Picking Piketty Apart (10) Statistical Check

Piketty examines each of his variables and estimates where they change in the future.

First g,
He suggests that economic growth will be slower in the future due to declining population growth. New technology and innovation will not be able to compensate.

Then r,
Piketty says that the over the long run, the rate of return is about 4-5 percent a year.

The principal conclusion that emerges from my estimates is the follow. In both France and Britain, from the eighteenth century to the twenty-first century, the pure return on capital has oscillated around a central value of 4-5 percent a year, or more generally in an interval from 3-6 percent a year. There has been no pronounced long-term trend either upward or downward… it often exceeded 4-5 percent in the eighteenth and nineteenth centuries, whereas in the early twenty-first century it seems to be approaching 3-4 percent as the capital/income ration returns to the high level observed in the past (206).

Then r>g,
Through most of history, r-g has been positive.

Throughout most of human history, the inescapable fact is that the rate of return on capital was always 10 to 20 times greater than the rate of growth (353)

He assumes that r will continue to be greater than g in the future.

Finally s
Piketty investigates the rate of return in many countries. Rates vary between countries and over time, but they have averaged between 7 and 10 percent in western countries between 1970 and 2010 (175).

If these estimates are correct, then the capital income ratio will continue to grow and the share of income that goes to capital will increase too.