In this blog posting from May 23, I pointed out an obvious flaw in Thomas Piketty’s Capital in the Twenty-First Century, i.e., that he calculates investment returns for the uber-rich by looking at different people who happened to make the Forbes list at different times. It turns out that a careful analysis by Stan Veuger in U.S. News and World Report was published a week earlier. Veuger follows the top 10 folks (a.k.a. “rich bastards”) from 1987 and finds out that they earned only about a 0.5-percent real return on their investments, i.e., less than what a consumer who bought and held an S&P 500 index fund would have earned. Piketty’s call to action is premised on the idea that rich people and/or rich organizations can get exceptionally good investment returns, but he has not put forth any good data to support that idea. (And even if he were right, he would have to adjust for the fact that a lot of middle class people have their money in pension funds and other professionally managed aggregations that should, in theory, have the same access to investments as the wealthiest individuals.)
[One of the largest investors in the U.S. is CalPERS, with more than $250 billion in assets and 2600 employees. Their year-end 2013 report shows that they achieved a 7.91% annual return over a 20-year period. What about a regular Joe who parked his money in a Vanguard S&P 500 fund? This calculator shows an investment held from January 1, 1994 through December 31, 2013 would have grown at 9.22%.]
Separately, Martin Feldstein published an article in the Wall Street Journal about how changes in the tax code led people to tear down Schedule C corporations and build S corps and LLCs instead. The real economy and real income/wealth distribution didn’t change that much, but individual tax returns changed dramatically in response to dramatic Reagan-era changes in the tax code.