April 17, 2014

JUST A MATTER OF GIVING EVERYONE CAPITAL:

Intellectual Judo Or The Best Argument Yet About Thomas Piketty's On Capital (Tim Worstall, 4/08/14, Forbes)

The central thesis of Piketty's book is that in general and over time the returns to capital are higher than the general growth rate of the economy. R > g in the notation he uses. That this was not true of the early to mid-20th century is simply an historical blip, it was true before and it's going to be true for the rest of this century. Leave aside that rather Marxian determinism for a moment and let's just take that as being true, this is the judo part. So, what is the implication of this?

As Piketty points out this means that those who have capital will be increasing their wealth faster than incomes in general will rise: for it's growth that raises income. OK, we'll accept that too. But what DeMuth then points out is that this means that your investments in a pension fund will be growing faster than incomes in general. Or, again, faster than Social Security returns will rise, tied as they are to inflation and or wages. So, the logical outcome of believing Piketty in his statement that r > g for the rest of this century is that pensioners will be better off by having their Social Security premiums invested in the stock market rather than in promises from the government.

But, as we all know, that privatisation of Social Security is something that the left has fought assiduously over recent years: despite that being the same left that is so willing to believe that r > g for the future.
Posted by at April 17, 2014 5:12 AM
  
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