’t actually have a flask for the coffee lol. Rich had left his at Rationalist Week and mine was packed away somewhere but apparently not in my HAG bag so we ended up having to make a short trip to Tesco for some cold drink alternatives as well as some food.

In the end it all worked out rather nicely though as we made it back just in time for Question Time.