The inescapable structure of economic inequality: K with r and Y with g, where r > g

Lee, Sangdon (2024): The inescapable structure of economic inequality: K with r and Y with g, where r > g.

Abstract

Thomas Piketty stated that widening economic inequality is an inevitable consequence of free-market capitalism, in which the rate of return (r) on capital (K) exceeds the rate of economic growth (g): r > g. Five System Dynamics models are developed to understand the underlying structure that causes economic inequality; K with r, which leads to the facts that K and capital income (Yk) exceeds national income (Y): K≫Y and Yk≫Y as time goes on. The Solow-Swan model, a fundamental reference for economic growth, describes the progressions of capital per capita (k) and income per capita (y). However, its focus on the k, y, and the key equation, dk/dt=s*y-(g_L+g_A+δ)k, obscure the fact that the K≫Y even when k and y are declining. We modified the Solow-Swan model to validate the claims by Piketty, β=K/Y → s/g. Finally, a new mortgage payment scheme called CPIP (Constant Principal and Interest Payments) is proposed as a potential solution to mitigate economic inequality.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic inequality, Piketty, r > g, Solow-Swan model, personal and national economic growth, taxes, K with r.
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications

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