Rognlie vs Piketty: Which Capitalism To Blame

This article caught my eye. The author, Greg Ferenstein, concludes “it might be wiser to redirect anger towards those who get in the way of new housing, rather than rely on taxes to solve our problems.” Yes, and no.

Back up. What’s the general idea? Well, Matthew Rognlie found that “recent trends in both capital wealth and income are driven almost entirely by housing.” This is not entirely in contrast to the findings of Piketty, rather derived from Piketty’s data: “Also using Piketty and Zucman (2013)’s data, I find that a single component of the capital stock—housing—accounts for nearly 100% of the long-term increase in the capital/income ratio, and more than 100% of the long-term increase in the net capital share of income.”

This shouldn’t be a surprise. Individuals who are forced to spend almost all of their income on housing can’t save any money. We’re talking about people forced to rent. They can’t put anything aside to save, they can’t afford a down-payment on a loan. And as renting markets become more exclusive – in the United States extensive credit, criminal background, and rental histories are becoming common – ostracized persons are driven into exploitative rental markets.

And it isn’t as if this demographic has a choice. The severe restrictions on home building, as Ferenstein notes, compounds the problem. You can’t exactly build your own home, nor build anything affordable, due to heavy state regulations (ie – the law). Poor individuals, especially urban individuals, are forced to participate in property markets that keep them down.

Meanwhile, those who can afford to participate in the property market compound their own wealth to the exclusion of those who cannot afford participation. This doesn’t seem to be in dispute between Piketty and Rognlie. Rather, it’s the mechanism in dispute – capital goods (Piketty) or property (Piketty & Rognlie) – that is responsible for a concentration of capital in the hands of the wealthy. It’s a fundamentally capitalist problem either way.

The ownership of the means of production, or the absentee ownership of land and property, are part of the capitalist trifecta Benjamin Tucker called usury:

…the natural wage of labor is its product; that this wage, or product, is the only just source of income (leaving out, of course, gift, inheritance, etc.); that all who derive income from any other source abstract it directly or indirectly from the natural and just wage of labor; that this abstracting process generally takes one of three forms, – interest, rent, and profit; that these three constitute the trinity of usury, and are simply different methods of levying tribute for the use of capital…

I expect to see Rognlie’s findings cited as a refutation of Piketty, but they intrinsically are not. I don’t know if Rognlie intends for them to be, either, at least not in the sense critics of Piketty may want them to be. Income inequality isn’t disputed – it exists. We’re only beating around the bush if we debate it’s existence and development due to investments in technological capital, versus investments in housing, land and property.

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