The Ricardian business cycle would seem to impose a limit to capital as a share of the economy, says Karl Smith.
I prefer the question of how much a particular political structure can sustain itself. One tool is capital - i.e. some instrument that stops wealth being consumed in the present. And efficiency - what political-economic structure will generate more wealth quicker.
Kurt and Russell 2002: scatter graph of every country by gdp per worker and capital per worker, which gives you a nice concave solow-swan curve representing the production possibility frontier for a modern economy at different levels of capital. In the absence of policital, etc., problems one would expect the countries in the bottom left to shoot to the top right: capital has greater marginal returns in their hands, the market allocates as appropriate.
You can also see how Norway is terribly inefficient, so far from the productivity frontier.
Contrarily the US and the UK are very efficient. (Somewhat surprisingly. My idea of the UK then is the calm before the 1967-83 socioeconomic mega-crisis. Is this graph taking TFP into account?)
This is from Bob Allen. He has updated the chart, and added lines for the historic progress of the UK, US and Germany (all three end in the present).
The 1990 line is higher than the 1965 line (if you can see it below everything else), because we invented quite a lot of new technology in the interval.
But the UK is also way more efficient than anyone else, I mean given how consistently low capital is in the economy. The UK line crosses the US one in 1910.
Or not. Here is Thomas Pinketty, on, respectively, the UK, Germany and the US (he also has France, it's almost identical to the UK, but agricultural land persists in importance for longer.)
Assuming that the ratio of workers to GDP (revenu national) is fairly constant, these are very different numbers to the ones Allen has. Where has all Allen's extra German capital come from? It seems they must have a lower participation rate. Where did all the extra capital in England disappear to? The UK shoots up from the same base as Germany, quite contrary to the Broadberry-Crafts postwar convergence idea (Germany should be growing faster even accounting for long term TFP, just because they have more rebuilding to do). Both of these distortions could arise because UK GDP grew so much more slowly relative to Germany's - Pinketty measures by GDP, Allen by prices. I suppose this only supports Pinketty: to be efficient, the economy must have a low capital share; Britains' must not have been relatively low even in the 1970s, compared with the rest of the world. Perhaps.
We're back to the Thatcherite, redistribution through housing-capital-surplus rather than labour income: the neoliberal era was equally progressive as the postwar era, but the wealth transfer is done though a different mechanism, to different client groups (i.e. people who happened to buy their council housing in the 1980s, as opposed to people who happen to be in militant unions). But neither of these states of affairs is a prior superior in some dogmatic way.
On which, Neal Hudson: constituencies by ratio of owner-occupiers to private renters - don't imagine the Thatcherite interest groups will be overcome anytime soon.
Finally, look back at the Pinketty UK graph. The entries are decennial, but even so, there is a trend before. From World Bank economist Branco Milanovic: High Victorian economic policy was seriously progressive. UK economic history from the 1680s is landed estates (now with access to capital) crushing previously independent owner-yeomen. But this Jane Austen rentier-class suddenly collapsed in the second half of the nineteenth century. Corn Laws and Great Reform Acts. On the other hand Milanovic doens't look as if he has a datapoint for the early twentieth century: how equally was the UK's foreign capital held?
And how the hell did we lose 200% of GDP in capital stock in the 1910s? Germany only loses 50% of its GDP's worth (up to 1930, but still). Even France doesn't fall so sharply, or maybe it would if it wasn't protecting its agricultural sector. My new hypothesis is that the UK's 'corporatist' economy dates to the 1880s: capitalists were bought off with cushy collusive agreements (lowering income inequality) that are strengthened at each sign of trouble, until the 1980s. If actual prices in 1900 look so high, it is only because the UK has a huge captive export market in its empire - any fool could run a factory profitably. But as soon as it becomes clear that the UK doesn't actually have the industrial productivity to defend its empire, this all collapses. How ironic that the quixotic Falklands campaign yields the domestic political capital to bring the 1880s corporatism to an end.
I prefer the question of how much a particular political structure can sustain itself. One tool is capital - i.e. some instrument that stops wealth being consumed in the present. And efficiency - what political-economic structure will generate more wealth quicker.
Kurt and Russell 2002: scatter graph of every country by gdp per worker and capital per worker, which gives you a nice concave solow-swan curve representing the production possibility frontier for a modern economy at different levels of capital. In the absence of policital, etc., problems one would expect the countries in the bottom left to shoot to the top right: capital has greater marginal returns in their hands, the market allocates as appropriate.
You can also see how Norway is terribly inefficient, so far from the productivity frontier.
Contrarily the US and the UK are very efficient. (Somewhat surprisingly. My idea of the UK then is the calm before the 1967-83 socioeconomic mega-crisis. Is this graph taking TFP into account?)
This is from Bob Allen. He has updated the chart, and added lines for the historic progress of the UK, US and Germany (all three end in the present).
The 1990 line is higher than the 1965 line (if you can see it below everything else), because we invented quite a lot of new technology in the interval.
But the UK is also way more efficient than anyone else, I mean given how consistently low capital is in the economy. The UK line crosses the US one in 1910.
Or not. Here is Thomas Pinketty, on, respectively, the UK, Germany and the US (he also has France, it's almost identical to the UK, but agricultural land persists in importance for longer.)
Assuming that the ratio of workers to GDP (revenu national) is fairly constant, these are very different numbers to the ones Allen has. Where has all Allen's extra German capital come from? It seems they must have a lower participation rate. Where did all the extra capital in England disappear to? The UK shoots up from the same base as Germany, quite contrary to the Broadberry-Crafts postwar convergence idea (Germany should be growing faster even accounting for long term TFP, just because they have more rebuilding to do). Both of these distortions could arise because UK GDP grew so much more slowly relative to Germany's - Pinketty measures by GDP, Allen by prices. I suppose this only supports Pinketty: to be efficient, the economy must have a low capital share; Britains' must not have been relatively low even in the 1970s, compared with the rest of the world. Perhaps. We're back to the Thatcherite, redistribution through housing-capital-surplus rather than labour income: the neoliberal era was equally progressive as the postwar era, but the wealth transfer is done though a different mechanism, to different client groups (i.e. people who happened to buy their council housing in the 1980s, as opposed to people who happen to be in militant unions). But neither of these states of affairs is a prior superior in some dogmatic way.
On which, Neal Hudson: constituencies by ratio of owner-occupiers to private renters - don't imagine the Thatcherite interest groups will be overcome anytime soon.
Finally, look back at the Pinketty UK graph. The entries are decennial, but even so, there is a trend before. From World Bank economist Branco Milanovic: High Victorian economic policy was seriously progressive. UK economic history from the 1680s is landed estates (now with access to capital) crushing previously independent owner-yeomen. But this Jane Austen rentier-class suddenly collapsed in the second half of the nineteenth century. Corn Laws and Great Reform Acts. On the other hand Milanovic doens't look as if he has a datapoint for the early twentieth century: how equally was the UK's foreign capital held?
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