That’s the second time I’ve seen Pinketty’s name today. I’m going to have to increase my reading of lefty economists beyond the old standbyes (marx, keynes, laugher, krugman etc…).
I realize that collective theories of economics aren’t focused on individual property. But my understanding of opportunity cost is it has to do with one partie’s decision: my opportunity cost of buying lunch is $10. I lose the option of every other use of that ten dollars now and in the future if I spend it today.
So you are addressing an entire nation’s opportunity cost: if 10% of available investment capital in the US goes over-seas then that’s a potential loss here at home in theory.
I would argue the inverse actually. US firms are holding record amounts of cash on hand. Logic tells us that they are doing so because of a lack of available positive NPV projects to invest in. If their were good growth projects they would deploy that cash. So if Phillip Morris sees shrinking smoking rates in the US they are obligated to put that cash to work selling smokes to Asia for instance. If they are successful then they need to produce more tobacco and cigarettes here at home to ship to Asia. That means more jobs and taxes paid here. The problem here is slow growth (that’s worldwide) which leads to your next point.
I would argue that the wealth inequality is not the cause of the slow growth, but a symptom of the real problem with modern economics…debt. Over leveraging is the single biggest impediment to growth.
Total US debt (govt, individual and biz) is around $150T. That’s debt not “unfunded liabilities.” At a conservative average of 1.5% it costs the economy roughly $2.25T per year to service debts. The real percentage is higher since businesses and consumers borrow at rates higher than the US government’s “risk free” rate. The US GDP for 2016 was $18T. So 12.5% of our collective production went to debt service… at least.
When you think about this on an individual level it becomes much clearer. Think of three generations ago the access that they had to debt. Maybe someone really established in the upper/middle class could get a mortgage. If you were well known in the community maybe a savings and loan would loan your business money. Everyone else could use loan sharks if they were desperate… but it was cash on the barrel head most of the time.
Now picture the balance sheet of somebody back then. Likely they owned their homes or were working towards it and they had savings. People back then were solvent. They had equity > $0.
Now think about the majority of your family members and coworkers now. They likely have a mortgage, car loans, student loans, credit cards and God only knows what else. The average american family has <$1,000 saved. These debts don’t get paid off for the majority of middle America. When someone dies there may be enough equity in the house for the heirs to pay off all the debts, but usually not.
With that picture in mind it’s really no mystery why “the rich get richer while the poor get poorer”. The poor/middle class keep repeating these behaviors. So they end up chained to jobs they don’t like just to service their debts until they die. I have way more debt than I’d like and I was a finance major. I should know better. The cultural norms of shiny cars, restaurant meals (supplements) and vacations all paid for with debt keep the balance sheets of middle america in the red.
The rich are people that figured out this game and focused on buying assets. So of course they build wealth while the idiot masses (myself included) keep losing a game they don’t understand.