To get to the
next stage of wealth building, it's essential to understand the economic
principle that separates the haves from the have-nots in this country. This principle is defined by the economic
formula R is greater than G. Economists use this formula as a basis for their
analysis and conclusions concerning the wealth gap.
You have
probably heard about the widening wealth gap in this country on the news, with
the rich becoming increasingly wealthy and the poor becoming increasingly
impoverished. So, the prevailing question is “What do we do about it?” How do
we narrow the gap between working people and business owners? The answers are
varied and, in my opinion, very unrealistic.
Instead, I believe
that a more productive question to ask is, “How can I deal with the
ever-widening wealth gap? Before we discuss
my answer to this question, let’s get a better understanding of what the wealth
gap is and how it can stifle a person’s future.
Who Are Thomas Piketty and Charles Jones?
Who Is
Thomas Piketty?
Thomas Piketty
is a French economist best known for his groundbreaking work on wealth and
income inequality. Born in 1971, Piketty rose to international prominence with
his 2014 book Capital in the Twenty-First Century, which drew on
centuries of historical data to show that when the return on capital (R)
exceeds the rate of economic growth (G), wealth tends to concentrate in the
hands of the few.
His central
thesis—that R > G leads to ever-increasing inequality unless curbed by
policy—revived global debates about capitalism, taxation, and fairness. Piketty
is a professor at the Paris School of Economics and the École des Hautes Études
en Sciences Sociales (EHESS). He has also authored Capital and Ideology
(2020), a broader historical and political examination of inequality systems
across societies.
Advocating for
progressive taxes on wealth and income, Piketty’s work challenges mainstream
economic thinking and calls for bold policy interventions to create more
equitable societies.
Who is Charles I Jones?
Charles I.
“Chad” Jones is the STANCO 25 Professor of Economics at Stanford Graduate
School of Business and a Research Associate at the National Bureau of Economic
Research (NBER). A research leader in growth theory, innovation, and
inequality, he earned his undergraduate A.B. from Harvard (1989) and a Ph.D.
from MIT (1993).
Jones’s
research encompasses the economics of long-term growth, R&D dynamics,
health spending, and top-income inequality. Notably, he authored “Pareto and
Piketty: The Macroeconomics of Top Income and Wealth Inequality” (2015),
which integrates the Pareto distribution into understanding how R > G
influences concentration at the top. His work extends to Schumpeterian growth
models, which explain how innovation and market structure shape high-end income
shares.
Chad Jones is a
leading macroeconomic theorist who has shaped our understanding of how
innovation, ideas, and capital returns affect economic growth and wealth
concentration, particularly among society’s top earners. His integration of
mathematical growth models with inequality analysis makes him a key figure in
modern economic thought.
What are the primary messages about R>G from authors
Thomas Piketty and Chad I. Jones of Stanford?
Here is a clear
comparison of the primary messages about R > G from Thomas Piketty and
Charles I. (Chad) Jones of Stanford:
Thomas Piketty – Author of Capital in the Twenty-First
Century
Core Message:
When the rate
of return on capital (R) exceeds the rate of economic growth (G), wealth
inequality tends to rise, because the rich—who own capital—can grow their
fortunes faster than the rest of society can increase their incomes.
Key Points:
- Historical pattern: Inherited wealth dominates in
low-growth societies where R > G.
- Policy response: Strongly favors progressive
wealth taxes and global capital taxation to rebalance
inequality.
- Inequality is not self-correcting: Left alone, capitalism amplifies
inequality unless disrupted by war, depression, or policy.
- Focus is empirical: Draws on 200+ years of historical
tax records and wealth data (especially from Europe).
Chad Jones – Stanford Economist, Author of Pareto and
Piketty
Core Message:
R > G can be
one contributor to rising inequality, but it doesn’t automatically cause it.
The structure of the economy, including those who own capital, how wealth is
saved or inherited, and the distribution of innovation, all matter more.
Key Points:
- Adds theoretical clarity: Uses mathematical models to
explain when and why R > G leads to inequality.
- Pareto dynamics: Inequality depends heavily on the
shape of the Pareto distribution, not just R and G.
- Innovation as a counterforce: In economies driven by innovation
and creative destruction, wealth can cycle more rapidly, even with R >
G.
- Policy still matters: Supports the idea that tax
policy, access to capital, and opportunity shape outcomes.
Key Similarities and Contrasts
Between the Two Great Economists
- Piketty warns that R > G is a
structural flaw in capitalism that leads to persistent inequality unless
disrupted by policy.
- Jones refines this view, showing that R
> G is one factor among many and that innovation, demographics, and
market entry can alter the outcome.
- Both agree inequality can
worsen without policy, but Jones emphasizes the model’s structure and
institutional context more than R > G alone.
The Reality of the Wealth Gap and How Quiet Investing Can
Narrow It for You
Whether you agree
with Piketty or Jones about the driving forces behind the ever-widening wealth
gap, their proposed solutions don’t
appear to be realistic in our politically divided society. But there is something
you can do to get on the favorable side of the wealth gap. Instead of just
tolling away on the “G” growth side of the economy through a job or
self-employment, you can reap the benefit from the “R” side of the economy by
investing wisely.
Quiet Investing Your Way to the R Side of the Wealth Gap
Quiet investing
can help those toiling on the growth side of the economy—teachers, nurses,
tradespeople, entrepreneurs, and employees working long hours—tap into the
wealth-building power of the return-on-investment side of the economy, even if
they don’t have high incomes or financial expertise.
Here’s how:
1. Turning Labor into Capital
People on the
growth side of the economy earn money through their efforts, including wages, salaries, and income from small businesses. Quiet investing is the practice of
steadily converting some of that hard-earned income into ownership of stocks,
bonds, real estate, or other appreciating assets. It’s not flashy, but over
time, it moves you from laborer to part-owner of the economy.
2. Letting Capital Work So You Don’t Always Have To
While labor
income depends on your time and energy, investment income keeps working in the
background. Passive investing allows your savings to compound and generate
returns even when you're not actively managing them, such as during rest,
vacation, or retirement. It quietly builds a second income stream.
3. Avoiding the Noise, Keeping the Focus
The stock
market and financial media can be distracted by hype, panic, and speculation.
Quiet investing ignores that noise. It’s based on disciplined contributions to
diversified portfolios—like index funds—held for decades. This helps protect
you from the emotional traps that often lead to hardworking people losing money
by trying to outguess the market.
4. Bridging the Economic Divide
The economy
often feels divided between “the workers” and “the owners.” Quiet investing
narrows that gap. Over time, someone making $40,000 to $70,000 a year who invests
diligently and patiently can accumulate a portfolio that pays them more than
their job ever did.
5. Securing Autonomy and Dignity
Quiet investing
gives people more choices—about where to live, whether to change careers, or
when to retire—not because they struck it rich, but because they planted
financial seeds early and let them grow. It creates a cushion that provides
people with breathing room and resilience when life becomes challenging.
In short, quiet
investing is a way for individuals who build and grow the economy through their
efforts to share in the rewards captured by capital eventually. It doesn’t
require timing the market, winning the lottery, or working 80 hours a week—it
just requires consistency, patience, and trust in the long-term productivity of
the economy you helped build.
Final Note
I want everyone
who reads my articles and books on investing to achieve financial success, enabling them to fund their dreams and aspirations. Unfortunately, not all of you
will, mainly because of the programming that most of us received to keep us
cogs in the wheel instead of owners of the wheel.
My primary
message is that you can work in your field of choice and share in the profits
as a partial owner at the same time. It’s the only way I see that we can narrow
the wealth gap for a portion of us, the worker bees, who want more out of life than
our 9-to-5s can offer. If you want to venture further into quiet investing,
please buy my book, Whispers from a Quiet Investor, and I’ll see you on the other side of
financial freedom.
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