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The only long-term rise in capital’s share of income is in housing (Piketty)
From Marginal Revolution.
"Capital income is not growing unboundedly at the expense of labor, and
further accumulation of capital in fact most likely means a fall in capital’s
share of total income – refuting one of the main theories of economist Thomas
Piketty’s popular book Capital in the 21st Century —
according to a paper presented today at the Spring 2015 Conference on the Brookings Papers on
Economic Activity (BPEA).
Existing studies that show an increase in capital’s share of income miss the
growing role of depreciation in short-lived capital, in items such as software,
says MIT’s Matthew Rognlie in “Deciphering
the Fall and Rise in the Net Capital Share.” Rognlie subtracts
depreciation in seven large developed economies (the US, Japan, Germany,
France, the UK, Italy, and Canada) to get net capital income, and finds that
the only long-term rise in capital’s share of income is in housing. Capital
income elsewhere in the economy has grown moderately, but it is only recovering
from a large fall that lasted from 1948 through the 1970s.
Piketty’s Capital argues that the role of capital in the economy,
after falling during the Depression and two world wars, is set to recover to
the high levels of the 19th and early 20th centuries.
According to Piketty, wealth will accumulate amid slowing economic growth to
push up the capital-to-GDP ratio in the economy, which will then cause an
increase in capital’s share of income — and growing inequality.
In contrast, Rognlie finds that a rising capital-to-GDP ratio is most likely
to result in a fall in capital’s share of income, since the net rate of return
on capital will fall by an even larger proportion than the capital-to-GDP ratio
rises. Outside of housing, postwar changes in the value of the capital stock
have not led to parallel changes in capital’s share of income. In fact, the
value of the capital stock relative to private income reached its highs in the
late 1970s and early 1980s, when capital’s share of income was near a low.
Rognlie shows that the share of net income generated by housing has risen in
all seven large developed economies since data became available. “Housing’s
central role in the long-term behavior of the aggregate net capital share has…
not been emphasized elsewhere…Observers concerned about the distribution of
income should keep an eye on housing costs,” he writes."
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