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Comment by gjm11 | Hacker News Reader

The actual claim seems to be: inequality looks much more extreme if instead of comparing people's total wealth you compute their wealth minus housing and pensions.

I dare say that's true, but I don't see any good reason why you should do the comparison that way. (Other than a desire to make the figures look more extreme, I guess.)

Suppose Alice has $500k in pension funds, a house worth $400k, and $100k in ordinary non-retirement savings. And suppose Bob has $100k in pension funds, rents rather than owns his house (a similar one to Alice's), and has $900k in ordinary non-retirement savings.

Apparently Ruccio wants us to consider Bob much richer than Alice, because he has $900k in non-housing non-pension wealth whereas Alice only has $100k of that. But their real situations are extremely similar, and most likely Alice is actually better off because her pension funds will be subject to less tax.

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Housing and pension wealth are a fundamentally different kind of wealth than, e.g. factories, farmland, businesses, rental properties etc.

The clearest contrast is between a house and a factory. If you own a factory, you have economic power - you can hire workers, pay them $X dollars, and get $X+Y dollars from what they produce.

The point is that housing and pension wealth doesn't produce surplus, whereas financial and business wealth does. I don't know if I fully understand the pensions argument, but I absolutely agree with the housing argument.

I think there's an interesting distinction to be made between wealth that naturally produces more wealth (like owning a successful business, or a share of it) and wealth that doesn't (like owning a fancy house).

And (something something Piketty r>g something) there is something to be said for measuring how "productive" wealth is distributed, as distinct from things like gold and housing and bank accounts.

But:

That isn't what Ruccio is proposing, nor is yours or anything like it the reason he gives.

My pension funds are approximately 100% equities. They will, if the businesses they're invested in do well, grow. They provide me, in principle, with a tiny amount of power over those businesses (though I'm not sure I have any way to exercise it). But Ruccio wants those excluded from my net wealth when calculating his statistics.

The money in my bank account is (as far as I'm concerned) just cash. I suppose my bank gets to use (most of) it for productive investments, but it makes no surplus for me. But Ruccio wants that included in my net wealth when calculating his statistics.

> The clearest contrast is between a house and a factory. If you own a factory, you have economic power

The idea that landlords don't have economic power is pretty amusing from the perspective of Chinese communism, where "landlord" was about as bad as it gets as a term of abuse.

here is why:

housing and pensions are obligate sinks of wealth.

the wealth of the rich is purely for investment, luxury, or speculation. the tiny fraction that is obligate overlaps with the rest of the public's.

that's why there is outrage. the rich have tens of thousands of times more wealth than normal people who are heavily (to the point of poverty for 1/6th of them) struggling to even meet needs that come before the "obligate" mortgage/401k.

> housing and pensions are obligate sinks of wealth.

Everyone needs some housing and some provision for old age.

That doesn't mean that all of a person's housing and pension ownership should be ignored when figuring out how well off they are.

Ruccio's methodology would treat someone who's completely broke, living from paycheck to paycheck, barely covering their food and rent, as being in the exact same situation as someone who has a $1M house and a $1M pension fund, and has chosen to sink all their wealth into those things.

That certainly makes it easier to tell a story of how the super-duper-rich have all the wealth, since it reckons our hypothetical only-kinda-rich person as penniless. But it doesn't seem to me like it gives an accurate account of things.

For the avoidance of doubt, I completely agree that there's a hell of a lot of inequality, that there are super-rich people with vast amounts and many millions struggling to meet their basic needs. Nothing about that depends on whether or not you adopt Ruccio's way of calculating wealth distribution statistics.

What Ruccio's trying to do, though, is to do the calculations in a way that collapses all distinctions between the poor, the middle classes, and (some of) the kinda-sorta-rich. And, surprise!, when you do that it turns out that the really-rich have all the money.

But I think that actually weakens the case for outrage about the divide between the super-rich and the not-rich. Because if you frame things Ruccio's way, it gets harder to sustain that outrage once you realise that the poor immiserated people Ruccio's comparing with the super-rich include people who own fancy houses and have comfortable retirement funds.

Might as well make a new graph showing that 99% (or whatever the figure actually is) of the world's yacht wealth is in the hands of the super-rich.

I believe the point is that the $900k in ordinary non-retirement savings is being used to create more wealth by investing in businesses. The widening is made worse because the rich have the means to get richer.

But the pension funds invest in businesses too

As atestu's (mysteriously downvoted) comment says, exactly the same is true of retirement savings, at least in some cases.

I have some pension funds and some other investments. All of these are composed of much the same mix of assets -- mostly equities, hence "being used to create more wealth by investing in businesses". The only differences are that the pension funds (1) have some tax advantages, in exchange for which (2) I have to wait a while before I get to enjoy them.

The tax advantages aren't huge, so #1 doesn't make that big a difference to me. I'm not a big spender and don't need the money urgently, so #2 doesn't make that big a difference to me. So in practice my situation is almost exactly the same as it would be if I shifted all my pension funds into some non-retirement-focused investment vehicle, or if I shifted all my non-pension investments into pension funds. But Ruccio would consider me much better off in the first case than the second.

Obviously it doesn't matter a bit what Ruccio thinks of me personally. But if the idea is to measure inequality, then the thing we're measuring inequality of ideally shouldn't be wildly sensitive to changes that have minimal effect on a person's actual quality of life, likely future wealth, etc. I think a net wealth measure that excludes all housing and pension wealth (like Ruccio's) fails that test, whereas a more normal reckoning of net wealth passes it.

(In my ideal world, the measure of wealth we'd use for this sort of calculation would include all assets and liabilities. Not just stuff you currently own or owe, but a bunch of other things that make a huge difference and almost always get neglected in these analyses. Future earning potential: a newly minted Harvard grad just starting a new job at a hedge fund may have negative net worth because of student loan debt, but s/he sure as hell isn't poor in any useful sense. Access to government benefits: some people have negligible assets and no earning power but receive a pension, disability allowance, etc., which makes their situation less wretched. Likely inheritance: children of wealthy families may be much better off than they look if you consider only what they already own. Future healthcare costs: if you are in the US and seriously ill, you are probably much poorer than your nominal net wealth suggests. Etc. But trying to include all this sort of stuff would make computing wealth distribution statistics much, much harder.)

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