Marc Andreessen's blindness

Marc Andreessen is a wealthy venture capitalist who got his money from the IPO of his first company, Netscape. Recently he gave an interview to Vox explaining how he doesn't believe that we're on the way toward higher income inequality in the future.

The first point he makes is that economic gains must come from increases in productivity. This is just plain wrong. Another source of growth is simply population growth. Imagine an agricultural village with per capita income of 100 money. Add one more person working at the same potential. Now the economy is 100 money richer, without any increase in productivity.

Next, it's not even clear that productivity will all of a sudden stop improving  Productivity has been rising steadily, and while it's hard to pinpoint the exact cause of this, it is a definite upward trend. Saying that trend will stop is an assumption that should be backed up by evidence. The fact that there are no signs of stopping the existing automation trends seems to discount this theory.

Thridly, he says that the annualized return rate of S&P500 is flat for the last 15 years. While basically true, he picked the absolute worst period of time for returns. According to Wikipedia, the 5 year annualized returns are 18%, and 10, 20, and 25 year returns are 7, 9, and 10% respectively. There is no evidence that capital growth is slowing down.

The next point he makes is there is high turn over at the top, and therefore there doesn't seem to be solidification of family wealth. First of all, looking at only the very very top is misleading. The economy is not so static that people will stay at that position for very long. However, it's not as if those families and people are falling back down to even the 99% income level.

Additionally, we're only about  20 years away from the massive growth in income inequality. We won't see evidence of real solidification until the next generation, probably 30 to 40 years from now. The families at the top .1% will still be there, and their income will primarily come from capital rather than earned wages, if Piketty's hypothesis is correct.

Andreessen also says there is no mechanism by which the wealthy can benefit at the expense of the rest. This should be pretty obvious. The influence of money in politics controls the agenda of government. While they won't get everything they want, the it will be very hard to create policies which harm them. Policy solutions only hurt other groups. For example, despite the fact that there is no crisis in social security funds, pundits and politicians still discuss cutting benefits. Even if there were a shortfall, a small tax increase would cover it, but the solutions presented always end up damaging lower income workers.

In recent years, productivity gains have risen substantially, yet all the gains have been captured by capital (source). Political decisions also favor those of the donor class, and are almost completely unaffected by general public opinion (source). Both of these phenomenon point to increasing concentration of wealth.

Andreessen makes a comment that Marx was wrong that all the capital would flow to the capitalists. The VC must not have heard of the Gilded Age. The huge accumulation of wealth by the capitalists was only halted by the exact type of government Andreessen decries during the New Deal era of the 40s through the 60s. Not coincidentally, that was also a period of massive economic growth for the country.