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Kaldor and Piketty's Facts: the Rise of Monopoly Power in the United States

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  • Gauti Eggertsson

    (Brown University)

  • Jacob Robbins

    (Brown University)

Abstract

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 macroeconomic facts.

Suggested Citation

  • Gauti Eggertsson & Jacob Robbins, 2018. "Kaldor and Piketty's Facts: the Rise of Monopoly Power in the United States," 2018 Meeting Papers 77, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:77
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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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