# Notes on Piketty, capital and labor, theory and data

Piketty’s (2014) book Capital and associated articles contains a lot of fascinating stuff and has inspired a lot of interesting debate. Here are some summary notes. Please comment on errors. If you want to change the world, you need to know how it works.

The critique: Data and theory don’t support the r > g story, Piketty’s 2nd law, that low growth and high returns on capital will make K/Y increase in the future.

• Net savings rate does not seem to be stable in the long run and does not seem to correlate negatively with growth.
• Adjusted for valuation, K/Y doesn’t seem to have increased in the last decades, contrary to some of Piketty’s main findings.
• Piketty means that the elasticity of substitution between K and L ($\sigma$) is above 1, based on, among other things, data on K/Y. But if K/Y hasn’t increased, Piketty might also be wrong about $\sigma$. A lot of earlier empirical analysis indicates $\sigma$< 1. Also, for Piketty’s theory to hold, $\sigma$ might need to be much higher than Piketty suggests.