Monday, November 24, 2014

Recent stuff on Piketty

Deirdre McCloskey has a 55 page polemic against Piketty (via MR where there are a lot of comments). At one point, she agrees that r>g in the lon run, but says that the rise and fall of inequality probably is independent of that.

Emmanuel Todd in a 1987 book 'The causes of progress' says " It seems that accumulation of capital has no decisive effect in the long run' (page 31). He was comparing the 1860 scores of industrial development with 1979 scores of national wealth in Europe. I wonder whether part of what is called wealth is fictitious and has a tendency to vanish.

Daniel Stelter in Piketty, Right or wrong? The global wealth game says that Credit Suisse agrees with Piketty. But "Piketty, Summers and Credit Suisse only look at the symptoms – not at the true causes behind this development. The key element they neglect is the continued and excessive growth in debt. Without constantly increasing overall debt levels, the growth in wealth would be impossible."

"But can it go on?

It will not be possible to have debt grow faster than income forever. As long as the value of assets bought on credit grows faster than the interest expense, the game can go on.
But even in an environment of zero interest rates, this has come to an end, at the latest when no one has any debt capacity or willingness left. Once we have reached this point, asset prices will collapse. What remains is an unbearable debt load.
As debt is used to stabilize economic demand, it is only a question of time until we reach a limit. The debt capacity is limited and many countries have reached this limit.
All efforts to increase the debt capacity — whether by lowering standards and interest levels and/or to induce those with some countries like Germany which have some capacity remaining to take on more debt — can only buy time.
As attractive a world of ever increasing wealth would be, it is only a dream. It is much more probable that wealth and debt will shrink together. This will happen either because of a collapse of the house of debt that has been built up – or through drastic taxes as proposed by Piketty. As for politicians, it doesn’t matter whether or not Piketty`s theory is wrong, if it is useful."
Another possibility (my usual guess) is that ninety percent of the world could become essentially slaves.
P.S. a summary of Piketty, via a comment in MR

No comments: