Dear readers are advised to stay away, both from the news and the gambling. Except for their entertainment value, both are a waste of time.
Now, let us turn back to r > g.
Tomas Piketty is the sort of man history might otherwise forget. And the economics profession might be better off if never met him. He is a French academic...and perhaps the luckiest economist in the world. He has written a book that is probably not worth reading...a book that is apparently wrongheaded and shortsighted...a book with no reported original insights...
All of this is admittedly hearsay. We are still out in the boondocks. There are no bookstores within hundreds of miles. But we are eager to get a copy of Mr. Piketty's tome just to see if it is as lunkheaded as we suspect.
In the meantime, we turn to our expert on French economists, Simone Wapler in Paris, for an insider's view:
But I only say that because I'm jealous. I'd like come up with an idiotic equation and get rich too!
There is nothing surprising about Piketty's book. Au contraire, it's just what you'd expect -- a 21st century look at the imaginary struggle between rich capitalists and the working stiffs. What's astonishing is that it is Number One on the Amazon best seller list. The LA Times reports:
Piketty's "Capitalism in the Twenty-First Century" is generating so much interest among economists and policy makers that it's temporarily out of stock on Amazon.
At nearly 700 pages, it's not a book for beach reading by casual readers -- unless a mix of dense economic data and history is your thing.
Piketty examined decades of historical data from 20 countries to compare income inequality over time and concluded that the U.S. economy has seen the wealth of the 1% grow to dizzying new heights. Wealth isn't trickling down as some argue, Piketty said. Moreover, he warns that rising inequality will undermine democracy and generate discontent.
Yes, dear reader, we are jealous too. Piketty's book offers nothing new. From what we can tell, he misunderstands the most important lessons of economics. Yet, his book gets widely reviewed, widely purchased, and widely praised. Our books rarely get noticed.
[That will change with the publication of our next book...out next month! Watch this space.]
The gist of Piketty's tome is capitalists have made a lot of money lately; something needs to be done about it. Surprise, surprise - he believes wealth 'inequality' is a problem...and that market economies need the wise hands of professional economists, policy makers and central bankers to help even things up.
We only have the press reports to go on. But none mentions any serious effort by Mr. Piketty to figure out how the rich got so rich in the first place. Mightn't those same economists and policy makers have had a hand in it? We'll come back to that tomorrow...
On the surface of it, his concern that r > g seems absurd. When r is high it means that the investments are good ones. That is, that they produce more wealth than they cost. The higher r goes, the more wealth is created. If you invest in a new technology, for example, the investment only produces positive r if the technology proves successful. The more r you get, the more successful it is...and, theoretically ...the richer our species becomes.
Also, when r is high, people are encouraged to save more money and invest it in newer technology and more productive output. The amount of 'stuff' increases...people are, generally, wealthier.
The other thing that happens is that when more people save and invest (motivated by the high r), more and more investments necessarily lower r. The first investments produce high rates of return. This draws more marginal investors into more marginal investments....and the rate of return goes down. Mr. Piketty's problem solves itself. If it is allowed to...
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.