1. He has a fairly right-wing worldview (albeit certainly not Nazi.)

2. He asks whether all the data supports Piketty’s claim that real wages in Britain did poorly in the first 1/2 to 2/3rds of the 19th century. Odd. Why didn’t he just just read on?

3. He is rather dismissive of those he disagrees with.

]]>Declan. There are two problems. First he says that r > g implies increasing inequality. That’s flat out 100% wrong, not even debatable. Then he later says there are saving assumptions that when combined with r > g imply increasing inequality. But those saving assumptions are implausible. So all we have left is the data, which we already knew showed increasing inequality.

]]>“Pareto laws are generated by dynamic process with multiplicative shocks, for instance because portfolios and wealth are multiplied by a random multiplicative shock from a period or a generation to another. Intuitively, the bigger the gap r – g is, the more this shock generates a high concentration of wealth and thus the higher the coefficient b is. The mathematical equations to determine this coefficient b depending on r – g, as well as the corresponding technical references are available in these lecture notes. The corresponding models were developed by Champernowne in 1953 and extended by several authors, such as Stiglitz, Cowell and Nirei. Meade developed a similar intuition in his book published in 196434. What needs to be emphasized is that small variations in the gap r-g (due to differences in the tax rate for the wealthiest for example) can explained huge variations in the coefficient b and thus in the concentration of wealth. For numerical simulations see Dell 2005.”

http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014TechnicalAppendix.pdf

]]>we all know what the problem is: the wealthy have way way to much money and power

and the answer is pretty obvious: much higher marginal rates, taxing capital as ordinary income (you can dig up the quote by Andrew Mellon, of all people, on why cap gains rates should be higher then income rates)

etc

it ain’t hard; all this discussion about piketyy is just a waste of time

Again, I find it quite plausible that wealth will get increasingly unequal, but r > g has nothing to do with it.

Broussard, Yes, my mistake on Giles.

You said:

“The stuff with r>g speaks to people who understand that wealth grows faster than income if r>g, but is not the key point, because you indeed need something about savings behavior. Which is in Piketty’s book, if you manage to read it entirely.”

Again, that inequality does not imply that wealth grows faster than income. Regarding my supposed oversight of the saving assumption, here’s what I said:

“OK, so doesn’t logically follow, you need to make assumptions about savings. Does that help? Not really, because the model is still absurd. And that’s because the assumptions that you’d need to make about savings are utterly implausible.”

Your other comments are interesting, but have no bearing on anything I said in this post. The intro to the book did not discuss the impact of changes in r and g, and I did not address that issue. The book may well be excellent, but the intro did a poor job of introducing his model.

]]>1) Steady-state capital/income s/(g+d) (with d depreciation rate) increase

2) Share of income to capital owners r*s/(g+d) increase.

3) Wealth is unequally distributed (no necessarily increasing), so that a rise in the share of income to capital leads to a rise in income inequality.

There is really nothing to say against 1, 2, 3 which really are direct consequences of Piketty’s assumptions

The key assumption is r times s falling by less than g + d. Many growth model assume a constant s over time, and Piketty argues that r does not fall as much as g, so there you go. His point is that other things equal, capital income inequality will probably increase if growth slows. You can argue that Bill Gates will distribute is money (so you should see that in decreasing wealth inequality. Do you?), or that something will render all capital obsolete or destroy it (increasing d), or that the rate of return will fall, or that billionaires will start spending more of their income (falling r times s). All assumptions which are not the baseline scenario.

The stuff with r>g speaks to people who understand that wealth grows faster than income if r>g, but is not the key point, because you indeed need something about savings behavior. Which is in Piketty’s book, if you manage to read it entirely.

]]>The UK wage data from 1850 is more robust that’s for sure. The Bank of England have compiled an excellent data set which is on their website. It is worth pointing out that real wages grew by 1.1% pa between 1870-1890 and then fell back to 0.7% pa from 1890-2010. ]]>

Inheritance is exactly the mechanism Piketty proposes to explain the result of r>g causing increasing inequality. It is quite absurd to criticize Sumner on this basis. The macro explanation can’t hold without micro underpinnings. It can’t simultaneously be true that no specific wealthy people leave large inheritances AND that because of r>g inherited wealth will cause massive increases in wealth inequality.

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