What is “the problem of the super-rich”?  

Put simply, it is the inequality r > g.  

Thomas Piketty’s blockbuster book “Capital in the 21st Century” identifies this relationship, r > g, as the fundamental driving force in income inequality.  The details are important, but let’s begin with the big picture.  

The key is to think of the economy as composed of two parts:  capital and labor.  

Capital or "wealth" is made of things like land, housing, factories, stocks, dividends and so on. Capital doesn't "do" anything; rather, people receive a rate of return "r" on capital.  Historically, this "r" averages about 5% per year.  

Labor, by contrast, earns income from wages for productive work. The annual rate of increase of wages is the growth rate of the economy or "g."  Piketty thinks we can expect a low growth rate of about 1.5% in the 21st century.

Production, in other words, has inputs of both capital and labor.  (Piketty does not include "human capital," a term he finds misleading, and I agree.)  But the question is, can "g", the growth of people's wages, chip away at "r", the rate of return on inherited wealth?  Or does inherited wealth take a larger share of labor's contribution to the economy year to year.  

Piketty looks at the data and finds r > g.  

Here's a little more detail.  The key point is that people who work for their income (whether minimum wage or hedge fund managers) will, over time, see their share of overall income get eaten away by those who make their money through the ownership of wealth ("rents," e.g., on land, real estate, stocks, etc.).  The inequality r > g explains why.  

First, “r” is the rate of return on capital (or “wealth”), which has averaged around 5% over roughly the last 130 years, and probably further back as well. 

Then, “g” is the growth rate of income (earnings from labor).  Since around 1980, “g” has averaged a little under 1.5%. The growth rate was higher in the immediate postwar period, 1950-1980, but long-term, before and after, Piketty finds that for developed countries, “g” tends to be in the 1-2% range, including throughout the 21st century.  Note:  Even 1% “g” is pretty good because it means a 30% increase in the standard of living during a single generation. 

The problem is this: Those with wealth can always get higher returns than those who work, that is, if r > g.  The beauty of Piketty’s book is to examine this dynamic historically and in the present day, using a wide array of data. 

This changed the way I think about the economy and society. Now, I look at the world of the economy and ask, is that producing income from labor or from rent, that is from "g" or from "r"?

This inequality, r > g, is why the problem of poverty, or even fixing the economy more generally, cannot be solved without considering the on-going income re-distribution from the bottom to the top.  Year to year, the growth of income from work is transferred to those who make income from rent (return on wealth). Hence, Piketty’s emphasis on r > g. 

But this is a problem for the super-rich as well:  It hollows out future opportunities for work and innovation, undermining the foundations of the economy as a whole.  It corrupts the idea of meritocratic and fair social relations.

In my opinion, this is why we need HOPE (Higher Order Profit Evaluation) and ethnography is a central component of this plan.  (to be continued)