Monday, May 26, 2014

Debraj Ray comments on Piketty

in Nit-Piketty
" At the time of writing, the Financial Times (May 23, 2014) is reporting arithmetical errors in some of the Piketty spreadsheets. I am not yet competent enough to comment on these empirical critiques, but I’m pretty sure that the overall observation of rising inequality will stand in some definitive shape or form."
Ray also says
 "Piketty’s Third Law [r>g] has been known to economic theorists for at least 50 years, and no economic theorist has ever suggested that it “explains” rising inequality. Because it doesn’t. It can’t, because the models that generate this finding are fully compatible with stable inequalities of income and wealth. (More on this in the appendix to the pdf version.) You need something else to get at rising inequality."
Then he goes on to explain his views. There is an appendix too. But his derivation of the second law assumes that β is constant. As I understand, it is a dynamic asymptotic law. Assuming β is constant probably robs it of any explanatory power.

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