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

69 Pages Posted: 14 May 2018

See all articles by Gauti Eggertsson

Gauti Eggertsson

Brown University

Jacob A. Robbins

Brown University - Department of Economics

Ella Wold

Brown University

Date Written: February 2018

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 stylized macroeconomic facts.

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Suggested Citation

Eggertsson, Gauti and Robbins, Jacob A. and Wold, Ella, Kaldor and Piketty's Facts: The Rise of Monopoly Power in the United States (February 2018). NBER Working Paper No. w24287. Available at SSRN: https://ssrn.com/abstract=3177697

Jacob A. Robbins

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

Ella Wold

Brown University

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