Notes on Piketty, capital and labor, theory and data

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.

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Two Keynesians

Here are two presentations from 2013 with Laurance Ball and Engelbert Stockhammer on unemployment. An introduction & illustration of some theoretical differences. Ball argues from a New Keynesian view that hysteresis may cause a long run increase in unemployment, and stresses the importance of monetary policy (more text here and here). Stockhammer argues that a long run NAIRU is probably a bad explanation for the development of unemployment in the OECD countries, based on a Post Keynesian view, instead focusing on capital accumulation (more text here and here).

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