Piketty is wrong

Obregon, Carlos (2015): Piketty is wrong.

Abstract

Piketty argues that there are long-run fundamental laws in capitalism that will necessarily concentrate the income in favor of the privileged 1 or 10% of the population. Piketty's two fundamental laws are really theoretical propositions that presume relative rigidity in the rate of return of capital and in the net savings rate. We show that such propositions are incompatible with seventy-five years of studies estimating the value of the elasticity of substitution between capital and labor, and with the theoretical models of savings optimizing behavior. We argue that Piketty's laws are wrong and that they contradict the essence of market dynamics. Economic agents optimize and neither the rate of return of capital nor the net savings rate can remain relatively stable as Piketty supposes. Using empirical estimates of the long-run elasticity of substitution between capital and labor, and analyzing the relationship between the net savings rate and the real growth rate of the economy, we show that Piketty's forecast for the second half of the twenty-first century is inadequate. We propose alternative forecasts.

• Item Type: MPRA Paper
• Language: English
• Keywords: Piketty, Capitalism, Rate of return of capital, Savings rate, Economy growth, Elasticity between capital an labor
• Subjects: D - Microeconomics > D3 - Distribution > D30 - General; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; D - Microeconomics > D3 - Distribution > D33 - Factor Income Distribution; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E25 - Aggregate Factor Income Distribution; F - International Economics > F0 - General > F01 - Global Outlook; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries

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