Future Capitalism would be saved if there is robust 4-5% or higher growth from Technological Progress

Nextbigfuture has summarized the work of Thomas Piketty on a historical analysis of income and wealth and wealth distribution. Thomas Piketty feels that Capitalism faces a big future problem where capital returns (r) are at 4-5% per year.

The end of convergence [rise of China, India and other countries after they catch up]implies that all advanced countries will grow at the rate of technological progress which, Piketty believes, is around 1- 1.5% per year. Add to it 1% population growth and g cannot exceed 2.5% per year. If r remains, as Piketty thinks, at its historical rate of 4-5%p.a., all the negative developments from the 19th century will be repeated.

NBF – Therefore if technological progress enables more economic growth at say 5% or higher then growth keeps pace with the return on assets.

There are numerous detailed reviews and analysis of Piketty’s Work

The Economist has an analysis.

Tumbling rates of population growth are pushing wealth concentrations back toward Victorian levels, in Mr Piketty’s estimation. The ratio of wealth to income is highest among demographically challenged economies such as Italy and Japan (although both countries have managed to mitigate inequality through redistributive taxes and transfers). Interestingly, Mr Piketty reckons this world, in which the return to capital is persistently higher than growth, is the more “normal” state. In that case, wealth piles up faster than growth in output or incomes. The mid-20th century, when wealth compression combined with extraordinary growth to generate an egalitarian interregnum, was the exception.

Sustained rates of return above the rate of growth may sound unrealistic. The more capital there is, the lower the return should be: the millionth industrial robot adds less to production than the hundredth. Yet somewhat surprisingly, the rate of return on capital is remarkably constant over long periods (see chart, second panel). Technology is partly responsible. Innovation, and growth in output per person, creates investment opportunities even when shrinking populations reduce GDP growth to near zero.

New technology can also make it easier to substitute machines for human workers. That allows capital to gobble up a larger share of national income, raising its return. Amid a new burst of automation, wealth concentrations and inequality could reach unprecedented heights, putting a modern twist on a very 19th- century problem.

The return of “patrimonial capitalism”:
review of Thomas Piketty’s Capital in the 21st century by Branko Milanovic of the World Bank (21 pages)

Branko gives a lot of praise and a detailed review of the Piketty work. Branko does identify where Piketty makes some leaps of judgement.

The Nation – Thomas Piketty and Millennial Marxists on the Scourge of Inequality. Capitalism’s new antagonists take on an economics run amok

Economist Brad Delong has a review

Mother Jones has a review

Financial Post – Terence Corcoran: The straw dogs of Thomas Piketty’s capitalism

Pragmatic Capitalism thoughts on Thomas Piketty’s Capital

Washington Monthly – Piketty-mania: progressives are going gaga about a sobering new book about economic inequality. Why is that?
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