The Triumph of the Rentier? Thomas Piketty vs. Luigi Pasinetti & John Maynard Keynes
Thomas Piketty attributes increasing wealth inequality to the characteristics of a neoclassical aggregate production function, which is known not to exist. A more plausible narrative is that wage repression can lead to secular stagnation by enriching the rentier. Lower economic activity decreases labor’s bargaining power so that the share of profits in output (pi) tends to rise. Activity (or the output/capital ratio u) is stimulated by increased investment due to a higher pi. Wealth distribution is measured à la Luigi Pasinetti by the ratio Z of capital owned by a capitalist rentier class to the total. Suppose that Z goes up. Rentiers have a high saving rate implying that in a demand driven Keynesian economy u goes down. With the reduction in u the profit share increases, pushing up the growth rate of Z. Depending on economic structure (in particular, differences in saving rates between the classes), this positive feedback may or may not destabilize the system. If stability reigns, there will be a persistent steady state level of Z. If not, there may be euthanasia or triumph of the rentier. In the long run Z is reduced and increased by a downward shift in pi, i.e. less wage repression improves economic performance overall.
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