Friday, April 03, 2015

Another round on Piketty

around Deciphering the fall and raise in net capital share by Matt Rognlie. I will just mention one response from a Marxist(?) Michael Roberts. More links and discussion in the article.
Piketty Update from Michael Roberts:
"So what are the great revelations of this economics prodigy? Well, Piketty argues that inequality of wealth has risen in the last 30 years because the returns to capital were increasing or at least rising faster than national income.  However, Rognlie found the trend to be almost entirely isolated to the housing sector. Yes, some investments with a high level of intellectual property, like computer software, had become extremely valuable in the hands of the wealthy. But some of those assets were unlikely to remain valuable for very long, like a software program that needs to be replaced in a few years with a new version. When adjusting for that depreciation, most of the rest of the increase in capital came in housing, a single sector that, while important, might not shape the entire future of inequality as Piketty assumed.
The second finding was that Piketty overestimates how high the returns to capital would be in the future. For his fears to come true, wealthy people who amass more and more capital would need to keep earning a high return on that capital. But Rognlie’s research suggests that the returns to capital will decline over. “Piketty’s story has multiple steps to it. I’m sort of showing that one of the steps does the reverse of what he says it does,” Rognlie said in an interview. Those findings, he added, suggest “there doesn’t seem to be a big need for panic” over Piketty’s predictions.  In other words, forget worsening inequality – it ain’t going to happen. This conclusion is music to the ears of mainstream economics, especially its neoclassical wing.
By reducing corporate profits by the amount of depreciation of capital, it appears that capital is not really extracting any value from labour.
But that is putting the cart before horse. The first process in the capitalist mode of production is the extraction of surplus value from labour. The second process is the investment of that surplus value in the stock of fixed assets to compete and raise or maintain profitability. As Marx explained, this is where an important contradiction arises; between a rising rate of surplus value and a falling rate of profit. Both Piketty and Rognlie ignore or deny this contradiction. For Piketty, there is a rising share of income going to capital (a rising rate of surplus value) and so no falling rate of profit. For Rognlie, there is no rising rate of surplus value, so there is a falling rate of profit). Both are wrong.
Actually, whether net of depreciation or not, the share of income going to capital (the rate of surplus value if you like) in the G7 economies has been rising, if you include housing. On a net basis it has risen since the mid-1970s, even if the share is not much higher than in the mid-1960s. And yet the rate of profit on productive capital has fallen in G7 economies since 1950.
So the Rognlie papers have not really brought up anything new in the debate about Piketty’s work and his conclusions. There is no dispute that the inequality of wealth and income in the main capitalist economies had risen to 19th century heights by the end of the 20th century. Rognlie merely follows previous work by heterodox and Marxist economists to show that this is mainly due to the explosion in the value of housing in the last 30 years. So Piketty’s ‘fundamental laws of capitalism’ that Piketty contrasts to that of Marx, namely that the rate of return on capital is and will be higher than the growth of income; and that savings rates will rise to benefit the owners of ‘wealth’, are not correct explanations of rising inequality."

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