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New evidence supports Piketty’s thesis of widening capital-labour gap

A new study lends support to French economist Thomas Piketty’s argument that most of the economic growth has accrued to owners of capital rather than workers. Photo: PTIPremium
A new study lends support to French economist Thomas Piketty’s argument that most of the economic growth has accrued to owners of capital rather than workers. Photo: PTI

Return on capital has generally exceeded the rate of economic growth in advanced economies between 1870 and 2015, widening the gap between shares of labour and capital in national income, new research shows

A new study by Òscar Jordà of the Federal Reserve Bank of San Francisco and co-authors, based on a fresh and comprehensive database of returns across asset classes for 16 major economies since 1870, shows that the rate of return on capital, i.e. investible wealth, has been almost twice the growth rate of the economy for most of the period under consideration. The study lends support to French economist Thomas Piketty’s argument that most of the economic growth has accrued to owners of capital rather than workers, thereby worsening inequality over time. Capital or investible wealth, in the analysis, refers to equities, housing, government bonds and short-terms bills. Since the 1970s, the return on safe investments, i.e. bonds and bills, has been falling, supporting the secular stagnation hypothesis which ominously warns that the global economy might be entering a phase of low investment spending as returns fall. However, the paper argues that the current fall in returns from safe assets is not unprecedented. A similar fall had occurred in the period between 1870 and the beginning of the First World War in 1914.

Read more: The Rate of Return On Everything, 1870-2015

The rise of the Mafia in Sicily was in part a response to the rise of socialist peasant organizations, shows a new National Bureau of Economic Research (NBER) paper by renowned economist Daron Acemoglu of MIT Economics and co-authors. In an environment with weak state presence, this socialist threat prompted landholders, estate managers and local politicians to turn to the Mafia to resist and combat peasant demands at the end of the 19th century, the authors write. The dominance of the mafia in turn shaped politics in Sicily and hindered the development of state capacity. The adverse impact on literacy and provision of public goods was felt even till the 1970s.

Read more: Weak States: Causes and Consequences Of The Sicilian Mafia

Increase in agricultural productivity can reduce conflicts and wars, shows a paper by Murat Iyigun of the University of Colorado and IZA and co-authors.

Analysing 2,477 battles over the course of six hundred years in Europe, the Near East (Western Asia) and North Africa between 1400 and 1900, the paper shows that the introduction of potatoes in 1700 dramatically reduced conflict. As the same plot of land now yielded a bigger harvest, the competition for land declined. The rise in productivity may have also pushed up wages, raising the opportunity costs of battle, the researchers argue.

Read more: The Long-Run Effects of Agricultural Productivity on Conflict, 1400-1900

Mortality rate among men in the US witnesses a significant spike at age 62, when many of them retire and become eligible for social security benefits, according to a new NBER paper by Maria D. Fitzpatrick of Cornell University and Timothy J. Moore of University of Melbourne. The retirement effect is not very strong among women, the authors note. They point to unhealthy behaviours such as increased smoking as one of the possible causes of the spike in deaths among them.

Read more: The Mortality Effects of Retirement: Evidence From Social Security Eligibility At Age 62

The introduction of futures has been bullish for the bitcoin market—there are many people inclined to bet long on the cryptocurrency but not many might be willing to short it yet, Jayanth R. Varma of IIM Ahmedabad points out in a blog post.

Given that it is not so easy to participate in the cash market for bitcoins—bitcoin exchanges are not too reliable, and many investors find it hard to keep their wallets and their private keys safe—many may prefer using futures without actually owning bitcoins. Such investors can easily find people to trade against in the futures market: anybody who is comfortable in holding bitcoin in a wallet and wants to hedge against price risk. But it is costly for anybody not owning a bitcoin to short it, as there is a high risk of the bubble inflating before it collapses. The people who own bitcoin today are unlikely to short it themselves as they tend to be ideologically committed to it. This trend could reverse if the futures market succeeds in moving a large part of the bitcoin supply into the hands of mainstream investors who are not committed to the ‘bitcoin ideology’, Varma writes.

Read more: Bitcoin and bitcoin futures

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