Comment by bko | Hacker News Reader

Comment by bko | Hacker News Reader

Suppose r > g as Picketty claims. What would be the implications? One I could think of is that rather than investing in human labor (e.g. education), it would make more sense to invest in capital (e.g. stock market) since that would yield you higher returns. Also, all the talk about wealth inequality uses percentages like the top 10%. However, the top 10% is not stable. In fact, the turnover is very high, much higher than it has been in the past. For instance:

> Over the past 30 years, the origin of the wealth of the richest people in the United States has shifted away from old, inherited money. Our new metric, the self-made scores developed for the Forbes 400, shows that increasingly we find self-made billionaires among the ranks of the richest people in the country. This has accompanied the incredible increase in wealth of the members of the Forbes 400, which has jumped 1,832% times since 1984, when the total net worth of our list was $125 billion, compared with $2.29 trillion today [0]

And just a casual look through the richest lists, you don't see a lot of old money. Most are first generation wealth.

So my question is, how is it possible that there is high turnover in the wealthiest while wealth inequality is always much higher than income inequality as Picketty claims? When Bill Gates generated great wealth by founding Microsoft, was that considered income or capital appreciation? I think it would be capital appreciation since he sold stock and the stock appreciated. But is this really "capital" in the sense that its passive investment like a money printing machine that was passed down generation to generation? Or if his wealth would be considered income, then how is wealth inequality always so much higher than income inequality considering the richest Americans created their wealth in a similar means to Gates?

[0] http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a...

r > g doesn't actually explain that much in terms of wealth inequality. See Acemoglu and Robinson paper in my other reply.

There is evidence that intergenerational mobility is going down, but not so much at the tippy top of the ladder. More on the "if you are born from lower class parents, you are likely to be lower class at 40" side.

Early childhood education is shown to help with the lower rungs of the ladder; most of the damage in a child's noncognitive skills is done before the age of 4 by bad environment (absentee parents, stressed parents, etc.) This lack of noncognitive skills effects outcomes everywhere starting with educational achievement.

I am not as well read in the mobility between the middle and upper classes, so I won't comment there.

Right, wealthy parents are able to provide more opportunities for their offspring. But hasn't that always been true? I imagine the education available to the least fortunate today is much better than the education available to someone in the lower class from 100 years ago. Capitalism has allowed for better high end services, like better teachers and tutors, but overall information and knowledge has been democratized. There is no secret math or science you learn for the right price.

The problem I see is that when we talk about social mobility, we always talk about relative classes, in which case there will always be 1/5th of the population in the bottom fifth. In terms of absolute wealth, my experience is that everyone, more or less, is better off from generation to generation, at least in material terms.

> my experience is that everyone, more or less, is better off from generation to generation, at least in material terms.

That is correct. Even when people make claims like "middle class income hasn't grown in the last xyz years" they're basing it on statistical sleights of hand, see [1].

> The problem I see is that when we talk about social mobility, we always talk about relative classes, in which case there will always be 1/5th of the population in the bottom fifth.

Right, but the question is more about opportunity. Like if you created a Markov transition model, what are the probabilities of going [1/5]->[2/5] (or [3/5], etc.)

> Right, wealthy parents are able to provide more opportunities for their offspring. But hasn't that always been true?

Sure. But the point is that we aspire for our society to be meritocratic. That is we'd like it to be better to be born smart than rich. Of course that's never been the case, but we want to isolate the "why".

It's not necessarily even about opportunities. If you make college free, for example, it ends up being a subsidy on the children of the tiers [4/5] and [5/5] (playing loose with facts here) because, even if you isolate parent's wealth they __still__ end up in college more often.

Things that are difficult to measure (like motivation and noncognitive skills) are built at a young age, and a good environment is needed to foster that.

> I imagine the education available to the least fortunate today is much better than the education available to someone in the lower class from 100 years ago

I know it's been the case in Canada [2], I've been told it's not in the US, but I'm unsure it's really the case (turns out you need fairly sophisticated statistical models to measure it properly).

[2] http://link.springer.com/article/10.1007%2Fs00181-009-0275-9

[1] https://www.minneapolisfed.org/publications/the-region/where...

> One I could think of is that rather than investing in human labor (e.g. education), it would make more sense to invest in capital (e.g. stock market) since that would yield you higher returns

Keep in mind that, in economics, capital includes machinery - anything that can be owned and generate passive income. So robots, computers, machines - all fall under capital. Anyone that lives in today's world can clearly see that labour is being replaced by machines. So capital's share of income absolutely (r) is growing faster than labour's share of income, represented by (g).

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