Reply to Alan Day Haight

ABSTRACT

Alan Day Haight is incorrect in understanding Piketty’s paradox as a “dynamic version” of Keynes’ paradox of thrift. Keynes’ paradox of thrift deals with equilibrium conditions relating to the flows of savings and investment. In contrast, the capital output ratio central to Piketty’s paradox deals with a stock (capital) relative to a flow (output). Balanced growth cannot be considered an “equilibrium” condition without specifying an adjustment mechanism whereby balanced growth is re-established when the capital-output ratio becomes unbalanced. As illustrated by the Harrod-Domar case this unbalancing can be particularly degenerative when idle capacity develops.

KEYWORDS:

• Capital spillage
• inequality
• Piketty’ paradox

JEL CLASSIFICATIONS:

• D63
• E25

Notes

¹Of course, simply because the majority of estimates come out less than one does not settle the case. Various types of assumptions regarding technological change must be made to establish identification. See Raval’s (2017) discussion in After Piketty (pp. 75–98).

²Among numerous works that take on one or more of these factors, see Bluestone and Harrison (1988); Batra (1996); Galbraith (2000, 2012); Greenhouse (2009); and Stiglitz (2015).

Additional information

Notes on contributors

Craig Medlen

Craig Medlen is with Menlo College, Atherton, California.