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Thank you very much for explaining Piketty's main thesis and also offering another angle for looking at it. I'd like to say something. When your simple analogy tries to prove that if Labor has the leverage, then inequality would not occur. You also assume that return on labor generally goes to the lower percentile. However, it might be the case that the return of labor is also appropriated by those is the top percentile just as in the case of the US. So even if the labor has the leverage, but CEOs' wages are accounted as return on labor, then it will become the source of inequality. What do you think about it?
If the R equals 12.5%, the capital acumelation would be 562.5, not 500 lol
if this video was released today, how come there's a comment from 3 years ago? thinking emoji
Fascinating. There are a couple of things. If something caused the owners of the orchard to pay below a fair market price (for example, a subsidy, a targeted marketing or propaganda campaign at the previous Orchard owners), that would still yield a rise inequality of a certain type.
You also have an assumption baked in there that the apples were reinvested in a business with equal utility. A major issue could also be that brokerages (whether stock brokers or realtors) cause problems. On one hand, they absorb capital in a way that may not be utility maximizing (and I'd argue that some jobs where we pay by opportunity cost: CEOs, who are a kind of management brokerage) are in effect brokerages that eat up utility maximization. On the OTHER hand, without brokerage expenses, you open the door for rampant speculation, which can also reduce utility by putting an excessive amount of capital into failed businesses. You may manage an overall portfolio return that is acceptable but you get more utility out of investing in successful businesses that yield 5% than you get out of investing in a portfolio where half yield 10% and half yield 0.
Why? Because the half that yield 10% may be unstable and the money invested in the half that yielded 0 had poor utility in the market. Whereas the 5% return was likely more stable/tenable as an ongoing investment.
I am somewhat persuaded by Piketty. That said, I think we need to look more at utility across the board. There's a utility problem when opportunity cost based compensation leads us to pay executives high amounts to helm doomed companies, such as the famous example with Hostess. If a company is doomed, there's no sense in excessive compensation except as a means of managing how well its demise plays out. Especially when there's a chance that leaner compensation might actually avert the company's demise. There's also going to be a tendency to overvalue the need to compensate senior management for an asset you own. Maybe Hostess only needed the 10th best CEO available and instead tried to seek the first. There are diminishing returns on some types of compensation/investment but a team sports mentality can lead to dramatic overinvestment into your own assets, itself a classic mistake made by many SMALL business owners.
About half of Warren Buffett's rules for investment deal with his strategies for knowing when to walk away from the table, when to fold, or when to hold. I think that's served him well. But, behaviorally, we as humans tend not to fold or hold when we should.
I never played the lottery until one day when curiosity got the best of me and I bought a $1 ticket. I won that $20 on that ticket. I decided to buy more. I lost most but won on a couple. I kept winning until I had $150 in the span of about two weeks, just reinvesting whatever I made when I happened to be at the gas station. I kept all the money in my glovebox so it didn't mix with my other money. Then one day, my car broke down at the gas station and, bored, I proceeded to spend all the $150 on tickets. I had some winners, which slowed down the process of losing but by the time the tow truck came, I was down to 0 from my lottery fund. If I had the sense to be satisfied with my $150 return on $1, I would have reaped the equivalent of a 3900% APR return. Why didn't I? Well, from a practical level, there are a lot of things $150 can't even buy you a piece of. Behaviorally, it's addictive. I decided never to put another $1 in. Knowing when to fold or not fold or hold or when to raise is all very important for utility maximization.