My thoughts so far on Piketty and corruption


There are a lot of people that are arguing over Thomas Piketty’s new book, Capital in the 21st Century. I’ve been reading it, i’m about a third of the way through the book. It’s pretty interesting in the way only dry economics can be. A lot of people are both tearing it apart and praising the content. He’s done something really novel and that’s to create an economic theory around the accumulation of wealth and the impact on the return on capital on growth and vice versa. This naturally is causing some concerns because the findings are disturbing people. Financial Times has found about a 12 errors that they feel invalidate the results, however, their graphs aren’t really all that different. I’m not convinced you’d reach different conclusions based on the data Piketty has accumulated.

I’m more interested in the results in relationship to behavior it drives in reinvestment in capital that can drive further growth. Based on what I’ve read so far, the fact that growth is less than the rate of return on capital means that capital will not invest in innovation, but rather in goods that they can easily receive rents from.

What does this mean? It means that those with capital will invest in lower risk or safer places for their money. This means that they will buy land and houses which acrrue value and provide a steady income of new capital to be reinvested elsewhere. If you’ve ever read the book Rich Dad, Poor Dad, that’s exactly what the author proposes doing. Once you have enough money to buy a house, you buy one pay enough down and improve it to get a profit, leverage favorable taxes so that you can sell it and upgrade to a duplex and have two familie paying rent. Repeats until you’re able to buy apartments and continually expanding the number of people paying you to have money.

This approach works, but doesn’t really do much of anything to actually help the economy grow, it helps increase wealth as it’s own goal. This is how Donald Trump got rich. It doesn’t help the economy grow because it doesn’t provide new jobs it relies on others to create new jobs. Furthermore, as the population naturally increases and the types of jobs change more people will move into the area and will continually to increase rents. Further increasing the wealth of a wealthy individual. Sure, the person might be a self made millionaire and possibly a business owner around their real estate empire, but that doesn’t truly mean that they are adding more value to the economy than they are extracting, which may prevent growth.

This creates a serious risk to the people that use both the Wall Street Journal and Financial Times, because these book papers help support the wealthy get wealthier. They have a vested interest in seeing Piketty’s theories be disproven and discarded before policy makers have a chance to leverage them. I believe that this book along with the Origin of Wealth can point out ways to manage risks to our economy. Piketty’s theories are a purely macro economic construct, while the Origin of Wealth is a Micro theory that expands up through maro theory. I believe that Piketty’s theories help illustrate the impact of micro and behavior economic theories. We have inequality and it is unlikely to get better, unless we take action to change our policies and fight corruption.

I believe that the root cause of our problems relate back to a type of political corruption in nearly all our political bodies. Wealth is able to use their wealth to shape policies that create more wealth, while the poor are unable to do so. I think this is something that everyone can get behind regardless of your political beliefs. A true libertarian political body can’t exist with corruption any more than a complete comunist political body. Fighting corruption requires more than mouse clicks it requires people to act. People to force their leaders to be accountable for their actions. Inequality and power imbalances come through short terme thinking, political regimes, and historical choices. We can’t do much about the past, but we can drive change in our politics through voting, donating, action,  and through informing people.

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