March 27, 2015

New Economic Paradigm?

Wealthy tech founders and the automation of middle-class jobs are often blamed for increasing concentrations of wealth in fewer hands. But a 26-year-old MIT graduate student, Matthew Rognlie, is making waves for an alternative theory of inequality: the problem is housing.

Rognlie is attacking the idea that rich capitalists have an unfair ability to turn their current wealth into a lazy dynasty of self-reinforcing investments. This theory, made famous by French economist Thomas Piketty, argues that wealth is concentrating in the 1% because more money can be made by investing in machines and land (capital) than paying people to perform work (wages). Because capital is worth more than wages, those with an advantage to invest now in capital become the source of long-term dynasties of wealth and inequality.

Rognlie’s blockbuster rebuttal to Piketty is that “recent trends in both capital wealth and income are driven almost entirely by housing.” Software, robots, and other modern investments all depreciate in price as fast as the iPod. Technology doesn’t hold value like it used to, so it’s misleading to believe that investments in capital now will give rich folks a long-term advantage.

Land/housing is really one of the only investments that give wealthy people a long-term leg up. According to the Economist, this changes how we should rethink policy related to income inequality.
I have problems calling income inequality a problem at all. When Mary poured perfume over Jesus head, Judas complained that the money could have been spent on the poor instead. Jesus replied "The poor you will always have with you..." (Mark 14:7).

There will always be people who have more money than others. Some are just better managers of whatever they have. Some are are smarter, or they work harder, or are on the right side of good fortune, or they inherited it ... or they stole it. Socialism will not cure that, it will only put everyone in the same misery zone and leave a ruling elite to truly enjoy the labor of others.
Rather than taxing businesses and wealthy investors, “policy-makers should deal with the planning regulations and NIMBYism that inhibit housebuilding and which allow homeowners to capture super-normal returns on their investments.” In other words, the government should focus more on housing policy and less on taxing the wealthy if it wants to properly deal with the inequality problem.
More here.


Fredd said...

In dumbed-down terms, this guy is saying that government should use its ham fisted power to prevent Americans from, as George Jefferson said, 'movin' on up to the East Side, to a deluxe apartment in the sky...'

No more of that, this guy suggests. In order to ensure that everyone has beachfront property, the government will make you fill out an application to purchase real estate, and if it turns out that your digs are nicer than the next guy, they frog march you out of those digs and send you to the Big House.

Dumbed down, but that is how his theory has to go down, and of course it will never work, not ever. Americans won't put up with that. IF they want to move on up to the east side, it's none of anybody's business but theirs.

Busy body liberals, geez....

Doom said...

Hmm... Now, I do believe housing, in part, is a piece of the solution. While I'm sort of not getting Fred's point completely... drifting in my mind and all... I do find his finale to be correct. What the author suggests, or how it could be parsed or taken in modernist terms is... redistribution and other things. I agree, government involvement would be a disaster.

I agree with what Reagan suggested about the government. It can't help, it can only get out of the way. Decrease the regulations involved with building and maintaining a home, federal on down to city/county level, and people will do it themselves. It's the only way. Now that I could get behind.

I am thinking about my home. To get ahead, well ahead, the only way is to have it paid. At which point, life would become exceedingly easy. I do know, if I find a wife and have children, I will buckle down to leave at least one child with "free" housing. That makes work a non-necessity, but when they take home more of what they get, it is easier to choose to go for more.

That housing bubble, in my opinion, was aimed at ripping off, and reducing, the middle class. It was a targeted hit, and Fanny and Freddy played key roles in that. Now, on the other hand, the bubble had to go away. It was another unintended consequence of government meddling that was causing serious distortions in the economy. Get the government out of everything, from red tape to laws to processes. People will build their homes.