A new IMF working paper refutes Picketty:

Thomas Piketty’s Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

From the conclusion:

On inequality, the evidence against Piketty’s predictions is even stronger: for at least 75% of the countries, the response of inequality to increases in r − g has the opposite sign to that postulated by Piketty.

This finding makes sense to me since Picketty doesn’t make sense to me. I find it much more likely that power is shifting away from financial capital than that financial capital is accumulating unchallengable power.

What I mean by this is that capital is no longer scarce — it’s productive applications of capital that are scarce. If this is true I think it means that Picketty is wrong.