Footnote from, The Economic Consequences of the Pandemic,

The requirement that the rate of growth exceeds the rate of interest on government debt may be written algebraically as g > r. Readers of Piketty’s Capital in the 21st Century will recall that he places a lot of stress on the opposite formula r > g. What is going on here? The answer, in simple terms, is that Piketty is talking about the rate of return to investment, and more particularly the rate of return earned by high-wealth investors. This rate is as much as 6 percentage points higher than the rate of interest on government bonds. The magnitude of the difference, referred to as the ‘equity premium’ is a long-standing puzzle for economists, with profound implications, which will be discussed below.

One thought on “Footnote from, The Economic Consequences of the Pandemic,

  1. Sorry — why is this the equity risk premium a puzzle for economists? Maybe I’ve spent too much time in regulatory economic land but it seemed to me that the principle was fairly well established. Or is the 6% a puzzle based on ex-post volatility / bankruptcy risk?

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