Hundreds of years ago, property ownership was concentrated among a few wealthy landlords who were considered the nobility. And as we know, the people who worked the land and did all the labor were the serfs.
Most of the literature and written history is about the lives and exploits of the nobility. And if there was a hero who happened to be a serf, it was assumed that he had to have had noble origins.
And now it seems that the royal road of American capitalism is returning us back to those days of yore.
All across the major cities of America we are seeing tremendous affluence side by side growing poverty and homelessness. While a small percentage of wealthy Americans are finding it easier to make monumental amounts of money through passive income streams, the American middle class is slipping into poverty.
This increasing inequality may be due to one major fault in the system: the capacity for the rich to make money without putting any work or providing any value towards society.
In Capital in the Twenty-First Century, a new bestseller by the French economist Thomas Piketty, it is explained in the following Piketty formula: The Returns are Greater Than the Growth.
Put another way: the profits of the wealthy are not trickling down to the rest of society. Yet, it has never been easier for the wealthy to accumulate more wealth because:
The Greater the Disposable Income > The Greater the Investment Capital Available > The Greater Potential Return on Investment.
An example is real estate which has turned into a wealth redistribution system that takes money from hard working American’s and gives it to the rich. The rich, having greater leverage and disposable income are more likely to get million dollar loans from the banks to buy up for themselves all the desirable property locations. They can then just sit back and enjoy passive income streams from the rents being collected.
Meanwhile, the tenants do all the work going to their nine to five jobs every day and coughing up larger and larger portions of their income to their parasitic landlord who enjoys living off of other people’s work.
And little of this money goes to benefit the community. The landlord usually will use his profits to invest in more passive income streams rather than build a community education center that offers free degrees to the less fortunate. Meanwhile they take away disposable income from the middle class.
The middle class may be able to get to the same level by understanding the science of compounding. With their ever decreasing disposable income, they can invest what little they have and, for instance, within a couple thousand years they can be at the same level that the rich were at a couple thousand years ago, which, with inflation probably wouldn't mean much but it’s nice on your score card.
So although many Americans still believe that they can get wealthy by investing and having financial intelligence, the mathematics are heavily against them.
In Thomas Piketty’s bestseller, the economist made two important recommendations to change the situation. First, Piketty recommends higher taxes on the wealthy so that a proportion of their easy wealth could go towards benefiting society rather than creating more easy wealth. And second, he recommends education because according to Piketty, knowledge is another form of capital, less tangible, but full of high returns.
But perhaps the best education is for people to understand how and why inequality is happening and that it is increasing and requires immediate action before the middle class and poor become as powerless and meaningless as the serfs that existed in times gone by.