In an NBER working paper, David Weil argues that Thomas Piketty overestimates wealth inequality. In the abstract of the paper, Weil writes:
In Capital in the 21st Century, Thomas Piketty uses the market value of tradeable assets to measure both productive capital and wealth. As a measure of wealth this is problematic because it ignores the value of human capital and transfer wealth, which have grown enormously over the last 300 years. Thus the constancy of the wealth/income ratio as portrayed in his data is an illusion. Further, the types of wealth that he does not measure are more equally distributed than tradeable assets. The approach also incorrectly identifies capital gains due to reduced discount rates as increases in the capital stock.
Robert Hall’s session on “The Economics of Secular Stagnation” featured talks by Robert Gordon, Larry Summers and Barry Eichengreen as well as comments by Hall, William Nordhaus and Gregory Mankiw.
Not surprisingly, both Gordon (on the supply side) and Summers (on the demand side) identified signs of stagnation. Eichengreen didn’t; in his view only the price of investment goods displayed an unusual trend. Hall argued that the year 2000 marked a turning point: Since then, income per household stagnates as a consequence of falling labor supply by rich families and in particular, the teenagers in those families (they play video games instead). Nordhaus expected not stagnation but acceleration, due to breakthroughs in artificial intelligence. And Mankiw pointed out that negative real interest rates are the most normal thing in many economic models and not necessarily related to stagnation. Moreover, he argued that the job market pointed to the end of secular stagnation. He predicted the topic would no longer be debated a year from now.
Update (Feb 2015): Webcasts of this as well as other sessions (including on Piketty’s “Capital in the 21st Century”) are available here.
In an NBER working paper, Charles Jones discusses Piketty’s famous r-g term in light of several simple and transparent macroeconomic models. Jones emphasises the role of the Pareto distribution and the difference between partial and general equilibrium reasoning. Importantly,
… exponential growth that occurs for an exponentially-distributed amount of time leads to a Pareto distribution.
Finanz und Wirtschaft, June 14, 2014. PDF. Ökonomenstimme, June 19, 2014. HTML.
- The data has been hugely influential. The theory is not convincing.