Evening Must-Read: Alex Tabarrok: Depreciating Capital and Thomas Piketty

Alex Tabarrok: Depreciating Capital: “There are no contradictions [in Piketty]…

..but many a slip ‘twixt the cup and the lip. Namely, will [n+]g fall? If [n+]g does fall, will K/Y increase? If K/Y increases will capital’s share of income increase? My answers: Will [n+]g fall? Uncertain. Piketty’s forecast is as good as anyone’s…. If g does fall, will K/Y increase? Yes, but probably less than Piketty estimates and more in line with Solow. If K/Y increases will capital’s share of income increase? Uncertain but more likely no than yes. It depends on the elasticity of substitution between K and L and as Rognlie and Summers argue, the elasticity that Piketty needs is higher than current estimates suggest is the case…