Thomas Piketty's Capital in the 21st Century

I’m unclear if these are @doctorow words or Picketty’s words. There seems to be a ¥ clash with the later commentary on university endowments:

If we look at the investment strategies of different universities, we find highly diversified portfolios at all levels, with a clear preference for US and foreign stocks and private sector bonds (government bonds, especially US Treasuries, which do not pay well,

In fact, most government bonds have low rates of return now but go a few years back and T-Bills or other sovereign bonds had much better rates. Whether we look at the wealthy or at endowment funds, we have to remember that investment strategies will change over time.

Note also that the fund managers for university endowments tend to be bound by fund covenants which govern how the money can be allocated. 10% in low risk T-Bills seems shockingly low so I’d like to look at the data source for this statement. Most fund covenants that I’ve had a chance to read typically want at least 20% or up to 40% in low risk bonds.

Going back to the first quote about bond ownership, again I’m curious as to the assertion that rich people are primary bond holders. From what I know, pension funds like CALPERS or the Japanese GPIF have huge sovereign bond holdings and in Japan the number one consumers of govt bonds are the banking groups.

Lastly I wonder why Pickety puts quotes around the term alternative investments. A quick trip to investopedia clears up any mystery. At least amongst economists and people working in finance alternative does not automatically mean exotic or high risk.

In any case, I look forward to giving this book some time once it reaches the surface of my “to read” stack.

In your analysis of Picketty, you have overlooked one glaring issue. If a global wealth tax is introduced, and the super rich can earn a 10% return on their wealth whether they are entrepreneurial or not, then all that such a tax will do is squelch the wealth of the moderately rich and anyone below - the middle class you especially value.

Now the impact on the poorly rich will, in numerical terms, be, in gross financial terms, insignificant, but as the tax is not proportional, it will be regressive. It will hit those 401ks just as hard, proportionally, as it will hit the 50 billions.

You can argue that the tax, levied at all on the rich (who currently escape taxation), is better than no tax. It will finance measures to imrove the quality of life, and opportunities available to, those below them, but this is a secondary effect that is irrelevant to the central problem Picketty outlines:

If r>g, and a global wealth tax is set at 2 or 3 % (hence, equal to historical g), then the tax will impact hardest the savings of those unable to invest at rates higher than r. I.e., the non squillionaires.

I have not read the book, however, the review seems to suggest the author has an inflated view of how much the types of managed accounts described actually earn. Full disclosure, I an one of those hated, cashed-out entrepreneurs. My money is managed by one of the globe’s most hated wealth managers. I am in venture funds, tax advantaged funds and other “alternative” investments. I understand things have been rough over the past six years, but, I just met with my team yesterday and my portfolio has averaged about six percent. The only reason it is up that much is because I didn’t take their advice to sell half of all my equities in 2009. My team, average age about 32, said they feared I might lose it all. At my age, I told them, “I’ve seen this movie before, I’m not selling.” It took three years, but it all came back. So, great advice isn’t always good advice.

Regarding a wealth tax, the holy grail of the left, the author seems to forget that we do pay taxes on the proceeds of our wealth in capital gains taxes. He seems to be suggesting we should fork over a percentage each year in any event of return. The implication is if you do not take the risks required to earn ten percent (which I think is a pipe dream anymore) you should be penalized and lose part of the corpus of your portfolio. He fails to understand that even if I have money in low interest bank accounts, those deposits allow the bank to lend it to those buying homes, financing cars, etc. If I park it in a long-term venture fund, from which I might not see a return for five to ten years, the capital is being deployed to entrepreneurs. Very few people have a Scrooge McDuck safe full of gold in their basement. Penalizing people who have worked hard to get to a place in life where they shouldn’t have to take extraordinary risks seems foolish. He seems to be saying, capital (wealth) does not belong to you. It belongs to the state (and he has had the gall to move past even the state and suggest it belongs to the world). In his dream world, who exactly decides where this wealth tax will go? That is why his idea will never gain traction in the U.S. Wealth belongs to its creator or receiver. Efforts to thwart bequests to subsequent generations are also anti-growth. I never became a serious serial entrepreneur because of the death tax. I was unwilling to take the additional risk, pay nearly half in taxes, take the risk of the post-Enron criminalization of business, expose myself to the litigious slingshots of the trial lawyers and then, if there was anything left, be told I can only leave a small part to my children. There are thousands of others like me and they all have the same mindset. How many jobs has that cost society?

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