Piketty on ‘Ricardian equivalence’ and representative agent models

2 Jun, 2014 at 11:00 | Posted in Economics | 3 Comments

For far too long, economists have neglected the distribution of wealth … partly because of the profession’s undue enthusiasm for simplistic mathematical models based on so-called representative agents …

Thomas-Piketty-capitalBy totally avoiding the issue of inequality in the distribution of wealth and income, these models often lead to extreme and unrealistic conclusions and are therefore a source of confusion rather than clarity. In the case of public debt, representative agent models can lead to the conclusion that government debt is completely neutral, in regard not only to the total amount of national capital but also to the distribution of the fiscal burden. This radical reinterpretation of Ricardian equivalence … fails to take account of the fact that the bulk of public debt is in practice owned by a minority of the population … so that the debt is the vehicle of important internal redistributions when it is repaid as well as when it is not.

3 Comments

  1. ” fails to take account of the fact that the bulk of public debt is in practice owned by a minority of the population … ”

    But they are risking their money. Maybe US debt is safe for now but in many countries throughout the history debt was partly erased or even completely and investors lost all their money. Recently in Greece, there was a PSI with significant losses for debt holders. So the fact that the public debt is owned by a minority tells nothing if governments plan to screw them at the end. The argument is puzzling overall. There seems to be no connection to inequality, which is a real problem but it has its roots mostly at the way this physical reality is constructed rather than on economic policies. Some economists think a structural problem is a policy problem but they are driven by hopeless ideology and dreams.

    Comment by Digital Cosmology (@DCosmology)— 2 Jun, 2014 #

    • Good lord.

      Greece doesn’t own the Euro Creating Machine.

      America does own the Dollar Creating Machine.

      How much risk is there to pushing a button?

      Comment by Katie— 2 Jun, 2014 #

      • I think instead of a question I would expect an answer. These are hard to come by nowadays. Questions, questions, questions…..Students ask questions and professors respond with more questions. One asks his friend what he likes for dinner and the response is “what do you like?”. This is also part of the problem. SO “How much risk is there to pushing a button?”

        Comment by Digital Cosmology (@DCosmology)— 3 Jun, 2014 #


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