Rognlie is attacking the idea that rich capitalists have an unfair ability to turn their current wealth into a lazy dynasty of self-reinforcing investments. This theory, made famous by French economist Thomas Piketty, argues that wealth is concentrating in the 1% because more money can be made by investing in machines and land (capital) than paying people to perform work (wages). Because capital is worth more than wages, those with an advantage to invest now in capital become the source of long-term dynasties of wealth and inequality.
Rognlie’s blockbuster rebuttal to Piketty is that “recent trends in both capital wealth and income are driven almost entirely by housing.” Software, robots, and other modern investments all depreciate in price as fast as the iPod. Technology doesn’t hold value like it used to, so it’s misleading to believe that investments in capital now will give rich folks a long-term advantage. Land/housing is really one of the only investments that give wealthy people a long-term leg up.
According to the Economist, this changes how we should rethink policy related to income inequality. Rather than taxing businesses and wealthy investors, “policy-makers should deal with the planning regulations and NIMBYism that inhibit housebuilding and which allow homeowners to capture super-normal returns on their investments.” In other words, the government should focus more on housing policy and less on taxing the wealthy, if it wants to properly deal with the inequality problem.
Origen: A 26-year-old MIT graduate is turning heads over his theory that income inequality is actually… — The Ferenstein Wire — Medium