Thursday, May 22, 2014

Making Economics more Objective

Thomas Piketty is all the rage. The economist has written a best seller that has equations to show that the imbalence between earned income and passive income--income gained in excess of earned income (i.e. saved money)-- creates disparities in wealth.  r >g, where r stands for the average annual rate of return on capital (i.e. profits, dividends, interest, and rents) and g stands for the rate of economic growth. A tautology, you say? Get more respect for equations.
There are other, micro, factors we could consider. Older people have more money (O); so do college graduates (CG). Pregnant girls in high school (PGHS) have less money. Return of capital is worse when taxes (T) eat into capital.
So: PGHS (+/-  T) < CG
You can do this yourself at home.

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