Piketty split - why soaking the rich won't help anyone

Rather than showing the inevitability of inherited wealth it demonstrates the importance of good ideas, strong business skills, and financial leverage, not to mention longevity.

Piketty uses a simple model which postulates that investment returns are always higher than growth in the economy, so that investments will always grow to be a larger percentage of the economy, other things being equal.

The lower the growth in the economy, the worse this trend because Piketty presupposes that the return on capital is never much less than 4%.

As he expects world growth to slow, then voila, in 50 years, we have a huge problem.

Piketty has certainly detected a real increase in the concentration of wealth, but he always assumes that this is a bad thing. But what if there is a natural level of inequality, and what if that is beneficial?

Certainly, in the 30 years since 1984, while the pool of assets belonging to the richest 200 Australians has increased substantially, there's never been a better time in Australia's history to be poor – the rising tide might manifest differently for different people, but it's been rising for all.

And there appears to be a valuation effect in the increase in wealth.

Justin Wolfers points out that housing is a substantial store of wealth, and that in the US, house prices have risen while rents haven't.

Added to that the P/Es on the S&P 500 have never been higher. Between 1885 and 1991 the PE at January 1 each year has been above 20 only 5 times. Since 1992 it has been above 13 times.

So the return which Piketty thinks is so constant varies, aided and abetted at present by quantitative easing driving returns on debt down.

The increase in wealth is real, but it does not cause a real increase in access to resources.

If the analysis of Piketty and the levellers is flawed, the antidote would kill the patient.