humanrogue

Thanks for replying! I see what you mean. I’ve thought very lightly about the metric you proposed and I do think it would work.

I’m from SEA and have family who work in agriculture, and I hadn’t heard of renting out arable land being a popular practice. But I have no idea about common practices in other countries.

It wasn’t anything special. Just someone saying they didn’t understand why people share wealth inequality statistics when the real problem is income inequality, and that wealth is just income - debt. They gave some examples of Dave the Renter who may earn a high income but spends it all on “slop” and therefore has 0 wealth, and a Laotian farmer who by nature of owning their farm is wealthy but doesn’t purchase much.

I almost downvoted it and left but I’m trying to unlearn bad habits from a previous website and give people the benefit of being open to disagreeing comments.

I think wealth inequality is extremely important to keep discussing. I’ll try to make an impassioned case for why. This may be long; please bear with me.

The broad strokes of this argument are:

• how the wealthy grow wealthier, and faster than renters
• how young and poor people don’t have a chance to earn that money, effectively removing it from circulation for a portion of the population
• how the wealthy lobby against any policies that might reduce their wealth, in exchange for policies that raise income tax

An excellent video playlist of about 90 minutes is here: https://www.youtube.com/playlist?list=PLXuOBKrmFYbKytq9mkcd62sJPb6w12vpU

How the wealthy grow wealthier faster than Dave the renter

There are a few ways popular ways the average US’ian expects to grow their net worth passively: their stock investment portfolio, or their real estate holdings. (There are other methods such as producing something that commands royalties, but for now this is not important to the rest of the argument.) This is known as the “asset economy”.

The wealthy don’t store most of their net worth in cash in a bank account; they store it in the form of the assets mentioned above (stocks, property). While Dave the renter spends something like 28-33% of his income on rent, another 10% on discretionary spending, and saves 60% of his income (the common 60/30/10 rule of personal finance), a wealthy person has a paid-off house they only pay property taxes on, and the rest of their income is completely divided between discretionary spending and savings/investments.

If you are a wealthy person, your personal consumption habits are not very different from Dave the renter’s. You both pay for food, transportation, clothing. If Dave is a high-income earner, you may also even get a similar class of luxury goods. But here, a larger proportion of Dave’s income goes back into the economy, because he earns less but spends the same as you do. So, all else being equal, you both paid taxes on your income, but you save something in the limit of 100% of your post-tax income, whereas Dave saves ~60%.

Both the renter and the wealthy person invest in the same things. Let’s say both do the same assets, stocks and property; neither has more information than the other. The only difference is that the wealthy person’s income goes towards assets at a percentage close to 100%, whereas the renter’s figure is about ~60%. The wealthy person accumulates return-generating assets much faster. The speed here is crucial to this understanding, the term to look up is the “velocity of money”. This concept is not usually applied to individuals or classes, but i think it applies so again please bear with me.

The wealthy person’s net worth grows much faster compared to Dave’s (the assets’ value grows at the same rate, but the wealthy person has more of the assets, and therefore netts more returns over time, and therefore accumulates more of the assets over time than Dave). The assets generate returns, and the wealthy person having nearly all their needs met will reinvest all of it into other stocks.

How assets are not money, and how money goes towards assets

When an asset is purchased, it is no longer money though it has a dollar value and may be exchanged for that dollar value. The value may go up or down, and this generates a return (a profit or loss). When either the renter or the wealthy person buys an asset, their hope is that that asset will generate positive returns.

When Dave pays rent, he’s paying for the right to use an asset owned by someone else. In effect, he may be generating the very same return (or a portion of it) for the wealthy person. So Dave’s income becomes the wealthy person’s passive income. This passive income is used to purchase more assets by the wealthy person.

If that money is used to purchase assets instead of for discretionary consumption, there aren’t a lot of new gainful employment opportunities in the wealthy person’s area. Employment opportunities are limited to what discretionary spending from other people are: service jobs such as taking orders at restaurants and driving cabs. These are industries where there is a lot of competition, so wages are driven down and there isn’t a lot of saving happening with this class of jobs.

But, the people working these jobs still have to pay rent. And who do they pay rent to? The people who own their homes, the asset-holding class. This is a net-transfer of wealth to the asset owning class. Again, I want to remind you that most of the returns generated by assets go towards accumulating more assets, and so the service-class of people are locked out of access to this money. If the money never circulates through the economy, but there is an upward transfer and concentration of wealth, then there is little to no chance to actually change your class. Dave may be fine for now; he may be a high-income earner. But there is already a “loser” somewhere nearby in terms of opportunity.

How wealth and income are treated differently, and how this is a problem

In the US, income taxes are applied at progressive brackets. The more you earn, the more the portion of your untaxed-income is taxed. Capital gains taxes, however, are applied at flat-rates. Meaning, for a wealthy or high-income person, the goal is to convert all cash to assets if you want to minimize your tax burden. After all, taxes don’t nett you a return, and a tax drag reduces your ability to purchase assets.

However, being a wealthy person who can move millions at a week’s notice, you also find yourself offered deals: cash loans from banks at lower interest rates than Dave the renter, the opportunity to participate in investments where you’ll be paid a premium for bringing so much cash to the table. So again, I’m restating that the access the wealthy person has to return-generating opportunities is higher.

Additionally, the loans you got as a wealthy person, you can use your assets as collateral for. If you never sell your assets (and they never lose their value), you can keep accumulating your assets with your income while barely paying off your loans. When the loan term is called, you get a new cash loan, and pay off your old loan and use the remainder of the new loan for your discretionary spending and day-to-day expenses. Cash loans are not treated as income so they aren’t taxed. You’ve optimized your income-to-asset-accumulation pipeline. Your cash loans grow, but you don’t care; when you die your assets will be passed to your descendents, and upon your death the cost-basis for these assets will be updated to the price at the time of the transfer to your beneficiaries. You never paid capital-gains tax! They sell a portion of the assets you’ve accumulated to pay off your loans without a huge tax bill. You managed to live your life minimizing how much you pay in taxes (minimizing a revenue stream for the government to invest in social services with, like public education which can be a path towards gainful employment, or publicly-funded housing developments, or transportation infrastructure; all things that the lower and middle classes use but that wealthy don’t), and now your heirs can do the same. This strategy is known as “buy-borrow-die”.

All the while, because of the concentration of money in assets, the prices of the assets have been rising and locking lower classes out. At this point Dave himself may be wealthy, but someone who’s just starting out and is in a similar position to Dave when he started out may not have a similar path available. This is the “death of the middle class”, or the “K-shaped economy”.

So, you’re right in a way: the income discrepancy matters. But it’s not correct to say that we should ignore wealth and only consider incomes. The problem already exists.

It’s also important that it’s 0.1% percent of the population that controls as much wealth as the bottom 50%. Like, it represents the scale of the problem. But these numbers don’t individually give an insight into the scale of the problem; also look at what it is for the top 0.01% of the population, and for the top 0.001%.

So now, is it any wonder that the very high end of the wealthy don’t actually care about income taxes? They’ve optimized their pipelines to minimize cash-income, and maximize asset-accumulation. The things they lobby against are estate taxes (a.k.a. “death taxes”; i.e. an opportunity for your government to act in your best interests if you are a member of the renter class of assets and recover some of the money inaccessible to you) and capital gains taxes (purely as an operational thing; they would not lose too much from a rise in capital gains taxes, but it would set a precedent that they’d rather not have and it might create more complications in their rather complicated personal finance system already).

An imperfect analogy

If i were to make an analogy, I’d compare it to the water cycle. We all learned about the water cycle; we also know that we’re depleting our fresh-water sources faster than they’re getting replenished. The issue is one of flows; we draw from underground sources but we don’t replenish them. Deforestation means less water is absorbed by trees and becomes run-off. If this happens long enough, it means there’s less moisture available in a region available for rain (assuming you’re not by a large body of water that the run-off accumulated in). So eventually, your ability to even receive fresh water is diminished.

Similar to the reality of wealth inequality, your future generations, or your neighbor’s future generation may be locked out of opportunities. As the economy divides into two groups (people with and without discretionary spending) you’ll see goods and services increasingly bifurcated into either luxury or trash. Flights will add more First and Business class seating while removing Economy seating, and for Economy they’ll be priced out of things like carry-on baggage or the ability to get refunds due to weather conditions. Computing will get more expensive; it will move to a model where regular people won’t be able to afford laptops or desktops and will have to pay to rent a CPU and/or GPU in a data center that adds value to an asset-holder’s portfolio. Housing will only get more expensive to purchase and to rent, despite not necessarily improving commensurate to the increase in cost.

Closing thoughts

• The playlist I linked at the beginning does a much better job of explaining these concepts than I do. Please give it a listen.
• Paying rent and paying a mortgage (housing loan) is not very different from this framework. When paying rent, your entire sum goes to your landlord directly. When laying a mortgage, you pay your bank interest, who pays the members of that bank an interest rate in exchange for leaving cash/assets at that bank, and the people who have more cash and assets get larger returns. In effect, this can be seen as a feature; the banks are insured by the government and you as a wealthy person don’t need to purchase a property with all of the associated legal work and risk but you can still collect a portion of housing payments.
• When I said that taxes don’t nett you a return, I don’t think that’s actually true; I was just repeating the argument of wealthy people. I personally think the benefits come from being surrounded from people who are have dignity and purpose. I benefit from living in a society with an educated population. I benefit when people are happy and fulfilled and have their needs met. I want my taxes to go towards that.
• Notice I didn’t mention the Laotian farmer at all? While a farm is an asset, it has to be actively worked to generate returns; the land is not typically available to rent and generate a passive return. It isn’t the appropriate comparison to make here.
• Also notice how the wealthy took advantage of cash loans and created debt to avoid taxation? Debt itself isn’t a perfect indicator; you cannot get a complete idea of someone’s personal finances with the equation Wealth_2026 = Income_2025 - Debt_2025 because a loan isn’t considered income, but the amount you can borrow in a loan is determined in large part by Wealth_2025.
• If you are not a member of the wealthy class, and not currently a part of the middle class, or you think that this future isn’t desirable, your deadline to change these things is rapidly approaching or already here.