Monday, November 14, 2016

r > g

Two years ago I was getting so much out of reading the 577 dense pages of Capital in the Twenty-First Century that part way though I started publsihing review summaries of each chapter. If you are into economics it’s an essential read. As I reel from the election and try to make sense of the world around me I had a breakthrough. An ardent Republican and Trump supporter, explained his idea for a grocery store that instead of prioritizing profits tried to do well by customers by charging low prices, and by it’s employees by paying a high wage, making just enough money in profits, “Say $1000 a year” he said, to stay in business. And in that moment I realized the issue from a perspective I had forgot. When r > g after g > r for any length of time, it feels very unfair. 

The rate of return on capital, r, is basically how much money you can make on investments. The growth rate of the economy, g, is how fast the economy grows, roughly equivalent to income. When economic growth is high, the benefits go to workers. When economic growth is slow, the financial benefits go to people that already have money, from loans, rents, profits, etc. When the ratio of capital to income gets over about 5, it starts to feel unfair. Of course, this statistic isn’t published anywhere because defining capital and income are very difficult and vary by country. 

For most of history, r was greater than g. Then 1914-1945, a huge portion of the wealth of the world was destroyed. Then from 1945 to about the 1990s the world population exploded. The world order was reversed. There was growth, there was opportunity, and no one really had much money to sit back and live on their savings the way there was a wealthy class in the 1800s and before.

This is the whole point of the rural populist movement in 2016. People realize that r > g, in different words of course, and it’s upsetting. Anyone providing any solution is going to be very popular. Bernie Sanders and Trump spoke to the same disenfranchised people who are not used to being disenfranchised in their lifetimes. America wasn’t ready for a socialist in 2016 to fix the issue, but they could rally behind a person that simply offered to make the country great again.

I realize this is total babble to most people, but it’s crystal clear to me and I agree. I didn’t think about r > g this whole election year and a half, at all. It’s like I read Capital in the Twenty-First Century and forgot it. But as my friend reminded me, unintentionally on his part, when inequality gets too high people get really mad [at the establishment]. 

I’ve had too much coffee as I write this, but wow! I am excited! Frankly I didn’t realize we were as close to my own “radical” economic views being mainstream. People aren’t articulating our economic woes the same way I do, and certainly not seeing the same solutions as I do (like a global annual tax of 1% on wealth above $10 million per person, or a universal minimum income of like $700 per adult per month), but their economic frustrations are in the same place. I’m starting to sleep better. 

Final thought, was Jesus an economic capitalist or communist (or something else)? Why or why not? Include Luke 6:34-35, Luke 19:11-27 and Leviticus 25 in your answer. It's a question just for you to think about, I'm not planning to debate it.

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