Alex Lo

My Take | United China vs divided America

Underlying socioeconomic factors favour one country over the other, and that may have enormous implications in their geopolitical rivalry

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A screener registers residents of the William Reid Apartments at a COVID-19 pop-up vaccination site at in New York. Photo: AP

Alex Lo

Published: 9:15pm, 25 Jan 2021Updated: 9:15pm, 25 Jan 2021

“This is our historic moment of crisis and challenge, and unity is the path forward.”

Joe Biden, inaugural presidential address

There is a famous mathematical inequality popularised in French economist Thomas Piketty’s influential work, Capital in the Twenty-First Century: r > g. What he means is that in the long run, the rate of return on capital (r) is always greater than the rate of economic growth (g) in capitalist economies.

What we have witnessed in recent decades is that r > g is not only true in the long term, but even in the very short term, as in months and years. For example, last March, when global equities hit rock bottom because of the Covid-19 pandemic, American billionaires suffered catastrophic financial losses just as ordinary Americans started losing their jobs.

From March to April, in the United States, the unemployment rate jumped from 4.4 per cent to 14.7 per cent. While that was the peak, as the jobless rate has since more than halved to 6.7 per cent, pre-Covid unemployment rates ranged from 4.7 per cent to 3.5 per cent during the time Donald Trump was in office.

Since its nadir in mid-March, the S&P 500 has gained more than 66 per cent while repeatedly hitting record highs; bitcoin has gained fivefold and the Nasdaq almost doubled. It’s not just stocks; so long as you have significant hard assets relative to your earnings – be it a commodity such as gold or a gold ETF or real estate – chances are that you are no worse or even wealthier than you were in March.