A Brutal Economics Lesson

Here you will find a TED talk by Thomas Piketty on economics.

I recommend you take the time to see this video. It is about inequality: Income inequality, and Wealth inequality.

Without active (government) efforts, inequality of both kinds will continue to grow without any apparent limit.

The formula behind this discovery is really simple, brutally so. It is this:

r > g


  • r is the rate of return on capital, percentage if you like
  • g is the rate of growth of the economy (or world) expressed in the same way.

Historically, r has always been greater than g, with a few exceptions which Piketty does mention in his TED talk.

In primitive times, g was close to zero, but the rent rate for a field was about five percent of its value. So if you owned a field, and had it cultivated by serfs, you were growing at five percent while they were growing at roughly zero percent. Thus you got to buy more fields.

Piketty also shows the odd fact that wealth inequality generally grows faster than income inequality. One sample scenario: a world growing at one percent (g), while the return on capital is five percent (r). The wealthy need only invest one-fifth of their capital to stay in the same relative wealth position. Should they invest more, they will grow faster than the economy as a whole.

If a subset of the population grows wealth-wise faster than the population as a whole grows wealth-wise, that means the first subset is increasing their wealth inequality. Constantly.

Piketty’s talk concludes with some tough questions. Can (even should) governments do anything about this? And if so, what?

(Normally I include a dumb question or two in a post, but these are too serious as questions to make light of, imho.)

To answer the first question: persistently growing inequality inevitably destroys the institutions that maintain it. The peasants eventually revolt. The provinces defy the Roman empire. The 99% make the .01% live unpleasant lives of constant demonstrations, picketing, and unpopular police actions in response.

So, something should be done. What?

I suggest more progressive taxation. I also suggest a surcharge on the income of lobbyists, whose entire existence is to improve the lot of already special interests.

I suggest a very small tax on all large financial transfers. (I note that my bank, and yours, can charge either of us some 2.5% merely for converting one totally safe currency into another (USD to CAD in Canada is pretty safe, eh?).) This was proposed (and rejected, recently) at a very tiny level yet it would have interesting side effects:

  • Very Large currency movements, often done by speculators, would net national governments (or their central banks) a bit of revenue.
  • Very Narrow currency spreads would cease to be profitable for speculators. As a side benefit, the tax could eliminate the small profit rate that rewards extremely large transactions.
  • Taxation creates central records. Who’s doing what to which currency could become clear public knowledge. Today we have rumours about who’s attacking the ruble, the US Dollar, the renminbi. With legal tax records, we would have information and the means to enforce its collection (IRS in US, CRA in Canada, et cetera.)

I request that every citizen with influence use that influence to create pressure for action on these suggestions, and any better ones you can come up with.

Meanwhile, any other good ideas posted here, meeting the rules (See Rules, Sort Of) will be approved. Identity of posters is always kept secret, unless you spell your name out in your post, eh?

I await your input.

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