Results for “piketty”
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Matt Rognlie on secular stagnation

In the comments of Askblog, Matt writes:

…the “secular stagnation” hypothesis is in dire need of some cogent back-of-the-envelope estimates, and I don’t think it holds up very well. A long-term fall in the average real interest rate from, say, 2% to -1%, would be absolutely extraordinary. It would imply massive increases in the valuation of long-lived, inelastically supplied assets like land, and massive increases in the quantity of long-lived, elastically supplied capital like structures.

Just to illustrate how extreme the implications can be, consider the following (sloppy) calculation. The BEA’s average depreciation rate for private structures is currently about 2.5%. A decline in the real interest rate from 2% to -1% implies a decline in user cost r+delta from 4.5% to 1.5%, of a factor of three. If the demand for structures is unit elastic (as economists, unjustifiably from an empirical standpoint, tend to assume with Cobb-Douglas functional forms), this would imply a threefold increase in the steady-state quantity. Since structures are already 175% of GDP, this would imply an additional increase of 350% of GDP, more than doubling the overall private capital stock and nearly doubling national net worth. The transition to this level would require such an extraordinary, prolonged investment boom that we would not face slack demand for many, many years.

(There are many things wrong with this calculation, but even an effect a fraction of this size serves my point, especially when you keep in mind that land values would be skyrocketing as well. The bottom line is that proponents of secular stagnation have not yet contended with some of the basic numbers.)

There is more here.  That is via David Beckworth.

I am still waiting for a model of secular stagnation that rationalizes both a negative real interest rate and positive investment, which indeed we are observing in most countries circa 2014.  That means, by the way, I don’t quite agree with Matt’s sentence “The transition to this level would require such an extraordinary, prolonged investment boom that we would not face slack demand for many, many years.”  There are some “reasoning from a price change” issues floating around in the background here.  Is it the productivity of just new capital that has fallen to bring the natural interest rate to negative one?  Or the rate of return on old capital too, in which case the value of the extant capital stock is not given by the calculation in question?  Tough stuff, but you know where the burden of proof lies.  Can this all fit together with the fact that nominal gdp is now well above its pre-crash peak?  And that we are seeing positive net investment?  In any case I agree with Matt’s broader point that the implied magnitudes here don’t seem to fit the facts or even to come close.

Speaking of Piketty (or did I mean to write “speaking of Scott Sumner?”), Scott has a question:

…here’s what confuses me.  Some of the reviews seem to imply that Piketty argues that real rate of return on capital represents the rate at which the wealth of the upper classes grow.  Is that right?  If so, what is the basis of that argument?  I don’t think anyone seriously expects the grandchildren of a Bill Gates or a Warren Buffett to be 10 times as wealthy as they are.

*The Transformation of the World*

The author is Jürgen Osterhammel and the subtitle is A Global History of the Nineteenth Century.  The book’s home page is here.  Piketty’s tome is French and this one is…um…German.  Very German.  Translated from the German.  Imagine a 1165 pp. German Braudel-like take on the importance of the 19th century and here you go.

I was expecting a review copy but I saw a bookstore which put it out prematurely and so I spent $40 to give you all advance notice and read it sooner myself.  That is an endorsement of sorts, but also a confession of my own weak discipline.

So far I am on p.44 and I plan to continue.  I learned for instance that:

In continental Europe, Norway was the first country to have a free press (from 1814); Belgium and Switzerland joined it around 1830, and Sweden, Denmark, and the Netherlands by 1848.

My final verdict is not yet in, but I suppose the bottom line is that I expect to have a final verdict.

Assorted links

1. Doug Henwood with a neo-Marxist review of Piketty.  Here is Ryan Decker on Piketty.  Brad DeLong links to eleven different reviews.

2. Russia to recession?  And an FT piece on Crimeanomics and sanctions leverage.  And which news sites refer the most to Hitler?

3. Hire a drone with Bitcoin.  And markets in everything, via Greg Mankiw.

4. Lars Christensen on economic forecasting and AD-AS.

5. Non-compete agreements, non-poaching, and incentives to train (pdf).  And here is Evan Starr’s home page.

6. The world’s highest wind turbine.

7. What is the latest evidence on “too big to fail” banks?

8. Catherine Rampell has a new WaPo blog.  Economics with, we hope, a bit of theater.

Assorted links

1. The marvelous floating stage in Bregenz.  And fabric dancing, skip to 6:30 of the video.

2. This story about wealthy Raelian charity is stranger than you might expect.

3. Mercados por todo: un hotel para cadáveres.

4. Is elephant dung coffee the most expensive coffee on the planet?

5. John Cassidy reviews Piketty.  And Russia’s 19 richest people have lost $18.3 billion since the invasion of Crimea.

6. The editor of Lancet is anti-scientific and full of mood affiliation (pdf).

7. Richard Epstein has a new book on the classical liberal constitution.

Assorted links

1. Arnold Kling has a question for Thomas Piketty.

2. Suzanne Scotchmer has passed away.  In addition to her research achievements, during her time at Harvard she was one of the most popular professors with the graduate students and also one of the most helpful.

3. “Al-Qaida is obsessed with documenting the most minute expenses.

4. “(There is in fact no bowl.)” — how would we cover the Super Bowl if it were an event in another country?  Recommended.

5. California students sue teachers over the existence of tenure.

Assorted links

1. EpsteinUniversity: “Epstein speaks quickly, so pay close attention and rewind frequently.”

2. AngryBear on the teen minimum wage.

3. Josh Barro on….California hamburgers, if you know what I mean.  And you know what, he’s right.  Let’s puncture another myth about SoCal.

4. “I’m too tired to say it anyway and nobody cares.”  More from Will.  Here is a very good and useful Thomas Edsall review of Piketty.

5. EITC enhancement could be a good idea.

6. In praise of passivity.

7. Has there been a major stem cell breakthrough?

*Capital in the 21st Century*

Many of you have been asking me about the forthcoming Thomas Piketty book.  I am writing a 2500-word review of it for…elsewhere…so mum’s the word until then.  For now I’ll just say it is a book to buy, read, and indeed study.  Here is one good piece on the book from The Economist.  It’s already a splendid year for the published word.

Assorted links

1. Palestinian pleasures.

2. New Year resolutions for 2014.

3. Robin Harding FT piece on Piketty and inheritance: “In France, Prof Piketty charts how the annual flow of inheritances was between 20 per cent and 25 per cent of national disposable income in the 19th century. It fell to about 5 per cent in the middle of the 20th century after two world wars destroyed most of the inheritable capital stock, followed by rapid growth, high taxes on capital, inflation that eroded existing financial wealth and labour-friendly laws.

But the flow of inheritances in the country is now back to 19th-century levels; it is heading that way in the US and UK too.”

4. Can you still buy classical music in NYC these days?

5. Prison inmates think they are better than you are and morally superior.  And when doctors Google their patients.

Assorted links

1. Six case studies of writers who changed their minds.  On what basis were they picked to contribute?  And when you like the writer but not the books.

2. Markets in everything: I want to be Brahms’s German Requiem.

3. Brad DeLong on Piketty.

4. Styrofoam essentialism.

5. The North Carolina experience with cutting unemployment benefits.

6. Leading economists endorse Christmas presents, sort of.  And Times Higher Ed best books list, deep and broad.

7. What is the deal on the new banking union?

Assorted links

1. Does market monetarism require stronger financial microfoundations?

2. Should your children be learning how to code?  My views on that topic.

3. The future of doctors?

4. Izabella Kaminska on the role of fiscal distribution effects (FT Alphaville).

5. The Thought Leader.  Is this the cynical David Brooks?  The Straussian David Brooks?  Both?  Something else altogether?  And here is a good recent David Brooks interview, more depth than most interviews get to.

6. Piketty slides on wealth and inequality in the long run (pdf).  Here is my earlier column on Piketty and Zucman.