Should-Read: Gauti Eggertsson, Jacob A. Robbins, and Ella Getz Wold: Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States

Should-Read: Very good paper. Nevertheless, the rise in monopoly seems to be primarily a post-2000 fact; the rise in inequality, by contrast, is mostly a late 1980s and 1990s fact. So I am not sure that this is the right tree to bark up: Gauti Eggertsson, Jacob A. Robbins, and Ella Getz Wold: Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States: “The macroeconomic data of the last thirty years has overturned at least two of Kaldor’s famous stylized growth facts: constant interest rates, and a constant labor share…

…At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin’s Q, and a divergence between the marginal and the average return on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy, i.e., the emergence of a non-zero-rent economy, along with forces that have led to a persistent long term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts….

  1. (P1) An increase in the financial wealth-to-income ratio despite low savings rates, with a stagnating capital-to-income ratio.
  2. (P2) An increase in Tobin’s Q to a level permanently above 1.
  3. (P3) A decrease in the real rate of interest, while the measured average
    return on capital is relatively constant.
  4. (P4)An increase in the pure profit share, with a decrease in the capital and labor share.
  5. (P5) A decrease in investment-to-output, even given historically low borrowing costs and a high value of empirical Tobin’s Q….

The primary goal of this paper is to pursue the hypothesis that changes in monopoly profits, along with forces that have pushed down the natural rate of interest, have been the main driver of a variety of macroeconomic changes over the past forty years. There are a number of reasons why we argue for this hypothesis:
1. there is a wide variety of confirmatory evidence that concentration, profits, and markups have increased over the time period, while the natural rate of interest has decreased
2. it is parsimonious, in the sense that we use two data series (markups and interest rates) to explain the movements of 5 separate trends
3. our model does not generate counterfactual implications…

Factor Shares Wealth, Capital, and Gross Value Added Tobin s Q Return on Capital Factor Shares Net Investment Markup Estimates


Brad DeLong


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