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    • In other words an exogenous fall in the rate

    2018-11-15

    In other words, an exogenous fall in the rate of growth (g) entails an increase in the wealth/output ratio β and an increase in the profit share (α). Since capital is more unequally distributed than labour, the rise in α is accompanied by an increase in inequality. This result is at the root of the macro inference of inequality pursued by Piketty (2014). The results do not depend only on the neoclassical nature of the model, but they are marked by two aspects that are worth stressing. The first one is that there is no distinction between capital and wealth. It follows that the capital/output ratio v of the growth literature has been replaced by β, the wealth/output ratio in the two formulas above. This fallacy has been stressed by many authors (see also Aspromourgos, 2015; Homburg, 2014). A consequence of the distinction is that a rise of β does not necessarily entails a rise in v and therefore other causes, apart from technology, are to be looked for, as suggested by Stiglitz (2015). The second aspect is that these relationships are characterized by complex dynamic patterns so that it is essential to overcome exercises of comparative statics in order to find meaningful relationships and feedbacks in a dynamic context.
    Rents and positional goods
    Capital ratios and technology In the old growth theory, capital is essentially fixed depreciable capital (see Knibbe, 2014) or reproducible capital, as stressed by Homburg (2014). Given the following accumulation equation (and ignoring depreciation):where K is capital and I investment, one can divide both sides by Y in order to obtain the following capital/output ratio equation: In a medium-run perspective, it is not reasonable to assume that the capital/output ratio is constant. This YO-01027 implies that the production function is assumed to have fixed coefficients, while technical progress can be assumed to be Harrod-neutral. Within this perspective, which is rather different from that advanced by Stiglitz (2015), three aspects are to be stressed. The first is that one obtains the following determinants of the rate of growth:
    A nonlinear demand-led growth model The above nonlinear equations, expressed in intensive form, i.e. divided by Y, can be inserted into a growth model that presents three characteristics. First, differently from Piketty (2014) and Stiglitz (2015) investment plays a strategic role. Second, the model also considers inflation and the monetary sector plays a role along with economic policies measures. Third, steady state considerations are supplemented by a dynamic process of interdependence where the feedbacks between variables make the co-movements between them more complex. In order to close the model the following equations are be considered. The inflation rate is represented by a Phillips curve, where the Okun\'s law has been used to transform the rate of unemployment into a rate of growth of output:where π* is the target rate of inflation, and the subscript 0 again refers to the steady state value. The nominal rate of interest (R) is determined according to a (simplified) Taylor equation of the type:where R* is the target interest rate. (Later on divergent plate boundary will be modified.) The expected (real) rate of profit (r) is formulated in the following simple adaptive way: Given the values of these variables, the investment ratio can be determined in the following way:where i is the autonomous component, while the term inside the square parenthesis represents the excess of the expected rate of profit over the real rate of interest. Also for this equation a different specification will be introduced. The saving ratio is defined as:where s is the propensity to save out of profits, while s represents the propensity to save out of wages. The usual inequality holds: On the contrary, c stands for the propensity to consume out of wealth (a mix of Pasinetti, 1962; Kaldor, 1956 hypothesis) and represents the channel through which wealth and inequality feedback on the system. Finally, z0 represents the steady state ratio between GDP with rent.