The Rate of Return on Everything; Inequality Will Only Get Worse

[Milchshake]

The thesis of Thomas Piketty’s book Capital in the 21st Century is that the historical rate of return on wealth is markedly higher than the rate at which wages grow. Which set the stage for the gap between the poor and the wealthy. A new paper by a Federal Reserve Bank of San Francisco economist suggests that if anything Piketty’s book underestimates this trend.

A less wonky article explains how the data shows that inequality will get even worse.

[I]nquiries into how fast wealth grows relative to the economy have been hampered by a lack of good, complete, comparable long-term data on the rates of return for various assets: stocks, bonds, real estate and the like. You’d want this to know what you’d expect a “natural” rate of return to be in an economy such as ours: How much would you expect home prices to appreciate over time? What about the expected return on the stock market over the decades? How about government bonds?

Now a working paper, written by Federal Reserve Bank of San Francisco economist Òscar Jordà and others, purports to calculate just that: “The Rate of Return on Everything.”

After compiling this first-of-its-kind data set, Jordà’s team makes a startling conclusion: If anything, Piketty’s book underestimates the historical rate of return on wealth. “The same fact reported [by Piketty] holds true for more countries and more years, and more dramatically,” the researchers conclude. . .

[O]verall, if you were a typical investor and you wanted to buy a representative chunk of the wealthy world’s economy, you could expect an annual rate of return of about 6.28 percent. . .

With the exception of wartime, when instability rattles stock markets (or shuts them down completely) and bombs literally destroy housing wealth, the rate of return on wealth has been considerably higher than the growth rate of the major economies. Overall, if the average annual return on wealth since 1870 has been 6.28 percent, average annual economic growth works out to just 2.87 percent.

“The weighted rate of return on capital was twice as high as the growth rate in the past 150 years,” the authors conclude.

This is especially true in contemporary America.

Median wage in constant 2017 dollars:
1990: $27,468
2016: $30,533
Total increase in median wage, 1990-2016: 11.16%

Total increase in S&P 500 average, adjusted for inflation, January 1990 – present: 305.6%

So being born into wealth conveys a huge advantage over working hard.

[Elegiac]

So being born into wealth conveys a huge advantage over working hard.

This is a novel concept, apparently.

[Milchshake]

This is a novel concept, apparently.

I was going to do a comparison of WalMart giving people raises to $11/hr to that of the gains made by the Walton with the new Tax Cut for the Wealthy.

But it was larger than the decimal places available on my calculator.

[taliey]

I can't wait for this to justify policy for the rich getting richer.

[Vizardlorde]

Holy shit the median wage is 30k ?! Its hard to belive Im broke as hell and I make more than most people.

[Doctor Amadeus]

3.4% on total equity so if I stop working right now House is paid for no debts living on a budget I’ll have 36 thousand a year to live on if I wait a year 40. Not rich not but have health insurance. Along with long term investments it only gets better just stay away from gambling and speculation.

[Kaleredar]

I can't wait for this to justify policy for the rich getting richer.

Something something trickle down.

It hasn't ever worked in the past, but just you wait, it's just around the corner from working!


Strangely enough, the 1950s and 60s- those halcyon Mayberry days the republicans love the notion of so much- had the among LOWEST point of income inequality in the past century and among the HIGHEST corporate tax rates.

[modernshaman]

Something something trickle down.

It hasn't ever worked in the past, but just you wait, it's just around the corner from working!


Strangely enough, the 1950s and 60s- those halcyon Mayberry days the republicans love the notion of so much- had the among LOWEST point of income inequality in the past century and among the HIGHEST corporate tax rates.

This is very poor reasoning. By this logic Trump is solely responsible for the economic boom that has happened since he took office.
Correlation does not equal causation.

[Shadowferal]

Hmf...in a Philadelphia suburb during 1952, it took a factory worker one day to earn enough money to pay the closing costs on a new house, then selling for around $10k.
During the 1950s, combined, individuals and corporate income taxes collected was $478 billion, Of that, corps paid 39 percent, individuals 61 percent.
During the 1980s, combined, individuals and corporate income taxes collected was $4 trillion. Of that, corp share shrank to 17 percent, individuals grew to 83 percent.
Heck, back in '78, someone making minimum wage at a summer job could pay for tuition at most public universities.

Now...things are in the toilet.

[alexw]

About what I expected to be honest. I mean just look at what has happened and is happening to inequality globally and its kinda obvious.

Soon enough though there will be some kind of grand redistribution. The elites might not want it but its coming. The only real choice is whether it happens peacefully or via pitchforks. Bernie Sanders and Jeremy Corbyn were only the beginning of it and the pressure will keep on ratcheting up until something blows (if I remember my data correctly the US and UK are two of the most unequal western nations so its not surprising that its happening in those nations first). We do live in exceedingly interesting times.

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Hmf...in a Philadelphia suburb during 1952, it took a factory worker one day to earn enough money to pay the closing costs on a new house, then selling for around $10k.
During the 1950s, combined, individuals and corporate income taxes collected was $478 billion, Of that, corps paid 39 percent, individuals 61 percent.
During the 1980s, combined, individuals and corporate income taxes collected was $4 trillion. Of that, corp share shrank to 17 percent, individuals grew to 83 percent.
Heck, back in '78, someone making minimum wage at a summer job could pay for tuition at most public universities.

Now...things are in the toilet.

The wealthy use their excess income to buy up more of everything then charge the rest of us for its use. That gives them even more income to buy up even more of everything. The end result is that as they take an ever greater share of ownership of everything the rest of us fall ever further behind, as we end up paying out more and more of yearly income as economic rent. It's unsustainable. At some point it has to blow.

[Glnger]

as long as there are people in poorer and in more desperate situations they will continue to be scapegoated as the real reason the economy isnt working for the average worker. And the media, who's part of the elite class just repeats the stereotypes, because their boat is tied to the same buoy

[artemishunter1]

as long as there are people in poorer and in more desperate situations they will continue to be scapegoated as the real reason the economy isnt working for the average worker. And the media, who's part of the elite class just repeats the stereotypes, because their boat is tied to the same buoy

why do you think economy is not working for the average worker? What do you think the solution should be? Tax the rich, so they don't make as much? What would that accomplish? Increase the minimum wage, thereby creating inflation and rising price of everyday service? Should we increase tax of the rich to 50%, and import more poor people from the third world nations, increase their quality of life? Should this be our holy mission?

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About what I expected to be honest. I mean just look at what has happened and is happening to inequality globally and its kinda obvious.

Soon enough though there will be some kind of grand redistribution. The elites might not want it but its coming. The only real choice is whether it happens peacefully or via pitchforks. Bernie Sanders and Jeremy Corbyn were only the beginning of it and the pressure will keep on ratcheting up until something blows (if I remember my data correctly the US and UK are two of the most unequal western nations so its not surprising that its happening in those nations first). We do live in exceedingly interesting times.

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The wealthy use their excess income to buy up more of everything then charge the rest of us for its use. That gives them even more income to buy up even more of everything. The end result is that as they take an ever greater share of ownership of everything the rest of us fall ever further behind, as we end up paying out more and more of yearly income as economic rent. It's unsustainable. At some point it has to blow.

do you think wealthy should be benevolent, not charge for use of something? Provide that something for free?

[The Stormbringer]

why do you think economy is not working for the average worker? What do you think the solution should be? Tax the rich, so they don't make as much? What would that accomplish? Increase the minimum wage, thereby creating inflation and rising price of everyday service? Should we increase tax of the rich to 50%, and import more poor people from the third world nations, increase their quality of life? Should this be our holy mission?

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do you think wealthy should be benevolent, not charge for use of something? Provide that something for free?

Or I guess we can just do nothing as things get worse and worse until it's impossible to unseat the rich to help those suffering at the bottom. That sounds good too, right?

[alexw]

do you think wealthy should be benevolent, not charge for use of something? Provide that something for free?

????

And how does your argument here rebut anything I've said? Does it mean that wealth inequality won't continue to grow? Does it mean there won't be a grand redistribution at some point, either peaceful or violent? You've just seemed to put forward some random whataboutery type argument to try and justify the current trends which is frankly absurd.

[PC2]

Agriculture made inequality worse, the industrial revolution made it worse, future tech will probably make it worse. It's not the end of world, civilization keeps humming along.

[HavokHeart]

History has shown time and time again. When the poverse become desperate enough revolution will sort things out.

[PC2]

History has shown time and time again. When the poverse become desperate enough revolution will sort things out.

Does that apply to the present? They would need to kill Trump before they could take control.

[HavokHeart]

Does that apply to the present? They would need to kill Trump and take control.

A prime example of control. In the current climate people are obviously content being angry at whomever our current corporate overlords suggest. I imagine the goal is to keep the population as poor as possible but not too desperate. But as the thread suggests equality is shifting still. Ask the french royal family what happens when people begin to starve.

[Sunseeker]

What? You mean having more money makes it easier to make more money?

Economics as we know it has been turned topsy-turvy!!

[SoSuMe]

why do you think economy is not working for the average worker? What do you think the solution should be? Tax the rich, so they don't make as much? What would that accomplish? Increase the minimum wage, thereby creating inflation and rising price of everyday service? Should we increase tax of the rich to 50%, and import more poor people from the third world nations, increase their quality of life? Should this be our holy mission?

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do you think wealthy should be benevolent, not charge for use of something? Provide that something for free?

Thats easy death tax at 75% of anything over 5 million if you want to be a millionaire earn it yourself dont think you get to live off daddy. If they think they cant keep it they will invest it.