tag:blogger.com,1999:blog-4900303239154048192.post3411474703828010844..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: When The Rate Of Return And The Rate Of Growth Do Not Matter Much For PikettyUnknownnoreply@blogger.comBlogger6125tag:blogger.com,1999:blog-4900303239154048192.post-34455253909963912142014-07-08T14:47:54.110-04:002014-07-08T14:47:54.110-04:00Barkley, Piketty doesn't say that an increase ...Barkley, Piketty doesn't say that an increase in g will lower the capital share. The capital share will continue to increase so long as β is less than s/g. And assuming a constant r, the <i>rate</i> at which the capital share increases from one year to the next is<br /><br />(s/β - g)/(1 + g)<br /><br />So increasing values for g can in some cases only slow down the rate of increase in the capital share, but fail to make the capital share move in the opposite direction if β is sufficiently low and s sufficiently high. In the post WWI period, France and Germany had extremely low capital-to-income ratios, so you could get a rising capital share even with rising g.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-41694926353294792222014-07-08T13:54:54.792-04:002014-07-08T13:54:54.792-04:00Peter,
Thanks for your comments. I think inflati...Peter,<br /><br />Thanks for your comments. I think inflation was more important in the 20s than the late 40s, by a whole lot.<br /><br />Dan,<br /><br />Sorry I failed to cite you. Had not seen your blog on this. Lots of people have been commenting, of course.<br /><br />I did note that there was a surge of g in early 40s, so I did not say that was contrary to the story, just that the change is so dramatic, and I think it is both factors, the rapid growth/expansion of labor force, and the high rate of marginal taxation at the top.<br /><br />I do not think your reply on the late 20s really cuts it. Yes, of course capital income counts as income, but the story Piketty is arguing is that as g rises the share of income going to capital falls. But that is not what happens at the end of the 20s, nor does that fit for France or Germany in the 50s and 60s. Yes, he says recovery is helping capital, but higher g is supposed to lower capital share. That is my point. The story he is telling does not fit his deeper story about r and g.<br /><br />Regarding decolonialization, this happened for Germany in the 20s, but just the opposite happened for both France and Britain. Their colonial empires expanded after WW I, reaching their all time peaks. So, something strange is going on with this collapse of foreign assets. Part of this is indeed expropriation and repudiation in Russia, but those holdings were not nearly sufficient to explain this collapse, particularly given that the colonial empires were expanding. There are loose ends here.<br /><br />rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-55529260405377165682014-07-08T13:54:45.061-04:002014-07-08T13:54:45.061-04:00Peter,
Thanks for your comments. I think inflati...Peter,<br /><br />Thanks for your comments. I think inflation was more important in the 20s than the late 40s, by a whole lot.<br /><br />Dan,<br /><br />Sorry I failed to cite you. Had not seen your blog on this. Lots of people have been commenting, of course.<br /><br />I did note that there was a surge of g in early 40s, so I did not say that was contrary to the story, just that the change is so dramatic, and I think it is both factors, the rapid growth/expansion of labor force, and the high rate of marginal taxation at the top.<br /><br />I do not think your reply on the late 20s really cuts it. Yes, of course capital income counts as income, but the story Piketty is arguing is that as g rises the share of income going to capital falls. But that is not what happens at the end of the 20s, nor does that fit for France or Germany in the 50s and 60s. Yes, he says recovery is helping capital, but higher g is supposed to lower capital share. That is my point. The story he is telling does not fit his deeper story about r and g.<br /><br />Regarding decolonialization, this happened for Germany in the 20s, but just the opposite happened for both France and Britain. Their colonial empires expanded after WW I, reaching their all time peaks. So, something strange is going on with this collapse of foreign assets. Part of this is indeed expropriation and repudiation in Russia, but those holdings were not nearly sufficient to explain this collapse, particularly given that the colonial empires were expanding. There are loose ends here.<br /><br />rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-14046902818126805592014-07-08T11:21:37.364-04:002014-07-08T11:21:37.364-04:00"That is when the US federal tax code went in..."That is when the US federal tax code went into its most progressive state, with the top marginal income tax rate moving up to the 90+% level in 1940, just in time for the war, where it would stay until the mid-1960s tax cut."<br /><br />And the late 40s had inflation which helped reduce wartime debt. In Europe:<br /><br />"War, inflation, and bankruptcy destroy fortunes, although the direct damage of war is not really all that important."<br /><br />Again inflation. But in an interview Piketty says inflation is too disorderly. It hurts low income savers. Progressive taxation is more orderly and desirable. But in the absence of taxation inflation would help.<br />Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-81166802725129854662014-07-07T21:22:18.012-04:002014-07-07T21:22:18.012-04:00Barkley, you say that "it is true that g was ...Barkley, you say that "it is true that g was high in this period [WWII], but not that much higher than during the 1960s or for that matter the 1920s."<br /><br />But the US economy doubled in size during WWII, and growrh rates were indeed much higher. For the years 1939 to 1944, the real growth rates in US GDP were:<br /><br />7.98%<br />8.81%<br />17.70%<br />18.90%<br />17.04%<br />7.99%<br /><br />So it seems to me that is consistent with his story about the importance of g.<br /><br />You also say with regard to the 20's and 30's:<br /><br />"He does provide an explanation of the 1920s and early 30s, but it goes against his basic story about g. What led to the peak at the end of the 20s? A sharp rise in capital gains income. And the following decline was the reversal of this with the stock market crash. OK, that is almost certainly correct, but it goes against the story about g."<br /><br />But for Piketty, g is the growth rate of national income, which includes all income from capital, and <i>that</i> includes capital gains. (See pg. 18) So changes in distribution due to changes in capital gains income are consistent with a story about changes in g.<br /><br />Fianlly, you say:<br /><br />"But, while Germany lost its foreign empire, if anything those of Britain and France increased due to WW I, reaching their peaks in the 1920s as they picked up former colonies of Germany, as well as ones in parts of the former Ottoman Empire. Piketty simply never acknowledges this."<br /><br />"What else happened? Oh, the Bolshevik Revolution, which led to the repudiation of tsarist Russian debts, many of whose bonds were owned in these countries, and also the expropriation of foreign company holdings in Russia. Needless to say this has nothing to do with g."<br /><br />But Piketty does emphasize the importance for France and Germany of expropriations due to revolution and decolonization, and the extent to which the reduction in capital was due to a variety of policies aimed at reducing the importance of capital. (See pp. 148-9)<br /><br />Also, national income, for Piketty, is defined as GDP + net income from abroad - depreciation. So the loss of foreign assets, and their annual yields, does have <i>something</i> to do with g.<br /><br />Nevertheless, you are right to stress the importance of other factors behind the changes in the distribution of both wealth and income. Many of these factors are discussed in chapters 7 through 12. They include:<br /><br />- Differences in the rates of saving maintained by different classes of income recipients.<br /><br />- Differences in the rates of return to capital earned by different classes of wealth owners.<br /><br />- Changes in the mortality rate.<br /><br />- Changes in the ratio of average wealth at death to average wealth overall.<br /><br />- Cultural norms and power relations that seem to be at work behind the tremendous rise in labor income inequality in the English speaking countries.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-17090635904507317242014-07-07T13:35:26.939-04:002014-07-07T13:35:26.939-04:00Technically you're quite right, Barkley. The ...Technically you're quite right, Barkley. The way I read Piketty, his r>g mantra is that this is what you might call the default or baseline condition for the accumulation of capital relative to income. He thinks it's always positive in a capitalist society and more positive as g falls for structural reasons (since r remains about the same). Then, on top of that, you have policy. He regards the upsurge of inflation and high tax rates of the first half of the 20th c. as exceptions attributable mostly to war. (Kuttner properly takes him to task for downplaying the purely political dimension in the US, although Piketty does go on about the US as global tax leader.)<br /><br />For me, this is the main thing that Piketty has in common with Marx. Both want to argue that there is a fundamental tendency to capitalist development, and that politically or institutionally driven alterations are in some sense secondary or epiphenomenal.Peter Dormanhttps://www.blogger.com/profile/00093399591393648071noreply@blogger.com