Can you explain your reasoning as to why this leads you to believe inequality leads to lowered economic growth? I am not saying you're wrong but I don't quite understand it.
What ramifications are there for r>g for the mid-level entrepreneur that make him different from the ultra rich? — Judaka
People in my age group -- I'm 72 -- grew up in the post-WWII boom. This boom lasted from the end of the war up to about the end of the 1960s, give or take 15 minutes. During this time economic growth (g) was actually pretty high. I don't know what the percent was, but millions of upward mobile minded people were able to buy houses, cars, have children, go to college, and create some new wealth for themselves. Around the beginning of 1970 (maybe 1973, the Arab Oil Boycott) the boom fizzled out. Since 1980 the trend has been toward continually increased inequality, and we are now back to where we were in 1910--very unequal.
I am not an economist, please understand. As I understand it, the very rich who own capital assets (like land, large shares of corporations, and so on) can count on a steady income from their property--at the rate of 4% to 5%. they don't have to do anything, really, to keep the cash flowing. They tend to become risk averse. They don't want to rock the boat of their wealth. They invest safely in assets that will return a steady and reliable yield.
Entrepreneurs, on the other hand, who either borrowed money or obtained it by some other means, can't afford to sit on their assets. They want to find business opportunities where their $100,000 investment will increase rapidly -- not at 4% a year, but by by 15% a year, at least for a while. In order to get high rates of return, one has to take more risks, which means betting on innovative technologies which may or may not pay off.
Entrepreneurs--for better and worse--drive economic activities in new directions -- toward the electric car; toward the new app; toward the high volume low cost airline; toward the non-farm method of making meat (cultivating cell cultures in a vat, rather than cell cultures on the hoof) and so on. Micro-breweries are a recent innovation -- never used to exist. All the apps on a smart phone never used to exist.
Some old businesses will always be around: Mining and smelting metal, for example; agriculture and food/fiber processing; transportation in one form or another; forestry and wood products; construction, etc. But take a look at construction: Maybe the printed house will be the next big thing to invest in -- it will be risky, but it might pay off for some.
Economic growth doesn't come from owning large blocks of Manhattan property. (Many New York skyscrapers are on leased land which has been owned by the same family for generations.) It comes from what is done on top of the property--by entrepreneurs.
Take Warren Buffet, owner of Berkshire Hathaway -- one of the richest people in the world. Buffet invests in businesses that have already proved themselves to be successful -- like Dairy Queen, for instance, or Burlington Northern Santa Fe Railroad. He is very unlikely to invest in a company making "beef" in a factory. When Buffet dies, his heirs will come into a huge fortune which will carry little risk.
The difference between the entrepreneur and the rich is that the wealth of the rich is pretty much guaranteed. The wealth of the entrepreneur is on thin ice and has to be looked after. The entrepreneur can go broke overnight if he isn't careful; the rich are in no risk of going broke (short of some sort of cataclysm).
Entrepreneurs can become very rich if they are very lucky. If they are just somewhat lucky, they may make a decent income. If they are unlucky, their investment will break even. If they are very unlucky, they may have to consider which dumpster will offer the best pickings.
The best way to get rich is to be the sole heir of a fabulously rich old man with heart disease. (So I have heard, anyway.)