http://www.economist.com/news/finance-and-economics/21647349-rising-house-prices-may-be-chiefly-responsible-rising-inequality-through
This article discusses Matthew Rognlie's criticism of Thomas Piketty's idea of increasing inequality in a rich world. Piketty argues that, over the long run, rate of return on wealth will exceed economic growth. He shows, through is argument, that the relationship between rate of return on wealth and economic growth will increase inequality, as the share of national income going to those who own capital will rise--it will increase for the rich, and the portion going to all other classes will decrease. Rognile disagrees with Piketty's argument and shows this through three criticisms. First, he argues that Piketty has an inflated idea of the current return due to various technological advancements and such, meaning that the returns for the wealthy may not be growing in real terms. Second, Rognile argues that higher returns to wealth have not been distributed equally across all investments. He explains that surging house prices are almost completely responsible for growth. Third and finally, Rognile argues that the idea that workers' share of wealth can continue to decline depends on how easy it is to substitute capital.
Like Piketty, Rognile has critics as well, who argue that he underestimates the role that changing technology takes in inequality.
4 comments:
This idea that surging house prices are responsible for inequality makes a lot of sense. The wealthiest people around the world are homeowners. Therefore, when their property gains value they have a higher ROI and can charge higher rental rates to the poorer people in turn increasing the equality gap.
I agree with you, John. For a lot of Americans now, depending upon their city, housing costs can exceed 75% of their budget. This, coupled with other rising costs, retards the growth of a huge segment of the population and I also believe in the cyclical patterns of poverty.
This article shows one advantage of central planned economy that capitals are owned by states, states can increase wages and benefits by using returns of capital.
Rising prices, especially in the housing market, have a greater effect on the lower class more then anyone else. When prices increase they need to use a higher percentage of their income to cover these costs. They do not have the extra money to spare to cover these rising costs. However, this could be offset by increasing income by the ratio that costs are increase
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