More debunking of Piketty.

This time from a hard-left perspective, from Jacobinmag.com:

The bulk of Piketty criticism has focused, rather boringly, on whether the rate of investment return will remain steady when the wealth-to-income ratio soars. But economists like Dean Baker, J. W. Mason, and now Naidu have pioneered a more interesting line of attack. According to them, Piketty has not made some mistake in judging elasticities. Rather, he has the entire order of events backwards. It is not an increase in the wealth-to-income ratio that prompts capital’s share to rise — it’s the exact opposite dynamic.

In other words, the capital share drives the wealth-to-income ratio, not the other way around.

Or as I always say, it makes most sense to look at incomes and disposable incomes after housing costs (and other rents), forget about “assets”. Let’s say a tenant and a home-owner next door, do the same job, have the same gross income, pay the same in tax and live in very similar homes. Clearly, the home-owner is “richer” because he owns an “asset”. But that’s comparing apples and pears. Far easier to say that the tenant has a much lower income after housing costs.

Superficially, you could say there is income equality between the two. Of course there isn’t. Whether somebody is a net collector/enjoyer or net payer of rents makes the biggest difference to real inequality.

Compare that with two home-owners living next door with the same gross incomes, but one has a priceless masterpiece hanging on the wall. The value of that painting has nothing to do with the way society is run, it is not subsidised by the taxpayer, does not generate income and does not place a burden on anybody else. If the painting were destroyed, the owner is poorer but nobody else is better off. Their net disposable income is the same, the fact that the one with the valuable painting is “richer” is of no concern to anybody (and certainly not a suitable subject for taxation).