A Challenge to Piketty's "Capital"

Even though we aren't reading Piketty until later in the quarter I thought this was an interesting article from The Economist (article link here). Professor McKinney mentioned that Piketty's book "Capital in the 21st Century" has become incredibly popular but that there are a number of people that disagree with his argument. 

In his book, Piketty claims "that over the long run the rate on return of wealth exceeds economic growth: a dynamic summed up in the equation r>g. Over time, this relationship increases inequality as the share of national income going to those who own capital (the rich) rises, while the portion going to labour (everyone else) falls. He also argues that the return on capital in recent history has been remarkably stable, even as economic growth has fallen, and that this trend will continue in the future." 

Many people have made counter arguments to Piketty's claims but most recently a graduate student at MIT presented a paper at the Brookings Papers on Economic Activity (an abstract can be found here) and some believe this to be one of the most substantial arguments against Piketty's ideas presented in "Capital". 

The graduate student, Matthew Rognlie, has three major criticisms according to The Economist. 

1. "First, he argues that the rate of return from capital probably declines over the long run, rather than remaining high as Mr Piketty suggests, due to the law of diminishing marginal returns. Modern forms of capital, such as software, depreciate faster in value than equipment did in the past: a giant metal press might have a working life of decades while a new piece of database-management software will be obsolete in a few years at most."  
2. "Second, Mr Rognlie’s research suggests that Mr Piketty has overestimated how high the returns on wealth are likely to be in the future. These should also decline over time, he reckons, unless it is very easy for the economy to substitute capital (like robots) for workers."
3. "Third, Mr Rognlie finds that the growing share of national income deriving from capital income has not been distributed equally across all sectors. The return on non-housing wealth, in fact, has been remarkably stable since 1970. Instead, surging house prices are almost entirely responsible for growing returns on capital."

I thought it was very interesting how the basics of Rognlie's argument was centered around topics that we have learned in prior classes such as the law if diminishing marginal returns and the ability to substitute capital for labor. 

It should be noted that Mr. Rognlie is not without critics. Some claim that he "appears to underestimate the role changing technology plays in widening inequality". Rognlie's arguments will be something to keep in mind when we read Piketty!