Reading Piketty a couple things stuck in my brain:
The first chart is population growth:
Economic growth begins and ends with population growth. The party line around here is overpopulation/overshoot etc will kill us all — probably by Tuesday at the latest, but just pretend to think outside that box for a moment — the population curve is heading downward, especially in the most "developed" countries. Corps are banking on middle class growth forecast in today's "developing" countries but the writing's on the wall— even discounting PO, limits, etc.
This is Piketty's main argument in one chart:
This is a picture of the fall in relative importance of agricultural land (especially since FFs) and the rise in housing value, relative to GDP, in postwar France. The US looks the same, just not as dramatic because France suffered much more from the wars. Piketty's purpose with this chart is to tie capital accumulation to growth by illustrating how capital value relative to GDP was destroyed during the negative growth and high tax period around the wars, but then how accumulation returned with postwar growth and the Reagan/Thatcher Trickle Up implementation.
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My take on the chart is different although it's not that I disagree with Piketty's claim. Since about forever here (and in R/L) I've said that paying off the mortgage is the number one goal everyone should be working toward in preparation for the economic decline that is sure to happen as the energy slaves die off and limits kick in. That is what is known as a typical knee-jerk, gut reacted, emotion-based opinion – the very thing I always rail about! Thinking I am a realist, I connected owning shelter outright as the best investment of a typical 99%-er.
To explain myself... my family legacy, such as it is, revolves around that very loss of agricultural value. Not that my ancestors were Lords of the Manor but they did lose their once somewhat substantial farms in the depression. I equated their loss of shelter with not being an outright owner but that wasn't their problem, they did own. The problem was their asset just was not productive enough to provide a living during the great ag crash.
My solution has been to invest my net worth in housing - but it now dawns on me that in the next cycle the value of housing will evaporate as the economy slows and value will return to productive land. I'm repeating my ancestor's mistake — in reverse.
My new realization (or at least my current conceit) is that on the downside of the population and economic and energy availability growth curve, when capital begins to evaporate, the biggest loser will be the homeowner. Since
everyone else is putting all their scant capital in the 3/2 detached-manse as well as me; the great 21st Century RE Bubble should be thought of as the equivalent of the cabbie handing out stock tips. Kunstlers said, suburbs are the greatest misallocations of capital ever, but that doesn't really bring home the problem does it? That still leaves the problem with the "them" when we should be thinking of the problem as "ours."
Part of the problem in the oft quoted factoid that the rich own everything, is the grain of truth that the definition of "everything" includes only "financial assets" which a house is not. Once upon a time both the greatest productive asset and the greatest store of value was agricultural land but now the greatest asset is nonproductive... tract houses ... and they are the thing most of us are vested in. They are neither productive asset nor a store of value beyond their short life and that only in a growing market. Houses in Detroit (just to pull out the obvious example) are not only not productive and not an asset, they are a liability and abandoned to the city to demolish.
So the dramatic prediction here is that in the next cycle, the Great PO Rinse, not only will the digital 1s & 0s be erased but all the work invested in
your house payment will disappear as well.
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I forgot to explain about Ricardo. One of his ideas was increasing population drives rents to the point of strife. He is to land rents, as Malthus is to food and Marx is to capital accumulation. Interestingly his current "fame" is in regards to his theory of comparative advantage, pretty well the cornerstone of globalisation and my eternal hobbyhorse of the evils of regional ag specialization. My thought is they may all be somewhat correct but Ricardo will be correctest.
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)