Turns out Piketty was right: inequality in owning companies will worsen | Hacker News Reader

Turns out Piketty was right: inequality in owning companies will worsen

afr.com

30 pointshhs7 comments

Piketty's main point is changing Capital/Income ratio, K/Y=s/(g+n+δ), where s is savings rate, n is population growth and, δ is capital deprecation.

As Capital/Income ratio increases, larger share of profits go to capital. This increases Capital/Income ratio even more until some kind of equilibrium is reached. This is natural progression when population growth lows down.

Most of the end consumption that generates profits comes is paid by personal income. This creates feedback effects:

1. If Capital/Income ratio keeps growing, economic growth will slow down (unless government spends more)

2. When supply of capital increases relative to demand of capital, return of capital decreases. Interest rates should fall at some point when Capital/Income ratios increases. Rates have fallen but evidence suggest that they do not fall enough to fully offset the increasing importance of capital.

If Piketty is right, we should expect slower growth, low interest rates. Lower return for capital. Technological progress provides only steady ~1% annual growth, rest comes from labor supply that has decreased. Productivity growth seems to have decreased as well.

It's easy to confuse correlations with causes, so it's important to keep in mind that while real growth (of wealth) is correlated with money changing hands that money changing hands is not the cause of real growth. Real growth is caused by making good investments of resources. For example, the governments of Zimbabwe and Venezuela could print and spend as much money as they liked which can make things like GDP metrics high in nominal terms of the currency being printed, but the net effect is a downward spiral of bad investments.

Zimbabwe and Venezuela didn't print and spend. They took loans in foreign currency and spend that.

Money printing alters just the nominal value of the currency. You can't buy more stuff by printing more money. You can decease the real wages and real value loans denominated in that currency with monetary inflation. Because the countries you mentioned had debt denominated in foreign currency they could not change the real value of their loans.

(it's common layman internet fallacy to draw back all macroeconomic discussion into money printing)

I have read (but perhaps not understood) Piketty's book. Growth is certainly an important part of the book but I don't really think that it's handled well. I doubt one can measure growth and a severely doubt one can measure the growth in a highly technology society. If we all decided to move into a VR world it would look from outside standpoint like the economy had imploded.

Can we get a link to a non paywall version?

Inequality in owning companies. Well, everybody is free to go out and create a company and be a 100% owner in it.

...a company with no assets, woo!

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