One thing that I had not fully realized before yesterday was just how much heavy a lift Piketty has in trying to persuade the American neoclassical growth-economics community within economics departments. Their--our--default view of the world is--very strongly--that it is characterized by a Cobb-Douglas aggregate production function, in which the rate of profit moves inversely with the L ratio and in which as a result the capital income share of total income is constant.DeLong also has good links to other remarks by and about Piketty.
You may say: but if you have a model in which you assume the capital income share is constant, you then have no chance of ever explaining fluctuations in income distribution. How can you use a model in which fluctuations in income distribution do not happen to criticize anyone trying to explain why they do? And this is a more than fair cop. But that the habit of thought is not rational doesn't keep American neoclassical growth-economists in economics departments from doing it: their--our--first reaction to Piketty is: That can't be right, because in our model the capital-income share of total income is invariant to shifts in the wealth-income ratio." And they--we--typically do not take the second step in the argument and say: "wait a minute: in our model nothing causes shifts in income distribution, so we need to model"...
Friday, April 25, 2014
"That can't happen because it's not in our model." Brad DeLong observes that the facts Piketty accounts for are assumed not to exist in American neoclassical growth-economics:
Posted by Steve J. at 6:25 PM