a16z Podcast a16z Podcast: The Two Big Problems With Thomas Piketty’s “Capital in the Twenty-First Century”
May 15, 2014
Larry Summers, the former Secretary of the Treasury and a16z special advisor, delves into Thomas Piketty’s influential work on inequality. He critiques Piketty's assumptions about capital accumulation and emphasizes the roles of technology and globalization in understanding income disparity. The conversation also explores the troubling health inequalities affecting life expectancy across income groups in the U.S., highlighting critical issues that call for urgent attention beyond mere economic theories.
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Skepticism About r>g Mechanism
- Larry Summers agrees inequality has risen but disputes Piketty's core mechanism of r>g as the main driver.
- He argues capital accumulation should lower returns and not necessarily concentrate wealth indefinitely.
Diminishing Returns On Accumulated Capital
- Summers says rising capital should push down returns due to the elasticity of substitution, limiting wealth concentration.
- Measured output adjusted for depreciation suggests capital's share should decline, benefiting workers using capital as a tool.
Savings Rates Change With Wealth
- Summers criticizes Piketty for assuming a constant savings rate as wealth accumulates.
- He stresses that savings behavior changes as wealth grows, which dampens runaway accumulation dynamics.