(original source Social Europe)
“It is always instructive to speak to Joe Stiglitz. In a conversation in Paris which we had after his talk at the INET conference, he pointed out that the elasticity of substitution between capital and labor greater than 1 (which is often assumed by Piketty in his “Capital in the 21st century”), combined with technological progress which does not fall like manna from heaven but develops in response to the existing factor prices, would lead to an explosive process that would end only with capital owning the entire net income of a country. How?
Suppose that we have a given rate of interest (r) – you can imagine that it is 5% as is often mentioned by Piketty and a given wage (w). Suppose also that at this ratio of factor prices, it is profitable to invest in more capital-intensive processes (that is, they reduce unit cost of output). So capitalists will replace labor by capital and K/L and K/output ratios will both increase. Since elasticity of substitution between K and L is greater than 1, r will only slightly decrease while wages will only slightly increase. Although factor prices, being sticky, will not have budged much they would have moved ever slightly further in making capital intensive processes even more attractive. So there would be another round of increased capital investment, and again K/L and K/output will go up with only minimal effects on prices.”
Click here to read more
Thinkers 50 List: The World’s Most Influential Management Thinkers
THINKERS50 BEGAN IN 2001 AS A RANKING OF THE WORLD’S MOST INFLUENTIAL MANAGEMENT THINKERS. For over 20 years, Thinkers50 has been identifying, ranking, and sharing…
Thought Leader: Liz Wiseman, Kaihan Krippendorff, Andrew Winston
Dr. Sanjay Gupta: Anchoring Autism
Dr. Sanjay Gupta brings unparalleled credibility, experience, and clarity to the stage as one of the world’s most trusted voices in health and medicine. As CNN’s…
Thought Leader: Sanjay Gupta
Peter Zeihan: The Semiconductor Frontier
We’ve discussed how essential semiconductors are in our increasingly technological world, so here’s an update on ASML’s new High-NA EUV lithography machines. ASML already builds…
Thought Leader: Peter Zeihan
Nobel Prize Winner Joseph Stiglitz Dissects American Economics and Politics
Thought Leader: Joseph E. Stiglitz, Ph.D
Joseph Stiglitz: Trump Presidency Would Be A “Nightmare” — He Could “Bankrupt the Country”
Thought Leader: Joseph E. Stiglitz, Ph.D
Stiglitz: Here’s How to Fix Inequality
Thought Leader: Joseph E. Stiglitz, Ph.D
