You really think inequality is stablizing instead of compounding at the moment? Wealth ratios between highest and lowest have gone through the roof over the last 50 years.

The person must be trading with others somehow to be gaining those 4% returns; they could only end up with all the wealth if literally nobody else saved any money. And if nobody else saved any money, there'd be no economic growth at all if not for the person with all the wealth.

>Have you considered second order effects here? What if additional wealth allows "Jo" to increase their per annum return because they invest it in a business or education?

Jo started with the same amount of wealth as Jane; he had no less opportunity to invest it in a business/education, invest it in something to increase in something that increased his investment returns, than she did.

>In this case, the condition assumes that the rate of wealth creation is fixed and unalterable on a scale of 50 years. It also falsely assumes (just world fallacy) that wealth is already allocated in such a way as to belong to people with high (unalterable) wealth creation potential.

It doesn't assume the latter, it assumes Jane and Jo started with the same amount of wealth, and shows that given this condition it will result in more wealth being allocated to the people with more wealth creation potential. Starting from the same point, Jane and Jo have equal chance to increase their ability to create wealth.

Everything including stock prices disproportionately benefit the wealthy and widen the gap between rich and poor. Not sure what kind of point you are trying to make. When you are much richer than anyone else, you are bound to keep growing your assets at a faster space than anyone else too. It's the nature of compounding.

That would be even more wrong then.

> You're simply incorrect that wealth is simply an effect and not its own cause.

I'm not arguing that wealth does not generate more wealth, it does.

I'm arguing that wealth cannot be created by policy change nor re-distribution - of money. Because money, when it's relative in amounts person to person, is neither wealth, nor does anything to help create more wealth...

That is, handing out relative amounts of money to everyone does not also hand out the drive and motivation and the needed hard-work to create more wealth; it does just the opposite.

As all those things are more of a product of lack of wealth, than having a comfortable living existence.

> Like matter, wealth draws wealth to itself. Unlike matter, wealth can be used to create more wealth.

Gravity is what draws things in. Mass just creates that gravity. Without gravity, you just have static and stale things.

That’s how it’s always been and that’s how we got to where we are today. Because person A wants to make millions or billions of dollars for himself, he creates a company and a product that improves life or solves a problem for people in a community of his choosing, be it everyone or parents or mothers or children, or anything like that. This is how we got to where we are today and that hasn’t changed, the only thing that’s changed is the government influenced trying to control and micromanage the entire system.

> Compounded by rising inequalities

Yeah sure, the rich get richer for sure, the poor do too. The rich get richer faster as well, but why does that matter as long as everyone else is also getting richer and better living conditions and qualities? This is flawed because it works under the assumption that our economy is a zero sum system when it certainly is not, as while money cannot be created from nothing, wealth absolutely can be. When Apple was evaluated to be 2 trillion dollars, they didn’t steal that money from other companies or people, that wealth was created by them, their investors, and the people who bought their products

I think you have the causation backwards. Rising income/wealth inequality is what leads to capital chasing the lucrative top x%.

I would say automation and technology and their resulting economies of scale inevitably lead to income/wealth inequality, and wealth redistribution is a political problem with political solutions. There is nothing a VC fund is going to be able to do about it.

Numerically, yes. Psychologically and socially it's completely different.

As inequality rises, people whose wealth increases more slowly are effectively poorer in relative terms.

Neither.

> IMO money is a way to measure value provided to society

Obviously, its a way to measure that. I specifically identified how its a problematic way to measure that -- providing equal utility to someone with greater wealth provides greater reward, which means that those who have accumulated wealth -- often aided by inheritance and circumstance of birth -- are most able to redirect society to serve their utility, including reshaping it to direct future wealth to themselves and their descendants. Left unchecked, this tends to make money, overtime, a worse and worse representation of social value provided by the person holding it, and the market value of exchanges a worse and worse measure of the social value of the exchange.

That's not to say that wealth accumulation should not be permitted nor that it should have a fixed upper limit, because those have their own problems.

But it does need to be recognized as a distortion and balanced. and that's increasingly more true the more the rewards of the economy, before considering regulatory interventions, go to capital rather than labor.

Yes, exactly. The reason actually is very simple: wealth inequality results in inequality in political (not to mention legal) representation, as the wealthy always carry more influence in society and use that influence to stack the odds in their own favor.

That's simply not true. If the rich are reinvesting all of their wealth... we wouldn't have a wealth gap. This is almost a tautology.

Why do you think interest rates have been kept so low? Regulators (e.g. the Fed, ECB) have been doing everything they can over the last few years to add liquidity into the market in the hope that it get banks to lend again.

> If the wealthy were hoarding their money, then it would not be growing

Life is rarely black and white. We're talking about people that have more than enough money to both invest as they desire and hoard a lot of money. The ability to do both increases as the wealth gap widens.

> since worker's wealth would increase

This is pure fantasy. How would worker wealth increase? They don't have enough money to invest, and they don't have the political power they once had. Worker wealth is going down as money accumulates in the hands of the few.

> and the wealthy would consume some of their wealth

Consumption (even large amounts) costs are insignificant when your wealth is sufficiently large.

Sure, over time. But what I'm talking about is that the more capital you have the greater your rate of return.

> the savings rate has gone down immensely

Well, no wonder. Have you looked at the interest rate you get on a savings' account? You can't even keep up with inflation that way.

> why would those gains you mention above fail to grow in a superlinear fashion?

You assume that all uses of borrowed capital are consumed with no ROI, when much of it is invested in present or future health (healthcare, better food, safer car), education (particularly through paying higher home costs to get kids into a better school), property improvements, cost savings (more fuel efficient vehicles) and the like.

Sure, a chunk of it is spent on entertainment of various sorts that doesn't have a clear ROI, but this is actually the one area where the consumers' buying power has increased, even accounting for inflation, and the average % of income spent on entertainment has actually gone down considerably.

So, while I certainly agree that compounding interest can account for some of the disparity, it doesn't account for all of it. Rather, we see that the top layers of society are raking in a greater and greater share of the total earned income, entirely aside from the compounding returns from renting out their accumulated capital.

There is no real reason that the CEO of a corporation should receive 300x the salary of a lowly employee, except that the boards that set compensation are comprised solely of people from the same social class.

> I think it is a case of eroded values more than anything else.

Uh huh. So, being poor is a moral failing, is it?

Next you'll be telling me that low incomes give poor people an incentive to work harder, but that we need to pay rich people more so that they have an incentive to work harder.

This has been shown wrong since the trickle down economists trickled down on us all.

this is orthogonal to the economy being positive/negative/zero sum. if total real wealth increases over time, the world is positive sum, regardless of how that wealth is distributed.

positive sum doesn't imply that everyone gets wealthier over time, only that it's possible for people to get wealthier without it being directly at the expense of others.

Correct.

US distribution of wealth

https://imgur.com/a/FShfb

http://www2.ucsc.edu/whorulesamerica/power/wealth.html

Yes, inequality increasing because the richest aggregate in the US says absolutely nothing about how the quality of life has changed for regular people. It's a red herring.

If a rich person moves into my tiny town, I don't suddenly become worse off, despite inequality increasing drastically.

I cannot agree with you more on this point. The whole history of capitalism and all it depends on (rule of law, strong private property rights, laissez-faire economic policies) has been one of a rising tide lifting all boats.

Now in the developed world, material wealth has gotten to such a level that people in power are much more keen on divvying up the pie as they see fit than baking more pie. People have gotten myopic on this topic because they see more wealth than ever before; they question why we need to create more wealth, instead of spreading the existing wealth around? And that leads to precisely the kind of thinking you underlined: a further rising tide is bad, if some people end up in bigger yachts.

I don't think a wealth tax is the right solution, a person that holds wealth definitely does derive a benefit from that wealth -> in the form of control (of a company), collateral (borrowing money at sub-inflation rates), and influence.

I would put one caveat on this: it's due to wealth inequality that doesn't come from having created more wealth. All of the examples are of people not creating wealth, but accumulating it by transferring it from other people to themselves. That kind of wealth inequality is bad not because wealth inequality is bad in itself, but because our society as a whole needs people to be creating wealth in order to continue to exist; so if all of the smart, talented people find they can get more wealth by transferring it from others instead of creating it, our society will eventually collapse.

I think Pg had an essay about this a while back.

Why do you think this should happen? That doesn't sound very rational to me. If you have more than you could possibly ever need then why would you choose to risk that? This is one reason why we should never reward people with these ridiculous levels of wealth in the first place.

> The best way to redistribute wealth is wealthy individuals overplaying their hand.

This sounds like a very wasteful and unreliable way to redistribute wealth to me. Unreliable because as you say it often doesn't happen. Wasteful because if it does happen it involves wasting enormous amounts of resources on a failed project.

IMO the best way to redistribute wealth is to not allow people to become as ridiculously wealthy as they are in the first place.