The inescapable structure of economic inequality: K with r and Y with g, where r > g

Sangdon Lee

MPRA Paper from University Library of Munich, Germany

Abstract: Thomas Piketty stated that widening economic inequality is an inevitable consequence of free-market capitalism, in which the rate of return (r) on capital (K) exceeds the rate of economic growth (g): r > g. Five System Dynamics models are developed to understand the underlying structure that causes economic inequality; K with r, which leads to the facts that K and capital income (Yk) exceeds national income (Y): K≫Y and Yk≫Y as time goes on. The Solow-Swan model, a fundamental reference for economic growth, describes the progressions of capital per capita (k) and income per capita (y). However, its focus on the k, y, and the key equation, dk/dt=s*y-(g_L+g_A+δ)k, obscure the fact that the K≫Y even when k and y are declining. We modified the Solow-Swan model to validate the claims by Piketty, β=K/Y → s/g. Finally, a new mortgage payment scheme called CPIP (Constant Principal and Interest Payments) is proposed as a potential solution to mitigate economic inequality.

Keywords: Economic inequality; Piketty; r > g; Solow-Swan model; personal and national economic growth; taxes; K with r. (search for similar items in EconPapers)
JEL-codes: E1 E17 (search for similar items in EconPapers)
Date: 2024-07-22
New Economics Papers: this item is included in nep-gro
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