Hacker News Reader

Comment by dvduval | Hacker News Reader

Thomas Picketty did great research in this area. The way I understood part of his theory is that the rate at which the value of wealth increases is faster then the rate at which wages increase. In other words, those people who own things like land and factories see the value of those things increase faster than workers see their wages increase.

View on HN

> Thomas Picketty did great research in this area.

My understanding of the general consensus of economists on Piketty is that his data collection efforts were great work, but his analysis and interpretation of that data was not particularly excellent. His theories have been substantially criticized by that group.

I’m not really in a position to evaluate the substance of the claims of either side but just want to point out that Piketty’s work isn’t by any means universally acclaimed and it isn’t just shills that have issues with it.

And that cycle usually ends when a few people get their heads chopped off and things reset. It would be nice if we could figure out a better way to spread the wealth without costly and violent revolutions.

There needs to be equity in employment relationships. A society that's stratified into two classes, the ownership class and the working class, will always result in the cycle you identified.

This time in history is the easiest ever for anyone to be owning the means of production, via the democratization of the stock market.

https://en.m.wikipedia.org/wiki/Means_of_production

Sure, but the normal working class hero have limited capital and limited time to research and limited knowledge of the stock market. Sure, he can own 0.00002% of a company, but in the end it doesn't really matter. He still doesn't have control over the means of production of which he puts his own labor into. He's still dependent on his salary which the true owner of the means of production can take away at any time.

> Sure, but the normal working class hero have limited capital

Everyone has limited capital. You get it to grow by buying stock and participating in the ownership class. Poor people instead tend to buy lottery tickets, which have a negative return on capital, meaning lottery tickets are a route to poverty. Stocks have a positive return. (On average, of course.)

> and limited time to research and limited knowledge of the stock market.

There's never been more information about stock investing that's for free and just a click away.

> Sure, he can own 0.00002% of a company, but in the end it doesn't really matter. He still doesn't have control over the means of production of which he puts his own labor into.

He gets paid for his labor, which he can use to buy ownership stock.

> He's still dependent on his salary

Buying stock with one's salary is a route to financial independence.

> which the true owner of the means of production can take away at any time.

You are a true owner if you own stock.

That kind of ownership does not yield the kind of returns we’re talking about, and more importantly does not allow for control. The centralization of returns and control reinforce one another.

> That kind of ownership does not yield the kind of returns we’re talking about

Depends on which stock you bought.

> does not allow for control

One share equals one vote. The more shares you buy, the more you vote.

> The centralization of returns and control reinforce one another

With stocks you get the same returns and votes per share that anyone else does.

> With stocks you get the same returns and votes per share that anyone else does.

I believe founders have wised-up to that and now there are differently voting shares, the most prominent being Facebook, which is controlled by the Zuck & friends even though they only own 18% of the stock

https://www.cnbc.com/2018/03/20/shareholders-wont-force-zuck...

>> Mark Zuckerberg owns the majority of the voting rights to Facebook due to a dual class structure that weights certain shares over others.

>> Facebook’s Class B shares, controlled by Zuckerberg and a small group of insiders, has about 18 percent of the shares, but they also have 10 votes per share.

>> Surprisingly, it’s not that uncommon: 355 of the companies in the Russell 3000 (11.8 percent) have a dual voting-class structure.

Pick another stock, then.

Not sure if you're pulling my leg here with the stock picking suggestion; but directly holding stocks seems to be overall a losing bet for retail investors. A few do well but most don't; and that makes sense because retail investors have full-time jobs and they're up against traders whose full-time job is investing.

> directly holding stocks seems to be overall a losing bet for retail investors

I'm not pulling your leg at all. I've been holding individual stocks for 40 years, started buying since my first job. I spend very little time on it, I just buy and hold, and hold, and hold, and hold. I still have the stock I bought 40 years ago.

It's the constant trading based on emotion that'll eat you alive. Statistically, the most successful investors are dead people (while their estates are in probate) because they aren't trading.

I'll ride a stock all the way to zero (hello Enron), but most of the time it works out well.

I forgot to mention. Schwab (and other brokerages) now have 0% commissions. I.e. you don't have to pay commissions.

And if you're poor, you pay 0% taxes on capital gains. Zero taxes.

There's never been a better time for anyone to join the ownership class.

And estate taxes on the wealthy are 40%. On poor people, they're 0%.

But many poor people can't buy stock cause they are poor and they have little to pass on to their heirs.

Only issue is that not all stocks yield the amount required to live a basic life in USA, and indeed a certain percentage lose money.

You have to pick winners and certainly not everybody can

> not all stocks

There are many thousands to choose from, and on average they do. Or you can buy an index fund and choose them all.

Assuming someone bought in at the absolute bottom of the market in 2008 and has continued to hold for 11 years, fund symbol SPY has yielded 6.5% per year before inflation.

The median net worth in the USA is $50,000, inclusive of real estate wealth which is a bit illiquid. Assuming the median citizen puts in $50,000 in 2008, that person would receive $3,250 in pre-tax wealth per year.

This is barely enough to put a low quality roof over family members' heads in Vietnam, let alone the USA. And we haven't talked about food, transport, or health insurance as well.

So then, I don't think it's sufficient to say that the median citizen can expect to gain very much from the products of asset ownership.

SPY has a dividend yield of 1.85%, for a total return of 6.5+1.85 = 8.35%. 11 years of that compounded turns $50,000 into $120,805.

Pretty darn decent for doing literally nothing but being an owner.

Assuming you absolutely do not touch the money, and cash out at the correct time after 11 years.

I understand that the income is passive, but you do have to monitor the markets to make sure you don't get caught during a downturn. For me, I would rather invest my time into my career as that money is more safe in the form of cash income than it is in the form of a portfolio. Just my opinion :)

> Assuming you absolutely do not touch the money,

If you spend it, you're not investing it.

> and cash out at the correct time after 11 years.

You'd be making bank regardless of when you cashed out.

> to make sure you don't get caught during a downturn

I ride the downturns down, and back up the other side. That's how buy and hold, hold, hold, hold works. Timing is for fools.

> I would rather

If you would rather not invest in stocks, that's your choice, but it doesn't justify complaining about the "ownership class" that does.

Can you not take on risk? Then you can obtain your own wealth.

It's nice to think this and there certainly are high-achievers who accomplish this, but Piketty's research relates to the economy as a whole and the entire point is that the economy's aggregate return on capital is outpacing economic growth (r > g). This means even if some do obtain wealth, ultimately there's more losers than winners. Outliers mean little in statistics and economics.

Part of how returns to capital work is taking on risk and then hedging. Without significant cash (for hedged investments) or control (take care of that risk by dealing with it) taking on a lot of risk is just going to the casino. That’s why index funds work for casual investors and stock picking doesn’t.

The problem is building a stable system. You can have high taxes on the rich, but they will always use their riches to lobby to have them abolished. And even if you don't have an elite ultra-rich class and massive income equality, the nature of liberalism (in the classical sense) is this will always eventually happen through the upward flow of wealth. To have a system that won't destabilise itself like this you would need a radically different economy, but I don't know how.

“It is well that war is so terrible, otherwise we should grow too fond of it.”

Reply on news.ycombinator.com