Piketty #5: Who Owns your Country?

Heres something I did not know or expect.  Early in the book Piketty is laboring to help his readers to develop intuitions about income and wealth.   In the colonial era the European nations controlled a lot of productive assets in other nations.  The income from those contributed “nicely” to their national income.  Heck, that’s almost the definition of colonialism. These flows, obviously, weren’t balanced.   Income flowed from the colonies back to Europe.  Little flowed back.  Piketty would like his readers to know that’s not true anymore.

My entire life people have worried that some nation is are buying up America.  Which nation keeps changing though.  To me it has always seems only right that the former Colonial powers would live in fear that the tables might turn   We used to worry that the Japanese were buying up all the good real estate.  We worry now about the Chinese.   Sometimes we worry about oil rich nations.  I was unaware that the French are concerned that California pension funds.  .

There is lots of cross border ownership.  But on the whole both the income flows and the ownership tends to balance out on a pairwise basis.  I did not know that.  I would not have predicted that.  I am not sure I believe it.  I’m optimistic the book will say more.

I’m enjoying his efforts to build out my intuitions about this stuff.  Some examples…

FYI – National income isn’t the same as Gross Domestic Product.  GDP doesn’t include these the cross border income flows.  It also doesn’t include depreciation.  Which I gather we can roughly estimate as 10% a year.  I knew this only in the consequence that recessions are typically followed by an uptick in durable goods.

The pool of wealth is about 50% is residential real estate.

Economists have a rule of thumb that a third of the income flows back to capital as the return investments.   The rest to labor.  But that rule of thumb is likely bogus.  I’d be tempted to say it’s almost a political statement.  But Piketty is more polite, it is based on thin data.

The comment that cross border flows of income tend to balance out these days gives us license to demote that kind of income as a key part of the overall analysis.

What we consider to be wealth is a social construct.  Slaves used to be included.  And we know how the sports team owners feel about “free” agency.  Knowledge is fraught example these days.  It’s thought provoking how much these constructs can change over time.

I particularly liked his aside that when debating the shifting the consensus about what can be owned the agents of owners talk about efficiency, rather than self interest.  People still regularly suggest that slavery is more efficient than a life of poverty.  I’ll note that talk of innovation has starting to displace talk of efficiency.

Public wealth, in the hands of nation states, is close to zero.  Which means we can largely ignore public wealth when thinking about the total wealth of a nation.  He promises to say more about wealth in the hands of non-profits.

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