The Piketty-Kaldor paradox of growth: Reply to Medlen

ABSTRACT

Despite the yawning gap between their time horizons, there are a few interesting similarities between Piketty and Keynes. A graph of the Piketty-Kaldor paradox of growth (where a lower growth rate leads to a higher saving rate) is similar to the familiar graph of the Keynesian paradox of thrift (where a lower saving rate leads to higher investment). Keynes showed that cautious spending can lead to recession, and Piketty showed that cautious growth can lead to maldistribution.

KEYWORDS:

• Growth
• inequality
• Keynes
• Piketty

JEL CLASSIFICATIONS:

• E12
• B50
• P10
• O40

Notes

¹Slow (fast) growth leads to a rich (lean) capital-to-income ratio, which shifts income toward capital owners (workers), who have a high (low) propensity to save. Therefore, a slow growth rate is associated with a high saving rate. See Haight (2015a, p. 541). [See also Haight (2015b), although those changes do not alter the graphs or propositions in the original paper.]

²If s > i_BG then β increases, and if s < i_BG then β decreases.

³Piketty (2014, p. 222) showed that the elasticity of substitution is typically greater than one (for modern, nonagricultural economies). When β increases, the capital rental rate (r) decreases by a smaller proportion, leaving a net increase in capital’s share (α = rβ) Hence, increases (decreases) in β lead to increases (decreases) in α. See also Solow (2017, p. 53).

Additional information

Notes on contributors

Alan Day Haight

Alan Day Haight is an Associate Professor in the Department of Economics at State University of New York, Cortland, New York.