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Piketty, inequality and volatility: How can r exceed g?

chrisstucchio.com

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Re: Piketty, inequality and volatility: How can r exceed g?

#21

Post by bayesianhorse »

apsec112 wrote: post #3

In a fast-paced, industrial society, like the one we live in, long dynasties tend to get wiped out by high volatility. I don't know exactly what happened to the aristocrats of Russia as of 1910, or the businessmen of Germany as of 1935, but it can't have been good. Likewise for China, France, Poland, India... In a stagnant, agricultural society, like medieval Europe, dynasties tend to get weighed down by the problem…

The businessmen of Germany from 1935 eventually got to use slave labor to build lucrative weapons... Quite a few corporations and individuals survived the war.

Re: Piketty, inequality and volatility: How can r exceed g?

#22

Post by alnafie »

davidiach wrote: post #16

Nassim Nicholas Taleb has also debunked the math in Piketty's book. Here is the paper: https://docs.google.com/file/d/0B8nhAlfIk3QIbzRrRkhhc1RNY0U/...

One of the best and most accessible pieces I've ever read on inequality is PG's essay on the subject: http://paulgraham.com/gap.html

My all-time favorite quote on inequality: "You need rich people in your society not so much because in spending their money they create jobs, but because of what they have to do to get rich. I'm not talking about the trickle-down effect here. I'm not saying that if you let Henry Ford get rich, he'll hire you as a waiter at his next party. I'm saying that he'll make you a tractor to replace your horse." -PG

Also see: http://paulgraham.com/inequality.html

Re: Piketty, inequality and volatility: How can r exceed g?

#23

Post by wazoox »

There is a very extensive (60 pages or so) analysis of the book in french here:

http://www.les-crises.fr/piketty-le-capital-1/

http://www.les-crises.fr/piketty-le-capital-2/

http://www.les-crises.fr/piketty-capital-3/

Check the unforgiving and long conclusion here:

http://www.les-crises.fr/piketty-capital-4/

Re: Piketty, inequality and volatility: How can r exceed g?

#24

Post by yummyfajitas »

bayesianhorse wrote: post #20

Maybe I am naive, but if g is the growth rate of an economy, and r the growth rate of a smaller part of it, doesn't this mean that if r>g the portion of capital growing at rate r increases? This would also mean that g increases.

Yes, that's entirely the point of the first section.

Re: Piketty, inequality and volatility: How can r exceed g?

#25

Post by yummyfajitas »

dojomouse wrote: post #19
yummyfajitas wrote: post #13

Earlier quoted context omitted.

I only got that "straw man" from the book reviews. It's incorrect that r > g implies inequality grows. You need r - volatility > g.

No, volatility can increase as well as decrease returns.

Downward volatility hurts you more than upward volatility helps you (on average). That's where the -sigma^2/2 term comes from.

Re: Piketty, inequality and volatility: How can r exceed g?

#26

Post by yummyfajitas »

igonvalue wrote: post #15

I think there are two flaws in your premise. First, I think Piketty is merely making the claim that whenever r is greater than g, inequality tends to increase. From the book: > When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable ineq…

Your second point is an interesting theory, but seems unstable. What if one capital owner decides to consume a smaller amount of his wealth, and thereby increase his share of the economy?

Eventually he would rule the world.

Re: Piketty, inequality and volatility: How can r exceed g?

#27

Post by czr80 »

alnafie wrote: post #22
davidiach wrote: post #16

Nassim Nicholas Taleb has also debunked the math in Piketty's book. Here is the paper: https://docs.google.com/file/d/0B8nhAlfIk3QIbzRrRkhhc1RNY0U/...

One of the best and most accessible pieces I've ever read on inequality is PG's essay on the subject: http://paulgraham.com/gap.html My all-time favorite quote on inequality: "You need rich people in your society not so much because in spending their money they create jobs, but because of what they have to do to get rich. I'm not talking about the trickle-down effect here. I'm not saying that if you let Henry Ford ge…

So the thesis is that technological progress relies on us incentivizing people with the hope of extreme wealth?

Seems unlikely - for one counter-example, a large part of progress in society rests on investment in basic research, and most of the scientists engaged in that work have no real expectation that they will get rich.

Re: Piketty, inequality and volatility: How can r exceed g?

#28

Post by ChrisGaudreau »

alnafie wrote: post #22
davidiach wrote: post #16

Nassim Nicholas Taleb has also debunked the math in Piketty's book. Here is the paper: https://docs.google.com/file/d/0B8nhAlfIk3QIbzRrRkhhc1RNY0U/...

One of the best and most accessible pieces I've ever read on inequality is PG's essay on the subject: http://paulgraham.com/gap.html My all-time favorite quote on inequality: "You need rich people in your society not so much because in spending their money they create jobs, but because of what they have to do to get rich. I'm not talking about the trickle-down effect here. I'm not saying that if you let Henry Ford ge…

Piketty's worry is not about earned wealth; his worry has to do with inherited wealth.

Disclaimer: I don't mindlessly believe everything pg says just because he is a co-founder of YC.

Re: Piketty, inequality and volatility: How can r exceed g?

#29

Post by dojomouse »

yummyfajitas wrote: post #25
dojomouse wrote: post #19

Earlier quoted context omitted.

No, volatility can increase as well as decrease returns.

Downward volatility hurts you more than upward volatility helps you (on average). That's where the -sigma^2/2 term comes from.

Yes, so you could write

r + (amount that upward volatility helps) - (amount that downward volatility hurts) > g

Re: Piketty, inequality and volatility: How can r exceed g?

#30

Post by mrow84 »

yummyfajitas wrote: post #13
jzila wrote: post #7

From the article, "Suppose that r and g are both fixed quantities which do not change over time." This is a straw man that I didn't get in the book. The idea I understood from Piketty is that whenever g is greater than r, _no matter how different_, inequality grows. Since you can have g > r, with g approaching r with time (g = r at infinity), capital simply continually takes up a larger piece of the economic pie.

I only got that "straw man" from the book reviews. It's incorrect that r > g implies inequality grows. You need r - volatility > g.

So is your thesis that inequality will increase in periods of economic stability, where the volatility is low?

Also, can you provide a ballpark figure for (abs(r - g) / volatility)?

(edited to improve phrasing)

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