Potemkin Review
Interview with Thomas Piketty: Piketty Responds to Criticisms from the Left
Antoine Dolcerocca and Gokhan Terzioglu
Wednesday, January 14, 2015
Antoine Dolcerocca and Gokhan Terzioglu — Interview with Thomas Piketty: Piketty Responds to Criticisms from the Left
Potemkin Review
Interview with Thomas Piketty: Piketty Responds to Criticisms from the Left
Antoine Dolcerocca and Gokhan Terzioglu
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Piketty:
The second reason why one should not oppose class struggle and progressive taxation is that progressive taxation in itself is not enough. I think we also need to have new forms of governance and capital ownership. For instance, in the book I mention the difference between the private and social value of capital in corporations taking the example of German capitalism as compared to Anglo-Saxon capitalism, where I describe the role of workers on the boards of corporations. This probably reduces the market value of corporations, but it apparently does not prevent them from producing good cars. Therefore developing new forms of ownership, new forms of sharing of power between those who own capital and those who own their labor, is extremely important to me. Not only in the traditional manufacturing sector, but in many new sectors, such as higher education, media, culture, etc. the shareholder company is not the end of history and this form of organization and capital ownership is certainly not the future.
And here, as I have been saying for months:
Regarding the elasticity of substitution debate, my response to Summers and others is the following: what we observe in the data in recent decades, is a rise in β and α simultaneously. So we have a rise in the capital / income ratio and a rise in the capital share [of national income] at the same time. If you were to take the standard neoclassical model, with a single good production function and perfect competition, etc., the only possible logical way to explain these two moving together would be an elasticity of substitution somewhat bigger than 1, say on the order of 1.5; and that would be consistent with the views that there are more and more different uses for capital over time and maybe in the future robots will make substitution even more… Now, does this mean that it is the right explanation for what we have seen in recent decades? Certainly not. As I make clear in my book, there are many other explanations for what happened in recent decades and this co-movement of α and β. One is the increase in the bargaining power of capital: globalization, the decline of labor unions, etc. The general increase in the bargaining power of capital has certainly contributed to the rise of the capital share. Next, one of the big differences between the neoclassical model and the real world is that the real world is better described by a multidimensional capital model, where at the same time we have a real estate sector, energy sector, many different sectors with different capital intensities; and at this stage real estate and energy are much more important than robots in terms of capital intensity. Maybe at some point in the future robots will be important, but for now in order to understand the rising capital share in recent decades one has to look at real estate prices, the evolution of rental income, etc.
In other words, the point of Chapter 6 in the book is to deploy the neoclassical growth model against the defenders of that model, and make them see that given the empirical fact of stable rates of return on capital, even as wealth grows, they are committed to elasticities of substitution greater than 1. The point of Chapter 6 is not to defend the neoclassical growth model, which Piketty thinks is simple-minded.
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