Suresh Naidu: Notes from Capital in the 21st Century Panel: “There is a ‘domesticated’ version of [Piketty's] argument…
…a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates…. This is story that is told to academic economists, and it is plausible, at least on the surface.
There is another story… that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market…. I think the production approach is less plausible… because housing [with land] plays such a large role… average wages would have increased along with K/Y [if factors are paid marginal products]…. The (really great) sections from the book on corporate governance actually suggest something quite different… a gap between cash-flow rights and control rights…. This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies….
If it is just a very high substitutability… labor market reforms are… off the table, as firms just replace workers with machines if you try to raise the wage….