Over at Equitable Growth: Is the Fed "Pretending"?: Daily Focus
Afternoon Must-Read: Joe Romm: 2014 Headed Toward Hottest Year On Record--Here's Why That's Remarkable

Virtual Office Hours: Asset Prices, Monetary Policy, Secular Stagnation, Inequality, and Pikettyism


Virtual Office Hours:

Question: "Given how low global interest rates are, it seems hard to believe that returns on investment over the next 8 to 10 years can be good. So, isn’t some of the recent increase in wealth effectively ‘stealing from the future’ as capitalization values responded to the low rates of return available from sovereign bonds?"


This is, I think, the crucial flaw in the current “Fed raises inequality!” literature...

It is also at the root of the most powerful critique of Piketty, which is, I think, Matt Rognlie’s:

  1. Piketty describes a world in which the ratio of wealth-held-by-the-rich to total annual national income rises.
  2. But most of our wealth today—our capital—is in the form of productive investments that boost productivity and complement labor.
  3. So as the wealth-held-by-the-rich to total annual national income ratio W/Y rises, the rate of profit r falls.
  4. And r falls by more proportionally than W/Y rises.
  5. So not only does Piketty-world see a higher level of production per worker, it sees a smaller share of that production paid to owners of capital.
  6. This is what Keynes saw as a possibility: the “euthanasia of the rentier”—even though the wealthy are fabulously rich relative to the middle class, their incomes are smaller relative to the middle class than we have seen in the past.
  7. All this hinges on wealth being held in the form of productive investments that must then be deployed by producers, rather than in the form of rent-seeking property that gives the rich the power to extract from the producers

264 words