In conclusion, Piketty’s “second fundamental law of capitalism” and the central theme of his book—that when growth goes to zero, the capital-income share increases dramatically—appear very diﬃcult to justify, at least in light of our view of how savings decisions are made. These views are based, ﬁrst, on the fact that we ﬁnd a 100% gross saving rate—the implication of Piketty’s model when growth approaches zero—implausible; and, second, on the large empirical literature studying individual consumption behavior. We also take a ﬁrst look at U.S. postwar data and ﬁnd, roughly speaking, that the optimal-saving model—thatis, the model used in the applied microeconomics literature and by Cass and Koopmans in a growth context—seems to ﬁt the data the best, somewhat better than the textbook Solow model. Piketty’s model, on the other hand, does not appear consistent with this data. Equipped with the models we thus deem better capable of describing actual saving behavior, we then revisit Piketty’s main concern: the evolution of inequality in the 21st century. Using these models as a basis for prediction, we robustly ﬁnd very modest eﬀects of a declining growth rate on the capital-output ratio, and hence on inequality. Thus, we ﬁnd Piketty’s second law quite misleading, and certainly not fundamental; we in fact think that the fundamental causes of wealth inequality are to be found elsewhere.That's two Yalies--Per Krussell and Tony Smith--saying, the scholarly equivalent of, Don't bring that weak,smelly, cheese in here!
Update; A correspondent alerts us to another paper from Krussell et al., that also has some interesting things to say about capital;
...we suggest...that the Chamley–Judd prescription that “optimal taxes on capital income should be zero in the long run” could be sharpened to “. . . should benegative . . . ,”I.e. use taxation to limit consumers' temptation to overconsume in the present.
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